Q1 2024 Healthcare Realty Trust Inc Earnings Call
Operator: Ladies and gentlemen, the Healthcare Realty first quarter earnings conference call will begin shortly. If you would like to submit a question at any time, please press star one on your telephone keypad. Thank you.
Ladies and gentlemen, thank you for standing by the healthcare Realty first quarter earnings Conference call will begin shortly if you would like to register a question at any time. Please press star one on your telephone keypad. Thank you.
Operator: [music].
Operator: Thank you for joining us today for healthcare Realty's first quarter.
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Speaker Change: Hello, and welcome to the healthcare Realty first quarter earnings Conference call.
Ivy: My name is Ivy, it's in all the quarters, making a cold today.
Speaker Change: I would like to register a question John Thanks, Vince. Please press star followed by one and your telephone keypad.
Music: I'd now like to hand over to Ron habits Floor's Yours. Please go ahead.
Unnamed Speaker: Thank you for joining us today for Healthcare Realty's first quarter.
Music: Thank you for joining us today for healthcare Realty's first quarter 2024 earnings conference call.
Elliot: Hello, and welcome to the Healthcare Realty first quarter earnings conference call. My name is Elliot, and I'll be coordinating your call today. If you would like to ask a question during today's event, please press star followed by 1 on your telephone keypad. And I'd like to hand over to Ron Hubbard. The floor is yours. Please go ahead.
Speaker Change: Joining me on the call today are Todd Meredith, Kris Douglas and Rob Hull.
Ronald M. Hubbard: 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.
Ronald M. Hubbard: These risks are more specifically discussed in the company's Form 10-K filed with the SEC for the year ended December 31 2023.
Ronald M. Hubbard: These forward looking statements represent the company's judgment as of the date of this call.
Ronald M. Hubbard: The company disclaims any obligation to update this forward looking material.
Ronald M. Hubbard: Matters discussed in this call May also contain certain non-GAAP financial measures such as funds from operations or <unk> normalized <unk> <unk> per share normalized <unk> per share funds available for distribution or Fad net operating income NOI EBITDA and adjusted EBITDA are rare.
Ronald M. Hubbard: Conciliation of these measures to the most comparable GAAP financial measures maybe found in the company's earnings press release for the quarter ended March 31, 2024, the company's earnings press release supplemental information and Form 10-K are available on the company's website.
Ronald M. Hubbard: Thank you for joining us today for Healthcare Realty's first quarter 2024 earnings conference call. Joining me on the call today are Todd Meredith, Chris Douglas, and Rob Hull.
Ronald M. Hubbard: Now I'll turn the call over to Todd.
James Christopher Douglas: Thank you Ron.
Ronald M. Hubbard: 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 uncertainty. These risks are more specifically discussed in the company's Form 10-K, filed with the SEC for the year ended December 31, 2023. These four forward-looking statements represent the company's judgment as of the date of this call. The company disclaims any obligation to update this forward-looking material. The matters discussed in this call may also contain certain non-GAAP financial measures, such as funds from operations, or FFO, normalized FFO, FFO per share, normalized FFO per share, funds available for distribution, or FAD, net operating income, NOI, EBITDA, and adjusted EBITDA.
Ronald M. Hubbard: Healthcare Realty is pleased to report strong first quarter results.
Ronald M. Hubbard: A reconciliation of these measures to the most comparable gap financial measures may be found in the company's earnings press release for the quarter ended March 31, 2021. The company's earnings press release, supplemental information, and Form 10-K are available on the company's website. I'll now turn the call over to Todd.
Ronald M. Hubbard: <unk> per share was at the top half of our expected range as where most of our key operating metrics saw.
Todd: Solid NOI growth was driven by robust cash leasing spreads improved tenant retention positive multi tenant absorption and tight operating expense controls.
Todd J. Meredith: Healthcare Realty is pleased to report strong first quarter results. FFO per share was at the top half of our expected range, as were most of our key operating metrics. Solid NOI growth was driven by robust cash leasing spreads, improved tenant retention, positive multi-tenant absorption, and tight operating expense control. Most importantly, we're focused on two top priorities, capital allocation and operational momentum. First, our top near-term priority is accretive capital allocation. Our express goal is to accelerate FFO growth and improve dividend coverage as quickly as possible.
Todd: Most importantly, we're focused on two top priorities capital allocation and operational momentum.
Todd J. Meredith: First our top near term priority is accretive capital allocation.
Todd J. Meredith: Our expressed goal is to accelerate <unk> growth and improve dividend coverage as quickly as possible.
Todd J. Meredith: More specifically, we intend to use proceeds from JVs and asset sales to repurchase stock on a leverage-neutral basis as long as the company trades at a substantial discount to NAV. As a major first step, yesterday, we announced a strategic relationship with KKR that is expected to generate revenues of $300 billion within the next 60 days. And there is more KKR capital behind this initial JVC portfolio, which I'll cover in more detail later.
Todd J. Meredith: More specifically, we intend to use proceeds from JV asset sales to repurchase stock on a leverage neutral basis as long as the company trades at a substantial discount to NAV.
Todd J. Meredith: As a major first step yesterday, we announced a strategic relationship with KKR that is expected to generate proceeds of $300 million.
Todd J. Meredith: Within the next 60 days.
Todd J. Meredith: And there is more KKR capital behind this initial JBC portfolio, which I'll cover in more detail later.
Todd J. Meredith: We also expect another $300 million of proceeds in the next 90 days from separate transactions, and in April, we repurchased $42 million of stock at very accretive levels. The average price represents an 8% implied cap rate, which compares favorably to expected JV and asset sale cap rates in the 6.5 to 6.75 range.
Todd J. Meredith: We also expect another $300 million of proceeds in the next 90 days from separate transactions.
