Q4 2023 H&R Real Estate Investment Trust Earnings Call
Operator: www.realestateinvestment.com Good morning and welcome to H&R REIT's Q4 2023 conference call. Before beginning the call, H&R would like to remind listeners that certain statements, which may include predictions, conclusions, forecasts, or projections, and the remarks that follow may contain forward-looking information that reflect the current expectations of management regarding future events and performance and speak only as of today's date. Forward-looking information requires management to make assumptions or rely on certain material factors and is subject to inherent risks and uncertainties, and actual results could differ materially from the statements in the forward-looking information.
Oh.
Good morning, and welcome to <unk> Q4, 2023 conference call before beginning the call H&R would like to remind listeners that certain statements, which may include predictions conclusions forecast or projections in the remarks that follow may contain forward looking information, which reflect our current expectations of management regarding future events.
And speak only as of today's date.
Forward looking information requires management to make assumptions or rely on certain material factors and are subject to inherent risks and uncertainties and actual results could differ materially from the statements and the forward looking information.
Operator: In discussing H&R's financial and operating performance and in responding to your questions, we may reference certain financial measures that do not have a meaning recognized or standardized under IFRS or Canadian Generally Accepted Accounting Principles and are therefore unlikely to be comparable to similar measures presented by other reporting issuers. Non-GAAP measures should not be considered as alternatives to net income or comparable metrics determined in accordance with IFRS as indicators of H&R's performance, liquidity, cash flows, and profitability. Additional information about the material factors, assumptions, risks, and uncertainties that could cause actual results to differ materially from the statements and the forward-looking information and the material factors or assumptions that may have been applied in making such statements, together with details on H&R's use of non-GAAP financial measures, is described in more detail in H&R's public filings, which can be found on H&R's website and www.cdar.com. I would now like to introduce Mr. Tom Hofstetter, Chief Executive Officer of H&R REIT. Please go ahead, Mr. Hofstetter.
And discussing <unk> financial and operating performance and in responding to your questions. We may reference certain financial measures, which do not have a meaning recognized or standardized under ifr best or Canadian generally accepted accounting principles and are therefore unlikely to be comparable to similar measures presented by other reporting issuers.
non-GAAP measures should not be considered as alternatives to net income are comparable metrics determined in accordance with ire Forex as indicators I'd like to note performance liquidity cash flows and profitability.
Management uses these measures to aid in assessing underlying performance and protect these additional measures. So that investors can do the same.
Additional information about the material factors or assumptions assumptions risks and uncertainties that could cause actual results to differ materially from the statements and the forward looking information and the material factors or assumptions that may have been applied in making such statements together with details on H&R G. non-GAAP financial measures are described in more detail.
And H&R public filings, which can be found on <unk> website at www Dot SEDAR dot com.
I would now like to introduce Mr. Tom <unk>, Chief Executive Officer of H&R wheat. Please go ahead. Mr. Hofstetter. Thank you and good morning, everyone. Thanks for joining us today to discuss <unk> fourth quarter and year end 2023 results with me on the call are there like Brown, our Chief Financial Officer, and Emily Watson Chief operating.
Tom Hofstetter: Thank you. Good morning, everyone. Thanks for joining us today to discuss H&R's fourth quarter and year-end 2023 results. With me on the call are Larry Frum, our Chief Financial Officer, and Emily Watson, Chief Operating Officer of our Land Power Division. I am pleased to report that we have continued to successfully execute on our five-year strategic plan to reposition the portfolio for a simplified and growth-oriented read, as highlighted in our most recent press release. Since announcing our strategic repositioning plan two and a half years ago, we have made considerable progress, having successfully completed the spinoff of Primaris REIT, valued at approximately $2.4 billion. And we have completed the sale of an additional 45 properties, totaling $2.4 billion, with a further $300 million of sales still to close later this year.
The officers of our lifestyle Division.
Pleased to report that we have continued to successfully execute on our five year strategic plan to reposition the portfolio to a more simplified the growth oriented REIT.
Delighting, our most recent press release.
Since announcing our strategic repositioning planet, two and a half years ago. We have made considerable progress having successfully completed the spinoff of primary suite valued at approximately $2 4 billion and we have completed to date the sale of an additional 45 properties totaling $2 4 billion.
For the $300 million.
Still to close later this year, we have repurchased today 27 million units with $340 million and decreased our debt from $6 1 billion to approximately $3 7 billion.
