Q3 2023 Healthcare Realty Trust Inc Earnings Call
Hello, and welcome to the Healthcare Realty Trust third quarter earnings Conference call. My name is Harry and I'll be your operator today.
If you'd like to register a question for Q&A you may do so by pressing star one on your telephone keypad.
And I would now like to turn the corner over to Ron Hubbard, Vice President of Investor Relations to begin. Please go ahead.
Thank you for joining healthcare Realty's third quarter 2023 earnings conference call.
Joining me on the call today are Todd Meredith, Kris Douglas and Rob Hall.
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, 2022 and.
And the Form 10-K filed with the SEC for the quarter ended September 32023.
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.
Contains certain non-GAAP financial measures such as funds from operations or <unk>.
Normalized <unk>.
<unk> per share normalized <unk> per share.
<unk> is 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 September 32023 <unk>.
Company's earnings press release supplemental information and Form 10-Q are available on the company's website.
I'll now turn the call over to Todd.
Thank you Ron.
Good morning from Nashville, and thank you everyone for joining us for our third quarter 2023 earnings call.
I would also like to thank those of you who joined US a few weeks ago at our Investor day in Raleigh.
If you did not attend I would encourage you to go to our Investor Relations section of our website and see the presentation materials and posted videos.
We've included a short highlight real as well as long format videos with the content of the day.
The focus of our Investor day, with healthcare Realty's competitive competitive advantages of market scale and relationships. We showcased how we are using these advantages to drive leasing and occupancy gains.
And we illustrated how our approach enhances long term growth through the expansion of our market and cluster strategy.
A key differentiator within our strategy is our proven leasing model.
This merger it took us about two quarters to fully mobilize the internal leasing team and our brokerage partners across the combined portfolio.
Leasing momentum picked up quickly in the first quarter of 2023.
Now in the third quarter, we generated record new leasing volume of 447000 square feet.
This includes 269000 square feet at the HTS multi tenant properties, where we have the most upside opportunity.
Looking ahead, our current leasing momentum is setting the table for occupancy gains and NOI growth in 2024.
Today, we're providing a roadmap and occupancy and NOI growth bridge that outlines our expectations for the fourth quarter and full year 2024.
The bridge represents both multi tenant properties and the total portfolio.
Our single tenant properties are fully occupied with consistent NOI growth.
I will focus most of my comments on the multi tenant properties, where we have upside.
As a baseline our multi tenant occupancy is currently 85, 1% and our year over year NOI growth is currently running at two 3%.
In the fourth quarter of 'twenty, four we expect multi tenant occupancy gains of 35 to 50 basis points.
NOI growth is expected to improve to the mid 2% level, but not fully reflective of the occupancy gains since they will be back ended.
Looking into 'twenty four we split our bridge into the first and second half of the year.
In the first half, we expect cumulative occupancy gains of 70 to 100 basis points over current occupancy.
We expect NOI growth to elevate to a range of two 7% to 4%.
In the second half, we expect cumulative occupancy gains of 150 to 200 basis points compared to current multi tenant occupancy of 85, 1%.
We expect multi tenant NOI growth to accelerate to the four five to five and a half range in the second half.
Folding in the single tenant properties NOI growth is expected to be approximately 4% to 5% in the second half of 'twenty four.
Occupancy and NOI improvement is expected to build over the next five quarters.
What we're most focused on is reaching a 4% to 5% run rate in the latter part of 'twenty for providing tremendous velocity going into 'twenty five.
I am confident we have the best team in the industry to deliver this upside with.
We're laser focused on leasing momentum tenant retention and expense controls that will drive occupancy and NOI gains in 'twenty four.
Stepping back to the broader context, we've done the hard work to merge and integrate two of the largest <unk> companies.
We are now the safe choice to invest in high quality pure play <unk> company.
We have tangible operational upside in our sites bolstered by secular tailwind.
<unk> fundamentals are sound demand is accelerating from aging demographics, the supply demand picture for <unk> is tightening in our favor.
And health systems are re engage in expansion plans as their margins improve.
Turning to third quarter results, we're pleased to have met our expectations on a number of fronts.
Normalized <unk> was in line with our expectations at <unk> 39 per share.
Same store NOI growth improved 20 basis points to 3.2.
Two 3% compared to the second quarter.
In place contractual rent escalators moved incrementally higher to 276%.
And cash leasing spreads jumped to four 8% well above our guidance range.
We also sold five properties in the quarter for net proceeds of over $200 million funding.