Todd J. Meredith: And in April, we repurchased $42 million of stock at very accretive levels.
Todd J. Meredith: The average price represented an 8% implied cap rate, which compares favorably to expected JV and asset sale cap rates in the six five to six and three quarters range.
Todd J. Meredith: Our second priority is operational momentum. This is primarily about increasing multi-tenant occupancy. Occupancy gains in the first quarter were on track with expectations that we communicated in our multi-tenant bridge. New leasing volumes remain elevated, and we expect absorption to gain momentum in the second quarter and into the second half of 2024. Many of you will recall we initially published our bridge two quarters ago.
Todd J. Meredith: Our second priority is operational momentum.
Todd J. Meredith: This is primarily about increasing multi tenant occupancy.
Todd J. Meredith: Occupancy gains in the first quarter, we're on track with expectations that we communicated in our multi tenant bridge.
Todd J. Meredith: New leasing volumes remain elevated and we expect absorption to gain momentum in the second quarter and into the second half of 2024.
Todd J. Meredith: Many of you will recall, we initially published our bridge two quarters ago.
Todd J. Meredith: We expected absorption to increase by 150 to 200 basis points over five quarters through the end of 24. Two quarters in, we have generated 70 basis points of absorption, which is exactly on track with our plan. I'm particularly pleased with the diligent effort and focus of our leasing and operations team. Our leasing team has produced new leasing volume of more than 400,000 square feet in each of the last three quarters. This quarterly pace is an important indicator of our ability to continue increasing multi-tenant occupancy.
Todd J. Meredith: We expected absorption to increase by 150 to 200 basis points over five quarters through the end of 'twenty four.
Todd J. Meredith: Two quarters in we've generated 70 basis points of absorption, which is exactly on track with our plan.
Todd J. Meredith: I'm, particularly pleased with the diligent effort and focus of our leasing and operations teams.
Todd J. Meredith: Our leasing team has produced new leasing volume of more than 400000 square feet in each of the last three quarters.
Todd J. Meredith: This quarterly pace is an important indicator of our ability to continue elevating multi tenant occupancy.
Todd J. Meredith: Our operations team is focused on accelerating NOI growth by quickly converting new leases to occupancy and controlling operating expenses. Total multi-tenant NOI grew 2.8% in the first quarter, well above 2023 growth of 2.3%. Looking ahead, we're on track to achieve the 4.4 to 5.5 percent multi-tenant NOI growth published in our bridge for the second half of 2024. Our leasing confidence is boosted by the constructive backdrop for MOB supply and demand. Aging demographics and strong patient utilization are pushing demand steadily higher. Hospitals and providers are initiating more and more outpatient expansion plans. At the same time, a sharp rise in construction and financing costs has severely limited development start.
Todd J. Meredith: Our operations team is focused on accelerating NOI growth by quickly converting new leases to occupancy and controlling operating expenses.
Todd J. Meredith: Total multi tenant NOI grew two 8% in the first quarter, well above 2023 growth of 2% to 3%.
Todd J. Meredith: Looking ahead, we're on track to achieve the $4 four to five 5% multi tenant NOI growth published in our bridge for the second half of 2024.
Todd J. Meredith: Our leasing confidence is boosted by the constructive backdrop for MLB supply and demand.
Todd J. Meredith: <unk> demographics and strong patient utilization are pushing demand steadily higher.
Todd J. Meredith: Hospitals and providers are initiating more and more outpatient expansion plans.
Todd J. Meredith: At the same time, a sharp rise in construction and financing cost has severely limited development starts.
James Christopher Douglas: These tailwinds translate to positive absorption and rising rental rates. Typical replacement net rents are pushing $40, setting up for multi-tenant occupancy gains and robust rate increases for average net rents at existing buildings that are in the low $20 range. Now, I'll turn it over to Chris to discuss financial and operating results. Thanks, Todd.
Todd J. Meredith: These tail wins translate to positive absorption and rising rental rates.
Chris: Typical replacement net rents are pushing $40 setting up for multi tenant occupancy gains and robust rate increases for average net rents that existing buildings that are in the low $20 range.
James Christopher Douglas: Now I'll turn it over to Chris to discuss financial and operating results.
Chris: Thanks Todd.
James Christopher Douglas: The year is off to a great start on operational and capital allocation. Normalized FFO per share of $0.39 was at the upper end of our guidance range. Debt income for the quarter was impacted by a $250 million goodwill write-off.
Chris: <unk> is off to a great start on operational and capital allocation efforts.
Chris: <unk> <unk> per share of 39 was at the upper end of our guidance range for the quarter.
Chris: Net income for the quarter was impacted by $250 million goodwill write off this noncash accounting impairment was driven by the current macro economic environment.
James Christopher Douglas: This non-cash accounting impairment was driven by the current macroeconomic environment and does not speak to the durability or growth potential of our assets. In fact, same-store cash NLI growth accelerated in the first quarter to 3%, up from 2.7% last year. Cash NOI margins improved 30 basis points year-over-year as a result of holding operating expense growth below our average in-place rent escalators of 2.8%. First quarter operating expenses increased 1.7%. This was a significant improvement compared to 4.1% in the fourth quarter and 4.3% for the full year.
James Christopher Douglas: And does not speak to the durability or growth potential of our assets. In fact same store cash NOI growth accelerated in the first quarter to 3% up from two 7% last quarter.
James Christopher Douglas: Cash NOI margins improved 30 basis points year over year as a result of holding operating expense growth below our average in place rent escalators of two 8%.
James Christopher Douglas: First quarter operating expenses increased one 7%. This was a significant improvement compared to four 1% in the fourth quarter and four 3% for full year 'twenty three.