Tom Hofstetter: We have repurchased to date 27 million units for $340 million, and we have decreased our debt from $6.1 billion to approximately $3.7 billion at year-end, thereby improving our debt to total assets from 50% to 44%, as at December 31, 2023. Importantly, at year-end 2023, our total office exposure was reduced to 17% of real estate assets, plus nine additional properties, representing a further 7% that are advancing through the rez We expect to continue the strong momentum with the announced sale this year of a further $293 million of properties, including the sale for $232 million of a $25 site drive, an office building by the waterfront in downtown Toronto. Our recent board additions, including Independent Lead Trustee Donna Clow, Lindsey Brandt, and Leonard Rapsky, underscore our dedication to effective governance and strategic advancement, and we look forward to working with them to help us achieve our objectives. And with that, I'll hand it over to Liz.
Thereby extending our debt to total assets from 50% 44%.
At December 31st 2023.
At year end 2023 of our total loss exposure was reduced to 17% of real estate assets was nine additional properties representing 57%.
Thanks, John.
A consultation process.
To continue the strong momentum with the announced sale this year, but for the $293 million of properties include a tale with $232 million of 25 to offset drive analysis.
Driven by by the waterfront in downtown Toronto.
Recent board additions, including independently interesting not Anglo Lindsay, Brad Leonard Rhapsody underscore our dedication to effective governance strategic advancements.
Look forward to working with MTF is achieve our objectives.
I'll hand, it over to Matt.
Liz: Thank you, Tom, and good morning, everyone. In my comments to follow, references to growth and increases in operating results are made in reference to the year ended December 31, 2023, compared to the year ended December 31, 2022. H&R's same property net operating income on a cash basis increased by 10.3%. Breaking this growth down between our segments, LandTower, our residential division, led the way with an 18.7% increase, or a 14.3% increase in U.S. dollars. Emily will provide more details on this shortly. Industrial same property NOI on a cash basis increased by 12.5%, driven by rent increases for new and renewed tenants.
Thank you Tom and good morning, everyone.
In my comments to follow references to growth and increases in operating results are in reference to the year ended December 31, 2023 compared to the year ended December 31 2022.
H&R same property net operator operating income on a cash basis increased by 10, 3%.
Breaking this growth down between our segments land tower, our residential division led the way with an 18, 7% increase or a 14, 3% increase in U S dollars I.
Emily will provide more details on this shortly.
Industrial same property NOI on a cash basis increased by 12, 5% driven by rent increases for new and renewed tenants.
Liz: The tenants at our two new industrial developments in Mississauga, totaling 336,800 square feet, took possession this month and will begin paying rent in Q2. The net operating income on a cash basis increased by 5.2%. This increase was largely attributable to these termination payments, bad debt recoveries, and the strengthening U.S. dollar.
But tenants at two new industrial development in Mississauga closing 336800 square feet.
Based on this month and will begin paying rent in Q2.
Office same property net operating income on a cash basis increased by five 2%. This.
This increase was largely attributable to these termination payments bad debt recoveries and the strengthening U S dollar.
Liz: H&R received lease termination payments from office tenants in 2023 amounting to $5.2 million. $3.4 million of this relates to 6900 Moritz Drive in Mississauga, where the REIT's current 105,000 sq. ft. office property will be converted into a brand new 122,000 sq.
H&R receive lease termination payments from office tenants in 2023 amounting to $5 $2 million.
$3 4 million of this relates to 6900 limits drop in Mississauga.
There is currently 105000 square foot office property will be converted into a brand new 122000 square foot industrial building.
Demolition has already begun construction on the new building is expected to begin in the spring.
Liz: ft. industrial building. And lastly, Retail Same Property Net Operating Income on a Cash Basis increased by 5.7%, primarily driven by increased occupancy at River Landing and the strengthening of the U.S. dollar. FFO for the year ended 2023 was $1.33 per unit compared to $1.17 per unit for the year ended 2022.
And lastly, retail same property net operating income on a cash basis increased by five 7%, primarily driven by increased occupancy at global lending and the strengthening of the U S. Dollar.
Q4, 2020, threes <unk> was 30 cents per unit compared to 31 cents per unit in Q4 2022.
<unk> for the year ended 2023 was $1 33 per unit.
Unit compared to $1 17 per units for the year ended 2022.