Funding, our capital requirements and reducing our floating rate debt.
These bright spots are counterbalanced by a couple of areas, where we have plans to improve.
Operating expense growth was four 8% in the third quarter. This is down materially from the second quarter.
But well above where we need to be to meet our NOI goals.
We're actively working on a number of cost reduction initiatives to reduce operating expense growth to a run rate of two 5% by the end of 'twenty four.
Another key areas tenant retention.
Third quarter retention of 76% was below our long term expectation of 80% or higher.
Retention at the HCA properties has been running about 5% to 10% lower than the HR properties.
Our team is actively improving customer service and tenant satisfaction to lift tenant retention into our historical range.
Tenant survey scores have already improved the HCA properties, and we expect retention to follow in 'twenty four.
After Chris and Rob I'll circle back to provide some additional comments before we shift to Q&A.
Now I'll turn it over to Chris to discuss financial results Chris.
Thanks Todd.
We're pleased to report a steady quarter with improvements on several key fronts normalized <unk> per share for the third quarter was 39.
This was consistent with the second quarter as seasonal utilities and higher interest expense were offset by G&A savings.
<unk> for the fourth quarter is expected to grow modestly generating per share results of <unk> 39.
As a result, we expect full year <unk> at the low end of our guidance range.
Trailing 12 month same store NOI increased two 8%.
And year over year quarterly NOI grew two 3%, a 30 basis point improvement over second quarter.
In particular, we incrementally improved our rent growth drivers.
Annual in place contractual increases now averaged 276% up five basis points from last quarter.
The improvement was driven by future contractual increases of 3% to $1 1 million square feet of leases that commenced in the quarter.
Cash leasing spreads averaged four 8% up significantly from 3% last quarter.
Tenant retention was at the bottom end of our expected range as a result sequential occupancy was down modestly by 10 basis points.
Looking forward, we expect move outs to moderate which will help drive positive absorption from significant new leasing volumes.
As Rob will discuss in more detail, we executed 447000 square feet of new leases in the quarter.
This drove a 30 basis point sequential improvement in the total portfolio lease percentage to 89, 2%.
Operating expense growth of four 8% in the quarter was driven primarily by continued labor inflation in janitorial and personnel expenses, which were up a combined 9%.
These two categories comprised 20% of our operating expenses.
Excluding them operating expenses increased three 7% year over year.
The higher janitorial and personal expense was primarily driven by goal to improve overall service at the legacy HCA properties.
We will start to lap these higher comps as we move into early 2024.
Together with cost reduction initiatives, we expect to bring overall opex operating expense growth below 3% in the back half of 'twenty four.
Net debt to adjusted EBITDA at September 30 was six six times consistent with the second quarter.
Net debt was $112 million lower than June 30 from $209 million of asset sales in the quarter.
We have $138 million of asset sales under contracts that are expected to close in the fourth quarter.
In addition, we currently have $182 million of properties under LOI. They are expected to close by year end or early 2024.
We expect these asset sales to fund our development commitments as well as reduced variable rate debt and overall leverage to within our target range of six to six five times.
We're also continuing to work on a joint venture with a seed portfolio of existing HR assets.
Given the volatility in the market, we announced at our Raleigh Investor Day that we expect the size of the JV to be at the lower end of our target range of $500 million to $1 billion.
We expect to generate proceeds of $400 million to $500 million.
As interest rates have moved higher over the last few months cap rates have also increase to the upper 6% to 7% range.
Of course, this does not consider the pullback in rates this week.
And we'll have to see how rate see how that plays through to debt financing and cap rates moving into 2024.
I'll now turn it over to Rob to delve further into recent leasing success Rob.
Thank you Chris.
We're seeing strong underlying fundamentals in the mob sector.
The supply demand landscape is tilting in favor of the landlord.
On the demand side demographic secular trends are accelerating and have a long runway.
Health care providers operating trends are also improving.
And what is really beginning to come through as a tightening supply picture.
Higher construction and capital costs have created a larger hurdle for new supply, suggesting starts will remain lower for some time.
This presents a favorable backdrop for improving occupancy and existing <unk>.
During the third quarter, our leasing times, our leasing team signed 142, new leases totaling 447000 square feet a record for our company.
This is up 86% over the first quarter of this year.
Almost 70% of these new leases are for properties in our top 15 markets.
These same markets represent 60% of the total portfolio.
Yeah.