James Christopher Douglas: Disciplined and proactive efforts, especially on property taxes and labor costs, help to control operating costs. The successful property tax appeals in the fourth quarter resulted in first quarter year-over-year property tax increases of just 1.1 percent. Labor costs increased 2.7% in the first quarter, compared to 10% in the fourth quarter and 9.5% for full year 23.
James Christopher Douglas: Disciplined and proactive efforts, especially on property taxes and labor costs helped to control operating expenses.
James Christopher Douglas: The successful property tax appeals in the fourth quarter resulted in first quarter year over year property tax increases of just one 1%.
James Christopher Douglas: Labor costs increased two 7% in the first quarter compared to 10% in the fourth quarter and nine 5% for full year 'twenty three.
James Christopher Douglas: The improvement was achieved through right-sizing of staffing and rebidding service contracts, particularly in markets with scale. We don't expect the 1.7% growth in the first quarter to be our new run rate, but we are on track to beat the full-year expense growth assumptions in the occupancy and NOI bridge. Revenue drivers were also strong in the first quarter. Cash leasing spreads were pushed to 3.7%, up from 3.3% last quarter. Initiatives to retain tenants were successful, as tenant retention improved significantly from 78% in the fourth quarter to 85% in the first.
James Christopher Douglas: The improvement was achieved through right sizing and staffing and Rebidding service contracts, particularly in markets with scale.
James Christopher Douglas: We don't expect a one 7% growth in the first quarter to be our new run rate, but we are on track to beat the full year expense growth assumptions in the occupancy and NOI bridge.
James Christopher Douglas: Revenue drivers were also strong in the first quarter cash leasing spreads were pushed to three 7% up from three 3% last quarter.
James Christopher Douglas: Initiatives to retain tenants were successful as tenant retention improved significantly from 78% in the fourth quarter to 85% in the first.
James Christopher Douglas: Notably, the 85% was consistent in both the Legacy HR and HTA portfolios. And, as Rob will discuss in more detail, we achieved sequential occupancy absorption in line with expectations. The cash leasing spreads, retention, and absorption are especially impressive given the high scheduled lease expiration. Over 1.6 million square feet of same-store leases expired, and over 2 million square feet across the total portfolio.
James Christopher Douglas: Notably the 85% was consistent in both the legacy HR and HTM portfolios.
James Christopher Douglas: And as Rob will discuss in more detail, we achieved sequential occupancy absorption in line with expectations.
James Christopher Douglas: The cash leasing spreads retention and absorption are especially impressive given high scheduled lease expirations in the quarter.
James Christopher Douglas: Over one 6 million square feet of same store leases expired and over 2 million square feet across the total portfolio.
James Christopher Douglas: Yesterday, we announced a JV agreement with KKR at a 6.6% cap rate that will generate near-term proceeds of $300 million and provide a source of additional long-term capital. In addition, we're in the process of separate transactions that are expected to generate an additional $300 million of proceeds in the next 90 days. These transactions are expected to price in the $6.50 to $6.75 range.
James Christopher Douglas: Yesterday, we announced a JV agreement with KKR had a six 6% cap rate that will generate near term proceeds of $300 million.
James Christopher Douglas: And provide a source of additional long term capital.
James Christopher Douglas: In addition, we're in process on separate transactions that are expected to generate an additional $300 million of proceeds in the next 90 days.
James Christopher Douglas: These transactions are expected to price in the six five to six and three quarters range.
Robert E. Hull: The total proceeds of $600 million will be used to fund existing capital commitments as well as leverage-neutral sharing programs; applying approximately 50 to 55 percent of the excess proceeds to Sherry Purchase will maintain debt to EBITDA within our target range of six to six and a half times. Last week, the board authorized a new $500 million share repurchase program. In April, 3 million shares were bought for $42 million under the previous repurchase authorization.
James Christopher Douglas: The total proceeds of $600 million will be used to fund existing capital commitments as well as leverage neutral share repurchases.
Robert E. Hull: Applying approximately $50 to 55% of the excess proceeds to share repurchase we'll maintain debt to EBITDA within our target range of six to six five times.
Robert E. Hull: Last week, the board authorized a new $500 million share repurchase program and.
Robert E. Hull: In April 3 million shares were bought for $42 million under the previous repurchase authorization.
Robert E. Hull: The average price was just over $14 per share, which represents an applied cap of 8% and an FFO yield of approximately 11%. Given the current disconnect between our stock price and private valuations, recycling capital and leveraging neutral share repurchase generates significant accretion and shareholder value. It also accelerates efforts to improve dividend coverage. Second quarter and full year guidance do not reflect the KKRJV, the additional $300 million of transactions, or the associated leveraged neutral share repurchase. Guidance will be updated at the end of the second quarter once the final timing and economics of these transactions are known. I'll now turn it over to Rob for more details on our leasing.
Robert E. Hull: The average price was just over $14 per share, which represents an implied cap of 8% and <unk> yield of approximately 11%.
Robert E. Hull: Given the current disconnect between our stock price and private valuations recycling capital into leveraged neutral share repurchases generate significant accretion and shareholder value.
Robert E. Hull: It also accelerates efforts to improve dividend coverage.
Robert E. Hull: Second quarter and full year guidance does not reflect the KKR JV additional $300 million of transactions or associated leverage neutral share repurchases.
Rob: Guidance will be updated the ended the second quarter was the final timing and economics of these transactions are known.
Robert E. Hull: I'll now turn it over to Rob for more details on our leasing momentum.
Rob: Thanks, Chris.