Liz: Included in FFO for 2023 is $30.6 million of proceeds from the sale of an option to purchase land. Excluding this item and other non-recurring items such as lease termination fees, FFO would have been $345.4 million for the year ended 2023, or $1.23 a unit, an increase of 3.9 percent compared to 2022. H&R Cash Distributions of $0.70 per unit were 18.6% higher than the cash distributions of 59 cents in 2022.
Included in <unk> for 2023 is $36 million of proceeds from the sale of an option to purchase land.
Excluding this awesome and other nonrecurring items, such as lease termination fees.
<unk> would have been $345 four.
<unk> 4 million for the year ended 2023 or $1 23 per unit, an increase of three 9% compared to 2022.
<unk> cash distributions of <unk> 70 per unit was.
It was $18, 6% higher than the cash distributions of 50 nonsense in 2022.
Liz: H&R's 2023 payout rate shows remained healthy at 52.8% of FFO and 63% of AFFO, notwithstanding the increase in distribution. Net asset value per unit as of December 31st, 2023 was $20.75 per unit, a decrease from $21.80 at the end of 2022. H&R recorded a downward fair value adjustment of $197.6 million for Q4 2023 at the REITs proportionate share, and the downward fair value adjustment for the year ended December 31, 2023 was $486.1 million at the REITs proportionate share.
2023 pathway shows remained healthy at 52, 8% of <unk> and 63% of AFR.
Notwithstanding the increase in distributions.
Net asset value per unit as of December 31, 2023 was $20.75 per unit a decrease from $21 80 at the end of 2022.
H&R recorded a downward fair value adjustment of $197 6 million for Q4 2023 at the reach proportionate share and.
And the downward value fair value adjustment for the year ended December 31, 2023 was $486 1 million at the reach proportionate share.
Emily Watson: Debt to Adjusted Avatar improved from 9.6 times at the end of 2022 to 8.5 times at the end of 2023. Debt-to-Total Assets at the Risk Proportion of Share on December 31, 2023 was 44%, unchanged from the end of 2022, and Liquidity at December 31, 2023 was in excess of $950 million, with an unencumbered property pool of approximately $4.2 billion. And with that, I will now turn the call over to Emily. Good morning.
Okay. So adjusted EBITDA improved from nine six times at the end of 2022 to eight five times at the end of 2023.
Debt to total assets at the reach proportionate share on December 31, 2023 was 44%.
Unchanged from the end of 2022 and liquidity at December 31, 2023 was in excess of $950 million with an unencumbered.
Encumbered property pool of approximately $4 $2 billion and with that I will now turn the call over to Emily.
Good morning, Thank you Larry I'm happy to be on the call to discuss our fourth quarter same store results from our multifamily platform and discuss some operational highlights occupancy ended the quarter at $94 672 basis points lower than third quarter, and 41 basis points lower when compared to Q4.
Emily Watson: Thank you, Larry. I'm happy to be on the call to discuss our fourth quarter same store results from our multifamily platform and discuss some operational highlights. Occupancy ended the quarter at 94.6, 72 basis points lower than the third quarter, and 41 basis points lower when compared to Q4 of 2022. Same asset property net operating income from our portfolio in US dollars increased by 12.6% and 14.3%, respectively, for the three months ending on December 31, 2023 and full year 2023 compared to their respective 2022 periods. We continue to see positive signs of demand with Q4 resident retention at 62% and 94% occupancy in the Sun Belt, and Jackson Park is achieving 75% retention and 99% occupancy. Move-outs due to home purchase remain low at 11% of total move-outs, and rent-to-income levels remain affordable in the low 20% range, allowing for future headroom for in-rental growth. Lingering high interest rates have maintained the spread between bid and ask prices and continue to constrain the number of trades completed in the fourth quarter.
For 2022.
Same asset property net operating income from our portfolio in U S dollars increased by 12, 6% and 14, 3% respectively for the three months ending on December 31, 2023, and full year 2023 compared to their respective 2022 period.
We continue to see positive signs of demand with Q4 resident retention at 62% and 94% occupancy in the Sunbelt and Jackson part is achieving a 75% retention and 99% occupancy.
Move outs due to home purchase remained low at 11% of total move out and rent to income levels remain affordable in the low 20% range, allowing for future headroom for end rental Brad.