Signed not occupied leases or snow leases across the multi tenant portfolio. Currently represents 210 basis points of future occupancy that will commence mostly over the next three quarters.
This is up from 140 basis points in the first quarter of this year.
At the HCA properties snow leases represent 250 basis points of future occupancy up from 150 basis points in the first quarter.
And a particularly attractive opportunity for occupancy and NOI growth.
Our redevelopment properties, where we have 630 basis points of snow leases.
In addition, our perspective leasing pipeline is currently over one seven.
7 million square feet up from $1 5 billion that are reported at our Investor day.
Almost 20% of the pipeline is in the lease out and documentation phases.
Another 30% is in the LOI and proposal faces.
With the balance.
Inactive Turing and the active turn face.
Collectively this pipeline gives us about four quarters of new leasing visibility that will.
Drive our occupancy in 2024.
The bridge that Todd referred to is provided on page 19 of our Investor presentation that was updated this morning.
Okay.
This multi tenant occupancy and NOI bridge includes the fourth quarter of 2023 and runs through the end of 2024.
In the fourth quarter, we expect to see positive absorption that will mark the beginning of steady gains in occupancy throughout 2024.
Cumulatively. These gains are expected to drive occupancy 150 to 200 basis points above our current occupancy level of 85, 1% for the multi tenant properties.
Strong new leasing activity is expected to replenish our snow pipeline as new leases commence.
In the first half of the year, we expect new lease commencements of about 400000 square feet per quarter.
Over the second half of the year, we expect this pace to increase to about 430000.
The 450000 square feet per quarter.
Vacating square footage is the other side of the absorption equation.
Move outs correlate with our exploration schedule.
And our bridge, we expect move outs as a percentage of expirations to be in the mid to high <unk>.
Consistent with historical averages for both HR and HCA.
We project Vacates of about 340000 square feet per quarter, and the first half of the year a product of a greater number of explorations during that time.
Over the second half of the year, we expect this pace to decrease to about 225000 square feet.
<unk> hundred 25000 to 290000 square feet per quarter.
To achieve our occupancy goals preventing move outs is just as critical as the volume of new lease Commencements.
I am confident the right people and processes are in place to deliver our targeted occupancy levels.
We expect NOI to move into the NOI growth to move into the 4% to 5% range in the second half of 2024 and set us up for continued success into 2025.
Todd.
Thanks, Rob.
Now I'd like to hit a couple of key points before we move to Q&A.
First I'll comment on our dividend or.
Our board of directors is keenly focused on our upside potential and is 100% committed to maintaining our current dividend.
While we expect to have an elevated payout ratio as we invest in occupancy gains we remain extremely bullish on our ability to improve our payout ratio as we look beyond 'twenty four.
Second we want to stress discipline around capital allocation.
In this environment, we remain net sellers.
We're not pursuing acquisitions.
We're avoiding new development starts.
And we're pursuing only selective redevelopment of existing assets, where it makes sense to maximize value.
We will continue to meet our current development and funding obligations through non strategic asset sales with excess proceeds earmarked for debt repayment.
Once we're comfortably within our target leverage range, we will balance further debt repayment with accretive capital redeployment, including the repurchase of stock.
We now have four full post merger quarters behind us with the major merger integration work complete.
We shifted to the blocking and tackling phase that allows us to deliver operational upside that's not driven by the interest rate environment.
We are focused on accelerating NOI growth through occupancy gains improved tenant retention and operating expense control.
We remain committed to achieving NOI growth in the 4% to 6% range.
We expect to elevate our NOI growth run rate throughout 'twenty for reaching the 4% to 5% range in the second half.
This gives us tremendous velocity going into 'twenty five.
With the occupancy and NOI bridge provided today, our aim is to create a heightened sense of visibility for investors and accountability around our goals and objectives, both internally and externally.
We look forward to discussing this further our bridge and roadmap with many of you in the coming weeks.
Thank you for listening this morning, and we'll now turn it over to the operator for our Q&A portion of the call.
Gary.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad now.
If you change your mind. Please press star followed by two and when preparing to ask a question. Please ensure your phone is on mute locally.
Our first question today is from the line of Michael Griffin of Citi.
Your line is now open. Please proceed.
Great. Thanks. This is <unk> on for Michael Griffin.
Chris I know you touched on this in your opening remarks, but can you expand on how operating costs are trending versus your expectations and if you can just touch on the cost savings initiatives youre undergoing great. Thanks.
Yes, they are.