Robert E. Hull: I will focus my comments today on multi-tenant occupancy gains and leasing momentum, which are right on track with our bridge. For the first quarter, multi-tenant occupancy improved by 57,000 square feet, or 17 basis points. Combined with our fourth quarter, we have achieved 70 basis points of absorption. This puts us on pace to deliver the 150 to 200 basis points of multi-tenant occupancy gains we communicated last November in our five-quarter bridge. It's worth noting that occupancy has increased by 130 basis points at the legacy HTA assets in the last two quarters.
Rob: I'll focus my comments today on multi tenant occupancy gains and leasing momentum.
Robert E. Hull: Which are right on track with our bridge.
Robert E. Hull: For the first quarter multi tenant occupancy improved 57000 square feet or 17 basis points.
Robert E. Hull: Combined with our fourth quarter, we have achieved 70 basis points of absorption.
Robert E. Hull: This puts puts us on pace to deliver 150 to 200 basis points of multi tenant occupancy gains we communicated last November and our five quarter bridge.
Robert E. Hull: It's worth noting that occupancy has increased by 130 basis points at the legacy HTH assets in the last two quarters.
Robert E. Hull: Our progress this quarter was driven by strong new lease commitments totaling 480,000 square feet. Move-outs were elevated due to high scheduled lease expirations of 1.6 million square feet in the first quarter, which was nearly double the volume of expirations in the previous.
Robert E. Hull: Our progress this quarter was driven by strong new lease commitments totaling 480000 square feet.
Robert E. Hull: Move outs were elevated due to high scheduled lease expirations of one 6 million square feet in the first quarter.
Robert E. Hull: This was nearly double the volume of explorations in the previous quarter.
Robert E. Hull: Although volume was high, the move-out percentage was in line with our expectations. For the remainder of 2024, our expiration schedule averages just over 1 million square feet per quarter, which is about 60% less than the first. So we expect fewer move-outs through the balance of the year. Turning to Least Momentum.
Robert E. Hull: Although volume was high the move out percentage was in line with our expectations.
Robert E. Hull: Yeah.
Robert E. Hull: For the remainder of 2024, our exploration schedule average is just over 1 million square feet per quarter.
Robert E. Hull: This is about 60% less in the first quarter.
Robert E. Hull: So we expect fewer move outs through the balance of the year.
Robert E. Hull: Turning to leasing momentum.
Robert E. Hull: Our new lease pipeline remains robust at 1.7 million square feet, the top end of our historical range. The pipeline gives us visibility into future activity and positions us well to achieve projected absorption gains outlined in our multi-tenant bridge. Total signed, not occupied leases, or SNO, in the multi-tenant portfolio remain solid, representing an additional 170 basis points of future occupancy. The legacy HTA multi-tenant properties have 190 basis points of SNU
Robert E. Hull: Our new lease pipeline remains robust at $1 7 million square feet. The top end of our historical range.
Robert E. Hull: The pipeline gives us visibility into future activity and positions us well to achieve projected absorption gains outlined in our multi tenant bridge.
Robert E. Hull: Total signed not occupied leases or snow and the multi tenant portfolio remained solid representing an additional 170 basis points of future occupancy.
Robert E. Hull: The legacy HCA multi tenant properties have 190 basis points of snow.
Robert E. Hull: We expect the snow pipeline to increase as we maintain our new sign lease volume and Move Out to Moderate to lower levels moving forward. Our strong leasing activity is supported by favorable supply and demand fundamentals. Occupancy across the sector is climbing, and new medical outpatient building starts are continuing to decelerate. This quarter, we saw the largest year-over-year decline in starts since the pandemic.
Robert E. Hull: We expect the snow pipeline to increase as we maintain our new signed lease volumes and move outs moderate to lower levels moving forward.
Robert E. Hull: Okay.
Robert E. Hull: Our strong leasing activity is supported by favorable supply and demand fundamentals.
Robert E. Hull: Occupancy across the sector is climbing and new medical outpatient buildings starts are continuing to decelerate.
Robert E. Hull: This quarter, we saw the largest year over year decline in starts since the pandemic.
Robert E. Hull: Health system top-line revenue and operating margins continue to improve. Providers are seeing increasing admission rates and growing outpatient revenue, and Healthcare Employment remains robust, increasing at a rate more than 2.5 times the rate of total job loss. The combination of rising demand and limited supply is creating a nice tailwind for leasing. New signed leases in the first quarter totaled approximately 440,000 square feet. What is noteworthy is this marks our third consecutive quarter above $400,000.
Robert E. Hull: Health system topline revenue and operating margins continue to improve.
Robert E. Hull: Providers are seeing increasing admission rates and growing outpatient revenues.
Robert E. Hull: And healthcare employment remains robust increasing at a rate more than two five times the rate of total job growth.
Robert E. Hull: The combination of rising demand and limited supply is creating a nice tailwind for leasing.
Robert E. Hull: New signed leases in the first quarter totaled approximately 440000 square feet.
Robert E. Hull: What is noteworthy as this marks our third consecutive quarter above 400000.
Robert E. Hull: Included in this activity were meaningful gains across our development and redevelopment projects. The combined lease percentage for these projects is now 70 percent, up 400 basis points over the last quarter. A significant contributor to this increase is a building here in Nashville that came online in the fall, and many of you have visited. A leading orthopedic group signed a lease that increased the building to 88% leased from 50% last quarter. With a fairly complex build out, including a new surgery center, we expect this tenant to take occupancy in the first quarter of 2025.
Robert E. Hull: Included in this activity were meaningful gains across our development and redevelopment projects.
Robert E. Hull: The combined lease percentage for these projects is now 70%.
Robert E. Hull: Up 400 basis points over last quarter.
Robert E. Hull: A significant contributor to this increase is a building here in Nashville that came online in the fall and many of you have visited.