Lingering high interest rates have maintained the spread between bid and ask prices and continue to constrain the number of trades completed in the fourth quarter.
Emily Watson: Based on our recent third-party appraisal and a handful of Sunbelt sales comps, we have raised our F&V cap rates by 25 basis points to 5% and believe the rate is appropriate and supported. Cap rates are expected to remain low, relatively speaking, for institutional quality assets in the Sun Belt, with capital flows interested and focused on long-term heavyweight Sun Belt multifamily applications. On the development front, LandTower Westlove in Dallas, Texas, is expecting its first TCO, including 75 units, in late March.
Just on our recent third party appraisal and a handful of sunbelt sales comp we have raised our F&B cap rate by 25 basis points to 5% and believe the rate is appropriate and supported.
Cap rates are expected to remain low relatively speaking for the institutional quality asset in the sunbelt with capital flows interested and focused on long term heavy sunbelt multifamily application.
On the development front, Landstar wet lab, and Dallas, Texas is expecting its first tcl, including 75 units in late March we are very excited to deliver what we believe is a best in class asset with unparalleled amenity.
Emily Watson: We are very excited to deliver what we believe is a best-in-class asset with unparalleled amenities. We look forward to commencing pre-leasing later this month. Also, in Dallas, Texas, Lane Tower Midtown has reached Floor 5, its top level, in three of its six turns and is currently 70% framed.
We look forward to commencing pre leasing later this month also in Dallas, Texas Land tower in Midtown has reached four five its top level and three of the six turns and is currently 70% Brian Drywall is ongoing at <unk>, one and two.
We are progressing through the different phases of design, drawing and permitting on the remainder of our Sunbelt development pipeline and expect to receive more building appraisal as we progressed through the year.
Emily Watson: Drywall is ongoing on turns 1 and 2. We are progressing through the different phases of design, drawing, and permitting on the remainder of our Sunbelt Development Pipeline and expect to receive more building approvals as we progress through the year. On the operational front, we continue to focus on expanding NOI margins through our centralization efforts and value-add opportunities. During the fourth quarter, we installed over 300 private yards with an average amenity charge of $150 and a 59% return on investment.
On the operational front, we continue to focus on expanding NOI margins through our centralization efforts and value add opportunities during the fourth quarter, we installed over 300 private yards with an average amenity charge of $150 and 59% return on investment.
This investment is focused on increasing the tenure of our residents date, thus lowering our cost and increasing effective rent.
In summary, the land tower platform continues to achieve positive results and strong performance relative to our multifamily counterparts I would like to recognize everyone on the line tower team for receiving three awards in the fourth quarter. The emerging Technology Award and best places to work in multifamily from multifamily leadership.
Emily Watson: This investment is focused on increasing the tenure of our residence stays, thus lowering our costs and increasing effective rent. In summary, the LandTower platform continues to achieve positive results and strong performance relative to our multifamily counterparts. I would like to recognize everyone on the LandTower team for receiving three awards in the fourth quarter.
As well as glass doors Best places to work. These awards exemplify the winning culture that land tower in body and is the key reason the team continues to deliver top tier results and with that I'll pass along the conversation to Tom.
Operator: The Emerging Technology Award and Best Places to Work in Multifamily from Multifamily Leadership, as well as Glassdoor's Best Places to Work. These awards exemplify the winning culture that LandTower embodies and is the key reason the team continues to deliver top-tier results. And with that, I pass along the conversation to Tom. Operator, you can open up the lines for questions, please. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. If you are using a speakerphone, please lift the handset before pressing any key.
Operator, please open up the lines for questions. Please.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone you will hear us Tom prompt acknowledging your request.
You are using a speaker phone please lift the handset before pressing any case.
First question comes from Mario stomach at Scotia Bank. Please go ahead.
Hi, good morning, and thank you for taking the questions.
First question I may have missed it but if we exclude 25 dock side is there enough visibility for you to provide a target disposition range for 2024.
Tom Hofstetter: Your first question comes from Mario Sarek at Scotiabank; please go ahead. Hi, good morning, and thank you for taking the questions. First question, I may have missed it, but if we exclude 25 Dockside, is there enough visibility for you to provide a target disposition range for 2025? Okay. And then, just sticking to potential dispositions, any update on HethTower and what you're thinking there? The merger between Hess and Chevron right now, there is no visibility. First they have to get beyond their merger and make a done deal, which I guess is going to drag a little bit longer because the U.S. government is very concerned. But it will happen, it's my guess, and it will probably happen in June.