They're still elevated compared to where we like to see them long term. We've made some improvements since since the last two quarters, but still higher than we'd like to see.
As I mentioned a lot of that has to do with.
Kind of inflationary items on janitorial and personnel side.
And some of that was known.
Given the fact that we were attempting to improve service levels, but we're going to be looking kind of throughout the cost structure at ways that we can to bring down cost will also start to lap some of those costs that we had from last year as we improve those service levels so with that.
We do see.
We see that operating expenses trending lower as.
As we move into next year, but.
Likely looking more towards the back half of the year before we can get back to.
More historical levels below 3%.
That's helpful. Thank you just a quick follow up just wondering what our retention rate is assumed in the.
Occupancy and NOI bridge that you provided in the deck.
Jack.
The 80%, yes, we used.
We use move outs as a as a percentage of explorations.
And.
It was.
The rate that was used in the deck was the mid mid to high <unk> for the different different levels.
5% on a move that percentage up this Greg.
Got it thanks very helpful. That's all for me. Thank you.
Our next question today is from the line of sorry, Conor Sobecki of Wells Fargo. Your line is open. Please proceed.
Hi, there. Thanks for taking the question just thinking about the 2024 guide figures that you have in the presentation and in terms of leasing how should we be looking at new leases or the spread between new leases versus natural move out such that you can hit those occupancy figures and get to that.
Four five to five 5% range.
Yeah. Conor this is Todd I would say if you look at our bridge that we provided in our investor presentation, we laid that out pretty clearly and I think Rob certainly walk through that.
We've talked about the new leasing volume that we.
Reached this quarter about 450000 feet. That's a level that you see in our bridge starting to come through really throughout 'twenty four we really hit that stride in the second half, but you see it building from sort of the high 300000 square foot level of new leases in the fourth quarter next quarter and then starting to move.
Into the 400000 range in the first half and then towards that 450000 range per quarter in the second half. So it's really that's a critical level and we mentioned at our Investor Day. This third quarter leasing volume really puts us on playing at a level that really starts to produce the amount of new leasing that will drive this occupancy gain but it was just.
Asking as Rob Rob touched on the vacate numbers. The move outs are just as critical and frankly in the third quarter as I mentioned in my remarks it was.
It was high.
The move outs were higher than we needed. So our retention levels were not quite where we need them to be so as we as we discussed we are putting a lot of measures in place to increase our tenant retention. So we expect that to play through that has clearly been a weakness on the <unk> side, which we've talked about and we're already seeing improvements we've done serve.
<unk> and are seeing nice improvements there. So we expect that to move into where our our move outs are running in line with our explorations more in the mid to high 20% range and when you do that math you come out to these these occupancy gain gain levels, which as we show in our bridge is 150 to 200 basis points from our starting point.
At the end of the third quarter.
Hopefully thats helpful Connor.
No I appreciate the color there and just maybe taking a longer term view on the business.
The comments on responsible capital allocation for the next year or so.
But when you look out past 2024, what does that opportunity set look like in outpatient medical.
I would assume that we're only really looking at on campus assets, maybe a smaller slice of the broader pie, but just any indication of what that addressable market looks like would be appreciated.
Sure, we actually touched a little bit on that.
The Investor day at least one of the buses that I was on Ryan Crowley, who heads up acquisitions and his team have a very specific analysis of the total addressable market and its quite large gives us a lot of runway and that was certainly one of the compelling pieces to the merger is to put together the two companies and have as many <unk>.
<unk> that are especially better hospital centric because you mentioned that we can go in and expand so we're very focused on 30% to 40 markets, where we can go in and expand our clusters.
Much much larger than our company as it exist today. So it gives us a long runway to grow and yes, it would be central hospital centric, but certainly were comfortable.
Landing our clusters, even a little further away from the hospital, but thats still are in sort of that two mile radius of a hospital and complement our existing clusters. So we see that as a very addressable runway we talked about during the merger. Obviously, we're not doing this now, but really being able to elevate acquisition volume to $1 billion plus and we were.
Frankly on that path back when interest rates were lower than pre merger and we see that ability and we just have a richer target total addressable market and target markets that we can do post merger given all the clusters in markets that we're in.
Okay.
Got it I'll leave it there thank you.
Sure.
Our next question today is from the line of Rich Anderson of Wedbush Rich. Your line is open. Please proceed.
Hey, Thanks, good morning, everyone. So on.
On the bridge.
What.