Robert E. Hull: A leading orthopedic group signed a lease that increase the building to 88% leased from 50% last quarter.
Robert E. Hull: With a fairly complex build out including a new surgery Center, we expect this tenant to take occupancy in the first quarter of 2025.
Robert E. Hull: I am proud of the solid occupancy gains and sustained pace of new leasing our team has achieved. Our strong leasing momentum and the constructive supply-demand backdrop is the foundation from which we can produce projected new leasing activity. Coupled against moderating move-outs, we are poised for accelerating multi-tenant absorption in the back half of the year to hit our targeted growth.
Robert E. Hull: I'm proud.
Robert E. Hull: <unk> of the solid occupancy gains and sustained pace of new leasing our team has achieved.
Robert E. Hull: Our strong leasing momentum and a constructive supply demand backdrop is the foundation from which we can produce projected new leasing activity.
Robert E. Hull: Coupled against moderating move outs, we are poised for accelerating multi tenant absorption in the back half of the year to hit our targeted growth levels.
Robert E. Hull: Todd.
Speaker Change: Thank you Rob let.
Todd J. Meredith: Let me make a few more specific comments about capital allocation. The company is currently trading at a substantial discount to NAV. So we're focused on maximizing the opportunity to sell or JV assets and repurchase our stock at a creative level. In terms of generating proceeds, we announced the KKR joint venture yesterday, where HR will contribute 12 properties to the joint venture at a gross asset value of $383 million, representing a cap rate of approximately 6.6%.
Speaker Change: Let me make a few more specific comments about capital allocation.
Todd J. Meredith: The company is currently trading at a substantial discount to NAV.
Todd J. Meredith: So we're focused on maximizing the opportunity to sell or JV assets and repurchase our stock at accretive levels.
Todd J. Meredith: KKR will make an equity contribution to the JV equal to 80% of the value of the properties, yielding proceeds to HR of approximately $300 million. Healthcare Realty will retain a 20% interest, manage the JV, and oversee leasing and operations. H.R. will also earn various fees for overseeing the J.V. property, which is not reflected in the 6.6% cap. The property contributions are subject to customary closing conditions and are expected to occur throughout May and June. Asset-level financing is not contemplated for this JV, which simplifies the management of leverage for Healthcare Realty.
Todd J. Meredith: In terms of generating proceeds we announced the KKR joint venture yesterday.
Todd J. Meredith: Where HR will contribute 12 properties to the joint venture at a gross asset value of 383 million, representing a cap rate of approximately six 6%.
Todd J. Meredith: <unk> will make an equity contribution to the JV equal to 80% of the value of the properties, yielding proceeds to HR approximately $300 million.
Todd J. Meredith: Healthcare Realty will retain a 20% interest manage the JV and oversee leasing and operations.
Todd J. Meredith: HR will also earn various fees for overseeing the JV properties, which is not reflected in the six 6% cap rate.
Todd J. Meredith: The property contributions are subject to customary closing conditions unexpected and are expected to occur throughout may and June.
Todd J. Meredith: Asset level financing is not contemplated for this JV, which simplifies the management of leverage for the for healthcare Realty.
Operator: Twelve JB properties represent a high-quality, stabilized MOB portfolio. The properties are located in seven top markets, including Austin, Seattle, Philadelphia, and Los Angeles, to name a few. They're located predominantly on or adjacent to leading hospitals, and in short, the portfolio looks a lot like Healthcare Realty as a whole. Beyond the initial seed portfolio, KKR has also committed up to $600 million of equity to pursue additional investments in high-quality, stabilized assets. This could increase the potential value of the JV to more than a billion dollars.
Todd J. Meredith: The 12 JV properties represent a high quality stabilized mob portfolio.
Operator: Our properties are located in seven top markets, including Austin, Seattle, Philadelphia, and Los Angeles to name a few.
Operator: They are located predominantly on or adjacent to leading hospital campuses.
Operator: In short the portfolio looks a lot like healthcare realty as a whole.
Operator: Beyond the initial seed portfolio KKR KKR has also committed up to $600 million of equity to pursue additional investments in high quality stabilized assets.
Operator: This could increase the potential value of the JV to more than $1 billion.
Operator: We may contribute more healthcare realty properties to the JV or pursue acquisitions depending on market conditions. In the near term, our capital allocation priority is to repurchase stock on a leverage-neutral basis. Separate from the KKRJV, we're working on additional transactions that are expected to generate more than $300 million in proceeds within the next 90 days. We're very encouraged by the level of interest from capital partners and potential buyers. There is a deep pool of equities seeking to increase exposure to the MOV sector, which has been aided by a much improved financing market.
Operator: We may contribute more healthcare royalty properties to the JV or pursue acquisitions, depending on market conditions.
Operator: In the near term our capital allocation priority is to repurchase stock on a leveraged neutral basis.
Operator: Separate from the KKR JV, we're working on additional transactions that are expected to generate more than $300 million of proceeds within the next 90 days.
Operator: We're very encouraged by the level of interest from capital partners and potential buyers.
Operator: There is a deep pool of equity seeking to increase exposure to the mob sector, which has been aided by a much improved financing market.
Operator: As I said at the top, we are focused on our top two priorities, capital allocation and operational momentum. We intend to execute quickly on the accretive capital allocation priorities outlined today. Coupled with multi-tenant occupancy gains and operational momentum, we're making progress toward our goal of accelerating FFO growth and dividend coverage. Operator, we're now ready to move to the Q&A period.
Operator: As I said at the top we are focused on our top two priorities capital allocation and operational momentum.
Operator: We intend to execute quickly on the accretive capital allocation priorities outlined today.
Operator: Coupled with multi tenant occupancy gains and operational momentum, we're making progress toward our goal of accelerating <unk> growth and dividend coverage.