Good morning Mario.
We provided a target disposition pretty late last year.
To be quite frankly, once we are sure we are going to be kind of hit that target. So we're not going to give any target right. Now we have two assets that we have on the books almost totaling 300 million for sale we've done.
$130 million last year, and a lot more of the year before we hope to at least achieve the same levels as last year, but we don't want to set any targets right now.
Perfect, Okay and then.
So just sticking to potential dispositions any update on tower and what Youre thinking there.
Good evening.
Okay.
Merger between nested Chevron right now.
There is no crystal.
First of all have to get.
Beyond the.
The merger makes it does Neogen my guess is going to drive a little bit longer to the U S. Government is very concerned when it will happen. This my guess is that will probably happen in June.
Tom Hofstetter: At this point in time, Hess and Chevron have not decided on or made any decisions on office space in those early days. But until there is better clarity, there is nothing that is going to happen in Hess.
At this point in time has not decided maybe decisions off space. So it's early days on until there is better clarity of that Theres, nothing thats going to happen.
Matt Kingston: Okay. And then Tom, just maybe sticking with you, I think on the Q3 call, you kind of talked about residential value for buildable land in the $200 per square foot range. It was as high as $325. Where does that stand today? Hi Mario, it's Matt Kingston.
Got it Okay, and then Tom just maybe sticking with you I think on the Q3 call you kind of talked about residential value per buildable, and the 200 million dollar per square foot range. It was as high as $3 25.
Or does that stand today.
Hi, Barry always Matt Kay.
I think we believe that the value in the GTA are down about 40% to 50% depending on the site. The most recent trade we can point to his first capital and Woodward.
Matt Kingston: I think we believe that the values in the GTA are down about 40 to 50% depending on the site. The most recent trade we can point to is First Capital and Woodborne consummated on a deal at 1071 King West, which is around $200 to $10 a foot. I think that's a pretty premium price, though. I think, you know, realistically, downtown transit-oriented sites are probably mid to high one. So somewhere between $150,000 and $200,000 is what I think is realistic, depending on how good the site is. How good and how large the site is.
Consummated on a deal at 10, 71 kilowatt, which is around 202 kind of what I think thats, a pretty premium price. So I think.
Realistically downtown transit oriented site are probably face the high one.
So somewhere between 150 to 200 foot I think is realistic depending on how good the data hub.
Good and how large the sizes the discount.
Yes.
Just wondering.
Alright, Okay that makes sense and then my last question, maybe for Emily just with respect to land tower.
Emily Watson: There's a discount if it's, you know, $600,000. All right. Okay, no, that makes sense.
To the extent that you can can you discuss 24 expected same store revenue same store expense same store NOI.
Emily Watson: And my last question, maybe for Emily, just with respect to LandTower, to the extent that you can, can you discuss 24 expected same store revenues, same store expenses, and same store NOI? You know, we are not going to give guidance just yet on that. We're really looking at what the market... We do have the lead core properties or JV deals on the West Coast that are coming into our same store universe. You know, we expect it to moderate from what we have experienced the last couple of years. That's kind of expected.
Alright.
We are not going to give guidance just yet on that we're really looking at what the market. We do have the lead core properties. Our JV deals on the west coast that are coming into our same store universe.
We expect it to moderate from what we have experienced the last couple of years is kind of expected they've been kind of a banner years that and at this point, we're not providing guidance.
Emily Watson: There have been kind of banner years, but at this point, we're not providing guidance. Okay. Are you able to kind of give us a sense of where kind of blended lease spreads are going both kind of on, including renewal and new lease spreads? Sure.
Okay.
Are you able to kind of give us a sense of where kind of blended lease spreads are going both kind of on.
So, including renewal and new lease spreads.
Sure.
Yes, Q4 was really the height of the deliveries in the Sun belt. So we saw.
Emily Watson: Yeah, you know, Q4 was really the height of the deliveries in the Sun Belt. So we saw a lot of just a combination of the heavy supply and the holiday season that definitely had a downward pressure on the new lease tradeouts, where they were down actually around 6, 7, 8%, I think, actually, but renewal still stayed in that 3 to 4% range. So we ended Q4 with a blended range or blended negative three. But so far in Q1, we've seen 160 basis point improvement in Q1 already, and with our new lease assigned, they're still down in that 6% range, but a blend of negative one. So, a definite improvement.