Now I guess is my question. This is something we've all talked about about creating some more growth out of medical office I think we've probably talked about it at Nauseum for 20 years.
And I'm curious why you think that the opportunity set starts to happen now is it is it mainly a U.
Healthcare Realty event or do you think the business in its entirety starts to grow as well along with you. Maybe you are at a faster pace I'm just curious if you could comment on that.
Sure rich good to hear from you.
We would say I would say the short answer is yes to both I think as we discussed there are some secular trends going on that we think really do lift the broader MLP tide, if you will but certainly our opportunity as post merger improving occupancy at the HVA properties.
In short, we think that they lost a fair bit of occupancy with a lack of focus for a few years COVID-19 being part of that.
And we we really see a bright opportunity with our leasing model as well as our our property management asset management teams to really turn things around and get that occupancy up it frankly, and I guess to your question of why now as it relates to US specifically, we certainly expected a little more gain here in the third.
We didn't quite get there our tenant retention wasn't high enough, but we see that improving starting next quarter. So frankly.
It's not just why now it should already be happening and we're a little disappointed with the move outs this quarter. So.
The leasing side is meeting our expectations, so putting that together in 'twenty four is the real story and really beginning next quarter. So.
I think it is specifically and I think we have a sustained period, where we can hit this run rate that sort of four to five and then try to move even beyond that into our broader range of our target in 'twenty five as well, but I do think broadly speaking in mob sector has a lot of tailwind coming its way.
A lot of it is occupancy gains but are you also.
Kind of conditioning tenants for higher rent growth as well.
Because I just wonder about the sustainability of 5% same store NOI growth in the back on the other side of this effort through 2024.
Once you've achieved I mean, obviously lift.
Right right occupancy can't go up forever to your point, so we understand that but we think we've set the bar at 90% for our multi tenant portfolio. So were at 85 ish today, so getting to 90 gives us quite a runway if we're generating 100 to 200 between now and the end of next year that gives us multiple.
Years to be sustaining high levels of growth through occupancy gains, but youre right that rent growth is the other equation to that rental rate growth and as you saw our cash leasing spreads were four eight youre seeing some pretty strong numbers.
Across other <unk> companies as well so we really do think there is a tailwind there and frankly, that's probably the second piece to our story, we will focus on occupancy primarily here, but where we can we will be really pushing our dynamic pricing model, where we see that opportunity you know us for you've known us for a long time we.
Been pushing that for a while but but really see that as another sort of leg or phase to this effort. So I do think it can carry us further but practically speaking the next two or three years is really more focused around the opportunity for occupancy gain.
Okay and last for me, Rob you mentioned mid.
Mid twenties.
Move out percentage as a percentage of explorations just definitional.
So I understand does that not mean sub 80% retention.
Yes, the way the way, we're looking at it as move outs as a percentage of explorations and.
The historical numbers put you in that mid to high 20% levels.
It is sub 80, but I think it's.
The retention levels that we've been reporting they do include our whole different bucket, whereas this analysis that we're running does not include that.
That whole number bucket. So there is no we don't.
Should interpret mid mid twenties move outs in your bridge as.
Tenant retention running below 80%.
Apples to oranges.
That's correct. There is just a definitional difference so.
Hey that tenant.
Tenant retention is calculated does get the benefit of month to month or holdover as well and so that tends to add five plus percent to your to your retention rate.
Okay fair enough. Thanks, thanks, everyone.
Thanks Rich.
Okay.
Our next question today is from the line of Mike Mueller of J P. Morgan Mike. Your line is open. Please go ahead.
Yes, Hi, I'm curious.
Where in the portfolio are you expecting the most lease up to occur I know, it's going to be tied to HCA, but is there any anything notable in terms of geographies or tenant categories, where you're seeing a bit more of outsized demand.
Sure, Mike we touched a little bit on this at Investor day, but to sort of reiterate that I would say certainly see it disproportionately in our top markets, which which is obviously, great because thats, where we certainly see the most upside the most resources the best teams in place to capture that.
So that's certainly a place like Houston, we see a lot of opportunity we've talked about that a bit.
But other mark great markets, like Denver, and Nashville, and plenty of other attractive markets. So definitely focused on the on the larger markets, where we have scale and as you pointed out obviously, it's much larger in the in the HTM portfolio for sure, but again in those higher markets or there's larger markets and probably the last piece would be to <unk>.