Operator: Operator, we're now ready to move to the Q&A period.
Nicholas Philip Yulico: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. The first question comes from Nick Yulico with Scotiabank. Your line is open. Please go ahead.
Speaker Change: Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad. If you would like to withdraw your question. Please press star followed by two.
Nicholas Philip Yulico: Unprepared to ask a question please ensure devices on mute locally.
Nicholas Philip Yulico: Our first question comes from Nick <unk> with Scotiabank. Your line is open. Please go ahead.
Todd J. Meredith: Thank you. I guess, you know, first, in terms of the JV, it's nice to see that get done. Can you just give us a little bit more information on, you know, sort of how that process went? And, you know, I started talking about it last fall, I think, and so you closed it now. I mean, how were the discussions with different buyer groups? Did you ultimately change the types of assets you put in that initial seed portfolio? Anything else, just more on the background of the formation?
Nicholas Philip Yulico: Thank you I guess first in terms of the JV.
Todd J. Meredith: Nice to see that get done can you just give us a little bit more information on.
Todd J. Meredith: Sort of how that process went.
Todd J. Meredith: And I know you're sort of talking about it last fall I think and so you closed it now I mean did you.
Todd J. Meredith: How are the discussions with different buyer groups did you ultimately change the types of assets you put in that.
Todd J. Meredith: Initial seed portfolio anything else just more on sort of the background information.
Todd J. Meredith: <unk>.
James Christopher Douglas: Thanks, Nick. The process, as you just alluded to, did start last fall. Obviously, we all watched the debt markets be a little tough last fall, which impacted equity as well. So, we knew that was going to be a rough time to try to force a transaction, so we sort of took that slowly and really kicked it off more aggressively at the beginning of the year. I would say, as I mentioned in my remarks, we saw a much better and more constructive market starting to open up with capital commitments on the equity side, and then, obviously, the financing market improved throughout 24 so far.
Speaker Change: Thanks, Nick.
Todd J. Meredith: The process as you just alluded to did start last fall, obviously, we all watched the the debt markets be a little tough last fall in which impacted equity as well.
James Christopher Douglas: So we knew that was going to be a rough time to try to force a transaction. So we sort of took that slowly and really kicked it off more aggressively at the beginning of the year. So I would say as I mentioned in my remarks, we saw much better and more constructive markets starting to open up with capital commitments on the equity side and then obviously.
James Christopher Douglas: The financing market improved throughout 2004, so far and and even though rates are still fairly high I think people have settled into this is a little more stable a little bit more where people should expect things to be and so I think as we saw that the equity folks became became much more confident.
James Christopher Douglas: And even though rates are still fairly high, I think people have settled into this as a little more stable, a little bit more where people should expect things to be. And so, I think as we saw that, the equity folks became much more confident. So, always a moving target a little bit in trying to find alignment with a JV partner, but we think we've landed on a very strong, stable, stabilized portfolio here that really is representative of the healthcare realty portfolio, which, as we said last fall, was our intent with the JVs versus asset sales, which tend to be a little bit more leaning towards single tenant, off-campus, those types of characteristics
James Christopher Douglas: In terms of the portfolio, we do have more.
James Christopher Douglas: Potential JV and asset sales underway.
James Christopher Douglas: The portfolio has evolved a bit but generally speaking.
James Christopher Douglas: It involves a lot of the properties that we were early early on contemplated.
James Christopher Douglas: Some of the properties that were in there we'll be are under consideration for other joint ventures or other asset sales. So.
James Christopher Douglas: Always a moving target a little bit and trying to find alignment with with a JV partner, but we think we've landed on a very strong stable stabilized portfolio here that really is representative of the health care royalty portfolio, which as we said last fall was our intent with the Jv's.
James Christopher Douglas: Versus asset sales, which tend to be a little bit more leaning towards single tenant off campus those types of characteristics.
James Christopher Douglas: Okay, thanks, Todd. Just the second question is on Stewart. If you could just remind us, I know you give the square footage exposure, you know, in the supplemental, but just kind of remind us the composition and sort of location of those assets, and how are you thinking about the Chapter 11 filing affecting any potential rents? I wasn't sure if there's anything actually built into guidance to deal with any potential fallout there. Thanks. Yeah, Nick.
Speaker Change: Okay. Thanks, Todd just second question is on steward.
Speaker Change: You can just remind us I know you gave the square footage exposure in the supplemental but.
Nick: Just kind of remind us the composition and sort of location of those assets and how you're thinking about.
James Christopher Douglas: Chapter 11 filing affecting any potential rents I wasn't sure if there's anything actually built into.
James Christopher Douglas: Guidance.
Speaker Change: To deal with any potential fallout there. Thanks.
James Christopher Douglas: Yeah.
James Christopher Douglas: Yeah, Nick, this is Chris. So we're on about a dozen different hospital campuses associated with Steward in three different states, but generally we're on, well, considered to be their higher tier performing hospitals. In fact, if you look at Green Street, their hospital scoring index that they did, about 80% of our square footage is associated with what they rated as A or better hospitals. And I think that points to the ultimate potential outcome here, which is likely some sales of some of those hospitals, because I do think that they are very critical to the communities that they're in.
James Christopher Douglas: Yes, Nick this is Chris so.
Speaker Change: We're on about a dozen different.
James Christopher Douglas: Hospital campuses associated with steward.
James Christopher Douglas: In three different states, but generally we're on well considered to be theyre higher tier are performing hospitals in fact, a few market.
James Christopher Douglas: Green Street their hospital, scoring index that they had done.
James Christopher Douglas: About 80% of our square footage is associated with what they rated a or better hospitals.