A lot of just a combination of the heavy supply in the holiday season, and that definitely had a downward pressure on the new lease trade out.
Were they were down actually around 678% I think actually that renewals still stayed in that 3% to 4% range. So we ended Q4 with the blended range are blended negative three.
So far in Q1 that we've seen 160 basis point improvement in Q1 already with our new leases signed there is still down in that 6% range, but a blend of a negative one.
So definite improvement Q4, we had are actually all of 'twenty. Three we had about 100000 unit enter are the areas that we operate in.
Emily Watson: In Q4, we had, or actually all of 23, we had about 100,000 units enter our areas that we operate in with a lot of the merchant builders really having pressure in that Q4 to get heads on beds, if you will, before the season, for the end of the year. We're in Q1, and we're seeing that pickup, and then we'll continue to see just coming into our peak leasing season, excuse me, in Q2. So, you know, we'll still have some heavy supply delivered in Q, in 24 Mario, but, you know, 75,000 units. So, I think we were in the eye of the storm in Q4, and so far, we're off to a much better start in Q1. Right. Okay. And with the expectation for that blended lease spread, the term positive, would that be in the second half of the year? Or is that something that may be more of a 25 event?
With a lot of the merchant builders really having pressure in that Q4 to get heads on beds. If you will before the season and before the end of the year, where Q1, we're seeing that pick up and then we'll continue to see.
Coming into our peak late <unk>.
Late peak leasing season.
In Q2, so we will have still some heavy supply delivered in Q and 24, Mario but in a 75000 units. So I think we were in the eye of the storm in Q4, and so far we're off to a much better start in Q1.
Great Okay.
Your expectation for that bundle.
Blended lease spread.
Turn positive would that be in the second half of the year or is that something that.
Maybe more of a <unk> 25 of them.
I do think that we'll see.
Emily Watson: No, I do think that we'll see some pickup in Q3 and Q4. The supply will start to drift off, and people will kind of settle into that new norm. So I expect that we'll probably end 2024 in a flat position and then definitely see some pickup in 2025 as the market absorbs those units and really the deliveries just fall off a cliff. So flat for 2024 and then 2025 we should be able to kind of get back to the new normal, not the days of 2022 and 2023. Okay. Thanks for the call. Thank you.
Some pick up.
In Q3, and Q4, the supply will start to drift off and people kind of settling into that new norm. So I expect that we will probably end 2024, and then a flat position and then definitely some pick up in 2025 as the market absorbs those units and really <unk>.
<unk> fall off a cliff.
So flat for 24, and then 25.
Shouldn't be able kind of get back to the new normal not the not the day, the 22 and 2030.
Understood. Okay. Thanks for the color that's it for me.
Operator: The next question comes from Jimmy Shen at RBC Capital Markets. Please go ahead, www.realestateinvestment.com. Hi Jimmy. Great question.
Thank you. The next question comes from Jamie Shen at RBC Capital markets. Please go ahead.
Thanks, just sticking to landfill, we're still so how are you thinking NOI margin.
In 24 seen high insurance costs, and all that so how should we be thinking about.
Carson.
24.
Great question Jamie.
Emily Watson: You know, I do think that we have concentrated on really focusing on the NOI margins for a while now through our centralization efforts, you know, reducing some of our payroll costs, you know, just economies of scale on our procurement initiatives, certainly adding the value-add initiatives that we've added. So insurance costs, I think, won't forever be as elevated as we saw on the increase in 23. I think some of the reinsurance will open the market, at least coming back from NMHC last week, we had several, you know, kind of hopeful people saying that there was going to be more kind of normal increases next year, not what we saw in 23. So I think focusing on the NOI margins is definitely one of our strategic positions and has been. So I don't anticipate our NOI margins to decrease. If anything, they will edge up just a tad over where we are now.
I do think that we have concentrated on really focusing on the NOI margins for a while now through our centralization efforts.
Reducing some of our payroll costs.
Just economies of scale as our procurement initiatives certainly, adding the value add initiatives that we've added so insurance costs I think will forever be as elevated as we saw the increase in 'twenty three I think some of the reinsurance as well open the market and at least.