Victor is it would be our redevelopment group of properties and those properties have if you look at our disclosure you are talking about occupancy thats closer to 50%. So a lot of upside there and Rob touched on the signed not occupied potential there where there is 630 basis points of difference between occupied and leasing so.
We're seeing some momentum there that's that's a more volatile group of properties, where major shifts are going on we're repositioning and reinvest in capital as well as Ti to change that occupancy so a lot of pent up opportunity there as well.
Got it and then what's the current thinking on.
Dispositions outside of the JV formation and outside of what's expected to close in Q4 and Q1. So if we're thinking beyond what's been announced so far how significant can dispositions fee in 2024.
Yes, it's a balanced Chris talked about $138 million that are that are under contract and scheduled to close this year. Another 180 behind that that could kind of flip on either side of the fourth and first quarter.
I would tend to think and this is our view currently which will continue to adjust as interest rates and cap rates.
But I would say, we're still net sellers and we will continue to lean into non strategic asset sales.
And we haven't put out guidance for 'twenty, four but I think directionally you could expect to see us putting out something that is in the neighborhood of what we did this year, which maybe starting at $300 million going up as we get more visibility through the year. So certainly continuing to push that refining the portfolio trying to as Chris articulated at Investor Day.
They are trying to do two things one is use that incrementally to refine the portfolio.
Generate proceeds to pay down debt and so forth, but it also improves the quality of the portfolio and frankly, the focus of our team.
Where we have that upside so we'll continue to lean into that in this environment for sure.
Got it and just one clarification when you were talking about.
Starting point potentially being a similar number to this year is that inclusive of thinking of the JV is being effectively a disposition or are you talking about ignoring the JV.
This is all separate from the JV.
Ignoring the JV. So just completely separate I really think of that as non strategic asset sales, whereas the JV would be much more about strategic assets in our seed portfolio got it.
Okay. Thank you.
Thanks.
As a reminder for any further questions. Please dial star one on your telephone keypad and our next question today is from the line of Juan Sanabria of BMO capital markets. Please go ahead.
Great. Thank you it's written Sweeney on for one most of my questions have been addressed in the prepared remarks, and some of the better questions. Here now also I appreciate the NOI Bridge I just wanted to follow up on the signed but not occupied delta multi tenants are at 210 basis points with HCA at $2 50.
Local spread just to kind of help contextualize this opportunity here.
The historical spread for HR pre merger was really more around the 100 or less than 100 basis points. So today health care health care royalty piece of the portfolio is about 140, so thats trending above our historical norms and obviously as you just touched on the HPA side at $2 60 is well above.
More than double our historical trends, so that gives a little context to it.
Okay. Thank you and then just on the on the pipeline of $1 7 million square feet, obviously up from the Investor Day, how does this compare to historical levels and then what's our historical conversion rate on the pipeline. Thank you.
Yes, I think if you look at.
If you look at the pipeline in total.
$1 5 million.
At Investor Day, its now 107, it has been evident flow and at those levels. It's.
It's been pretty consistent this year.
Up up some from the first of the year I would say that that's when we put our our processes and our leasing team in place we saw an uptick in the pipeline there, but I would say that really looking at the current levels.
And looking out over the course of the next year I view. It is it's about four quarters worth of activity.
So it's it's it's.
Probably going to remain pretty consistent at those levels and is enough to continue to drive the levels of new leasing that we've seen so we're very comfortable and optimistic with the.
The level of the pipeline right now.
Terms of the conversion rate I think.
Throughout the percentages of how you've got about 20% of that Thats currently in.
The lease out and documentation phase.
That equates to about little over 300000 square feet.
I would say that that's probably a pretty continuous level of.
As a.
The percentage of the portfolio, we do view those as highly highly.
Probable that that all of that will convert and so generally looking at about a 20% 30% out of that total total pipeline. So I.
I do think that out of the the lease out an LOI piece, we generally find that we pull some of that forward as well and get it executed in the same quarter. So.
Some of that will feed the continuing.
New leasing pipeline that our new leasing activity that we've targeted that's about 4% to 450000 square feet.
Great. Thank you.
Thank you.
And we have no further questions in the queue at this time, so I'd like to hand back to the management team for any closing remarks.
Thank you Harry and thank you everybody for joining us today I know today is a busy earnings day with other companies as well we look forward to seeing a lot of you at NAREIT in a couple of weeks and will be available otherwise have a great day.
Yes.
Yes.
This concludes today's conference call. Thank you all for joining you may now disconnect your lines.
Disconnect your lines.