James Christopher Douglas: And I think that points to the the ultimate potential outcome here, which is likely some sales of some of those hospitals because I do think that they are.
James Christopher Douglas: Very critical to the communities, there and you've seen that through Massachusetts, with the state coming out and making sure and confirming that theyre going to do everything possible to keep those.
James Christopher Douglas: You've seen that in Massachusetts with the state coming out and making sure and confirming that they're going to do everything possible to keep those hospitals open to serve those communities. And we really, we kind of saw this last year when Steward sold some hospitals to Common Spirit out in Utah. But yeah, you were right. About 580,000 square feet, about 1.6% of our annual base rent for the company is associated with Steward.
James Christopher Douglas: Hospitals open.
James Christopher Douglas: To serve those communities and we really kind of solve this last year when when stewards sold some hospitals too.
James Christopher Douglas: To common spirit out in Utah So.
James Christopher Douglas: But yes, you are right about 580000 square feet at one 6% of all.
James Christopher Douglas: Our annual base rent for the company is associated with steward.
James Christopher Douglas: <unk>.
James Christopher Douglas: The ultimate outcome, I think, here is a little early. We have about $2.5 million of outstanding receivables. That's inside the upper and lower end of our range of guidance for the year for something that we could potentially absorb if it is not repaid, but really, I think it's too early to call that. If these hospitals are ultimately sold, and the outpatient facilities that are associated with them, we think are going to be critical to the new operator. So we'll continue to watch it but feel generally positive about the locations that we're in.
James Christopher Douglas: The ultimate outcome I think here is a little early.
James Christopher Douglas: We have about $2 $5 million of outstanding.
James Christopher Douglas: That's with inside the upper and bottom end of our of our range.
James Christopher Douglas: Guidance for the year or something that we could.
James Christopher Douglas: Potentially absorb that if it is not repaid but really I think it's too early to call that.
James Christopher Douglas: These these hospitals are ultimately sold in.
James Christopher Douglas: The outpatient facilities that are associated with them, we think are going to be critical to the new new operator, So we'll continue to watch it.
James Christopher Douglas: But but feel generally positive about the.
James Christopher Douglas: The locations that.
James Christopher Douglas: We are on.
Speaker Change: Alright, Thanks, Chris.
Austin Todd Wurschmidt: We now turn to Austin Wurschmidt with KeyBank. Your line is open. Please go ahead.
James Christopher Douglas: We now turn to Austin <unk> with Keybanc. Your line is open. Please go ahead.
Todd J. Meredith: Great, thank you. So, Todd, would you say it's fair to say that the transaction market for outpatient medical assets has fallen at this point? And, I mean, are you guys done selling today? Or could we continue to see you kind of go down a path toward additional dispositions after completing the $600 million that you've highlighted?
Austin Todd Wurschmidt: Great. Thank you. So Todd would you say, it's fair to say that the transaction market for outpatient medical assets installed at this point.
Todd J. Meredith: And are you guys done selling today or we could we continue to see you kind of go down a path towards additional dispositions after completing.
Todd J. Meredith: $600 million that you've highlighted.
Austin Todd Wurschmidt: Sure, Austin. We are not done. I would say we have a lot more in the works. Obviously, what we tried to articulate today is what we have a high degree of confidence in, like the KKR-JV, as well as these additional transactions. So, we do have more behind that. Obviously, we're watching the markets. We're paying attention to what makes the most sense, but I wouldn't put it out of the realm of reason that we would look at additional JV transactions as well as additional asset sales. Obviously, we'll balance that as market conditions evolve.
Todd: Sure Austin, we are not done I would say we have a lot more in the works obviously, what we tried to articulate today is what we have a high degree of confidence in.
Austin Todd Wurschmidt: Like the KKR JV as well as these additional transactions. So we do have more behind that obviously, we're watching the markets, we're paying attention to what makes the most sense.
Austin Todd Wurschmidt: But I wouldn't put that out of the realm of reason that we would look at additional JV.
Austin Todd Wurschmidt: Transactions as well as additional asset sales, obviously, we'll balance that as market conditions evolve.
James Christopher Douglas: understood, and then
Austin: Understood and then just I was curious it sounds like everything on the operating fronts on track, but was there anything specific or unexpected unexpected unexpected that drove the deceleration in the consolidated multi tenant portfolio. This quarter for same store NOI growth. It looks like the JV has made up for.
James Christopher Douglas: I was curious, it sounds like everything on the operating front is on track, but was there anything specific or unexpected that drove the deceleration in the consolidated multi-tenant portfolio this quarter for same-story NOI growth? It looks like the JVs made up for that, but just wondering what's driving the delta between those two buckets. Thank you.
James Christopher Douglas: That but just wondering what's driving the delta between those two buckets. Thank you.
James Christopher Douglas: Yeah, it's really going back to just quarterly fluctuations. When you look at a year over year and a quarter, you can end up with kind of one-time items that can have a particular impact on any specific stat. So you're right that I'd say the multi-tenant, those kind of went against them in terms of that 2.2% growth, and it was related to some property taxes that were accrued in the first quarter of 24 that really are associated with some 23 time period, and it was a bill that came in that we're actually contesting. So that's still a little bit up in the air as to what the ultimate impact will be for all of 24.
Speaker Change: Yes, it's really going back to just quarterly fluctuations when you look at our year over year and a quarter. You can you can end up with kind of one time items.
James Christopher Douglas: They can have a particular impact on any specific stat. So you are right that I'd say, the multi tenant those kind of went against them.
James Christopher Douglas: In terms of that two 2% growth and it was related to some property taxes that were accrued in the first.
James Christopher Douglas: First quarter of 'twenty four that really are associated with some 23.