Back from MHC last week, we had several kind of hopeful people, saying that that there was going to be more kind of normal increases next year not what we saw in 2003, So I think focusing on the MLR margins is definitely one of our strategic.
Physicians and has been so.
I don't anticipate our NOI margins to decrease if anything edge up.
A tad over where we are now.
Okay. That's helpful. Thanks, and then just on the asset sales I know you don't provide maybe just two question that was still providing a target but can you characterize the environment today is it seem worse or better.
Tom Hofstetter: And then on asset sales, I know. Characterize the environment today better, and then the other question on asset sales. You have an industrial property held for sale. We don't have any industrial properties for sale.
And then the other question on asset sale is.
Have an industrial property held for sale I didn't think you were looking to sell industrial maybe maybe any color on that specific asset the child for sealed air.
Tom Hofstetter: The sale that occurs was really an option the tenant had to buy, so it's really not indicative of market conditions at all. The market today is, I would say, left liquid. It continuously gets liquid and left liquid, both on the debt side and on the equity side.
We don't have any industrial properties for sale.
In Delaware that occurs.
Obviously.
Option of the tenant has to buy assets will not be indicative of market conditions at all the market today is I would say less liquidity continuously gets liquid and liquid.
Both on the debt side and on the equity side. That's why every deal that were doing is almost an off market deal is putting on the market. It's really tailor made too.
Tom Hofstetter: That's why every deal that we're doing is almost an off-market deal. There's no point in putting it on the market. It's really tailored-made to specific buyers that have an asset in mind or have a use for that asset in mind.
The specific buyer.
Here's that had an accident in mind and we will have a use for that asset.
Stay sloppy until interest rates come down as well as positive leverage.
That point in time with the debt market has opened up the equity market. So it's remained sloppy remains rosemary.
Slow and again, that's why it's hard for us to give guidance and none of this none of the properties that we will be selling probably is going to be put on the market. It will be off market deals looks like they have over the past year.
Tom Hofstetter: It's going to stay floppy until its rates come down, until it has positive leverage. At that point in time, when the debt markets open up, the equity markets will open up. So it remains sloppy, and it remains very, very slow.
Okay.
<unk> and core skier. Obviously this is.
The sale was at a really good price and.
Would there be any other assets that would be similar in the sense that it could be.
To somebody else or to different buyer.
Any anything in the portfolio of that.
Tom Hofstetter: And again, that's why it's hard for us to give guidance. And none of the properties that we would probably be selling are going to be put on the market. They will be off-market deals just like they have been for the past two years.
Kind of resemble what you were able to achieve with ski.
So I think the answer is yes.
Really going to be the same this course.
I'm not going to give specifics on that but anywhere where there's a user coming in user market is going to pay more obviously in the investor market.
You look at industrial and not that we're selling to the industrial but just as a highlight that example.
Operator: And Korsky, obviously, this is... any other assets that would be similar in the sense of anything in the portfolio that www.realestate.com, Ladies and gentlemen, as a reminder, should you have any questions, please press star 1. The next question comes from Sam Damiani at TD Cowen. Please go ahead. Thank you. Good morning.
Last few years small small user oriented 50 to 100000 square feet or 21.
Square feet buildings went.
For substantial premium on a price per square foot basis. So the larger counterparts, because the users who are the buyers I think that's going to continue and you can look at.
Any of our buildings.
And so for a user to come in and wanted to buy the real estate.
They'll pay a premium.
That's exactly what happens of course.
There are I know there are assets that work I don't want to be specific because I don't want to give it any way, but there are assets.
Yes.
Okay.
Thank you.
Ladies and gentlemen, as a reminder, should you have any questions. Please press star one.
Next question comes from Sam Damiani TD Cowen. Please go ahead.
Thank you good morning, Emily maybe for you just on the on the land tower market Sunbelt there.
Emily Watson: Emily, maybe for you, just on the LandTower market and Sunbelt there, have you seen the opportunity for acquisitions getting any more interesting? And if not, do you anticipate that to materialize over the course of 2024? You know, we tracked Q4 was pretty bleak. We tracked about nine deals that were similar vintage, you know, same kind of footprint as we are. So that was really low.
We've seen the opportunity for acquisitions getting any more interesting and if not do you anticipate that to materialize over the course of 2024.
Okay.
We track Q4 was pretty bleak, we tracked about nine deals that were similar vintage same footprint. As we are so that was really low I think we'll pick up some in Q1 and Q2, but when we walked away from and it makes the last week. It was really the second part of the year.
Emily Watson: I think we'll pick up some in Q1 and Q2. But when we walked away from NMHC last week, it was really the second part of the year where they were anticipating, you know, as Tom alluded, the interest rates coming down a bit and really start to see trades. There's not the distressed market that I think we all hoped there would be, kind of sweep in and be, you know, a great dancer at all. So that really hasn't come to fruition. But if interest rates play out, then, you know, the second half of the year could be really interesting. And you mentioned you walked away from an MHC.
Year, where they were anticipating as Tom alluded the interest rates have come down a bit and really start to see trade. There is not the distressed market that I think we all hoped there would be.
Sweet Ben.
And Greg to answer it at all so that really hasn't come to fruition, but if the if interest rates will play than the second half of the year could be really interesting.
Emily Watson: Is that an asset class you're looking to add to the portfolio? No, NMHC is the National Multi-Housing Council. Yeah, and last question for me, maybe for you, Tom, on the dispositions, I know you're not providing guidance, but is the priority still office over retail on the disposition front going forward? The answer is yes, but offices, as you can see from all the sales, are very much tailor-made. In some cases, we would classify it as the market's going to be not necessarily our deals. We could find financial engineering to move product out with seller financing, etc. On the retail side, it's kind of simple. Our retail is very scalable. There's no danger to it. It's not even a food act.
And you mentioned you walked from and it makes sense is that an asset class you are looking to add to the portfolio.
No and I matrices, the National Mountain National multi housing Council.
My mistake.
Alright.
And last question for me, maybe for you Tom on the dispositions and do not provide guidance, but is the priority still office over over retail on the disposition front going forward.
Tom Hofstetter: It's food stores, same as the ECHO in a way, that are at least $12,000 to $14,000 a square foot, have decent term bonds and high, high credit. They're all metros, blah, blah, from Sobeys, shoppers, and drug markets. They're easily saleable, but 100% of all buyers out there need financing. If you are of the opinion, like I think most people believe, that in the latter part of this year, interest rates are going to come down, your purchase price is going to be a direct reflection of where interest rates are going to go. If these prices will rise as the cost of financing lowers, there's no point in putting them on the market suddenly right now if you believe that in six months from now, the cap rate is going to go down due to the benefit of positive leverage or better leverage.
Yes, the answer is yes.
<unk> is very much tailor made.
So in some cases, even classify this democracy on.
So the argues with supply financial engineering to move product out.
With seller financing et cetera on the retail focus simple with while retail is very scalable as no danger agility.
These are food anchors.
Stores, so long as the Ecmo in a way that at least the 12 $40 a square foot that leases are modest.
First of all welcome Jonathan.
Shoppers drug Mart, so they're equally scalable whatever 100% of all buyers out there. The pie that you are of the opinion like I think most people believe that the latter part of this year's rates will come down.
So your purchase price can be a direct reflection on where interest rates.
We're going to go up I believe prices will rise.
Finance and lowers the low point in 20.
21 markets right now six months from now the cap rates are going to go down due to the technical department of Labor deleverage. Therefore, no no sales or higher sales in retail supermarket will hold off until we get the price per rep put it on the market at all so we see these rates come down and on the August spot again.
Tom Hofstetter: Therefore, no sales or firing sales in the retail front. We're going to hold off until we get the price, but we're not going to put it on the market at all until we see the interest rates come down. On the office front, again, it's specific to a reason why someone would want to buy the asset. I do have hope and expectation that we will continue to sell some office assets, but they're all going to be off-market deals. Again, there's less reflection on interest rates rather than liquidity in the market.
Specific to the reason why some of them want to buy the asset I do have.
And actually our expectation that we will continue to sell some or all of those assets, but they are all going to be off market deals.
Again, this is less reflection on interest rates rather than liquidity in the market.
Tom Hofstetter: Thank you, I really appreciate the color. We'll turn it back. Thank you. That concludes today's Q&A session. I will turn the call back over to you for closing comments. Thanks, everybody. Have a good day. Ladies and Gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.
Thank you I really appreciate the color I'll turn it back.
Thank you that concludes today's Q&A session I will turn the call back over for closing comments.
Have a good day.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.
Okay.
Yes.
Yes.
Okay.
Yes.
Okay.
Okay.