James Christopher Douglas: Time period and it was it was a bill that came in that were actually contesting so thats still a little bit up in the air what the ultimate impact will be for all of 'twenty, four but I will say on the flip side, you actually kind of had the reverse on the on the single tenant so that single tenant growth was.
Michael Anderson Griffin: But I'll say on the flip side, you actually kind of had the reverse on the single tenant. So that single tenant growth was a little bit higher versus what I would say you would expect for the long term, and that was related to, once again, a similar one-time item on the flip side that was positive. And so those two kind of offset each other. That gets you back to what I think is a very normal and expected total same-store growth of 3%.
Michael Anderson Griffin: Little bit escalated versus what I would say you would expect for the long term and that was.
Michael Anderson Griffin: Related to once again, a similar onetime item on the flip side that was to the positive and so those two kind of offset each other that gets you back to what I think is a very.
Michael Anderson Griffin: Normal unexpected total same store growth of 3%.
Michael Anderson Griffin: Would you expect those to converge then through the balance of the year.
Speaker Change: Is it for me thank you.
Michael Anderson Griffin: Yeah, I think that, you know, as you start getting into year-to-date and full-year performance, those kind of one-time quarter-to-quarter variations start to smooth out and don't have as large of an impact. So, yes, I do think that that will adjust and not have as big of an impact. But once again, like I said, kind of on the total, the multi-tenant versus the single-tenant kind of sets each other off. So I think as you look at that total same store, it's indicative of where we think things are today, and we expect that to accelerate through the balance of the year with the absorption that we've talked about.
Speaker Change: Yes, I think that as you.
Michael Anderson Griffin: As you start getting into year to date and full year performance those those kind of one time quarter to quarter.
Michael Anderson Griffin: Variation start to smooth out and don't have as large of an impact. So so yes, I do think that.
Michael Anderson Griffin: That will adjust.
Michael Anderson Griffin: And not have as big of a of an impact but once again like I said kind of on the total multi tenant versus single tenant kind of set each other off so I think as you look at that that total same store it's.
Michael Anderson Griffin: It's indicative of where we think things are today, and we expect that to accelerate through the balance of the year with with the absorption that we've talked about.
Michael Anderson Griffin: Yeah.
Michael Anderson Griffin: Our next question comes from Michael Griffin of Wood City. Your line is open, please go ahead.
Michael Anderson Griffin: Our next question comes from Michael Griffin with Citi. Your line is open. Please go ahead.
Todd J. Meredith: Thanks. I wanted to ask a couple questions on the joint venture. First off, can you give us maybe the leverage that was used in the deal and the amount of fees you expect to receive from it? And then, are there any implications to the dividend as a result of the joint venture or potential assets?
Michael Anderson Griffin: Thanks, great. Thanks.
Michael Anderson Griffin: I wanted to ask a couple of questions on the joint venture first off can you give us maybe the leverage that was used in the deal and the amount of fees do you expect to receive from US and then are there any implications for the dividend as a result of the joint venture or potential asset sales.
Todd J. Meredith: Michael, this is Todd. On the JV, specifically the leverage, no leverage is being used in this initial transaction, and it's also not being contemplated for the go-forward as well. So, very simple there, keeping that simple.
Todd J. Meredith: Michael This is Todd on the JV, specifically the leverage no leverage is being used in this initial transaction. It's also not being contemplated.
Todd: For the go forward as well.
Todd: So very very simple, they're keeping that simple it's all equity from KKR, obviously, the two organizations can manage leverage.
Michael Anderson Griffin: It's all equity from KKR, so obviously the two organizations can manage leverage, you know, outside of the JV. So no asset-level financing. On the fees, obviously, not going to give specific fees, but certainly will earn various types of fees for managing the JV, leasing operations, and so forth. We have typically said that these JVs, you know, existing JVs we have as well as this, would typically put you in that 25 to 50 basis point range of sort of net benefit relative to the cap rate, just to give you a ballpark.
Michael Anderson Griffin: Outside of the JV, so no asset level financing on the fees, obviously, not not going to give specific fees, but certainly earn fees various types of fees.
Michael Anderson Griffin: Managing the JV leasing operations and so forth.
Michael Anderson Griffin: We have typically said that these jv's existing JV as we have as well as this would typically puts you in that 25 to 50 basis point range of.
Michael Anderson Griffin: Of sort of net benefit relative to the cap rate just to give you a ballpark.
Michael Anderson Griffin: But obviously, they're often tied to performance, so it's not an exact known quantity. But that's certainly helpful to the cap rate and to the economics of a JV. And, oh, on the dividend, at this point, no change expected to the dividend or anything that would trigger, you know, a special dividend at that point. But that's something obviously we'll evaluate as the year progresses, it's early in the year, but not contemplated at this point.
Michael Anderson Griffin: But obviously they are often tied to performance. So it's not an exact known.
Michael Anderson Griffin: <unk>, but thats certainly helpful to the cap rate in to the economics of the JV.
Michael Anderson Griffin: And.
Michael Anderson Griffin: The the dividend at this point no.
Michael Anderson Griffin: No change expected to the dividend or.
Michael Anderson Griffin: Anything that would trigger special.
Michael Anderson Griffin: Dividend at that point, but that's something obviously, we'll evaluate as the year. It's early in the year.
Michael Anderson Griffin: But not contemplated at this point.
James Christopher Douglas: Great, thanks. And then just wanted to ask about the rent owed by Stewart. It looks like it's about $2.6 million according to your 10-Q this morning. Is there any bad debt that's been assumed in-
Speaker Change: Okay. Thanks.
James Christopher Douglas: And then just wanted to ask on the rent owed by Stuart It looks like it's about $2 6 million. According to your 10-Q. This morning is there any bad debt.
James Christopher Douglas: <unk> in the guidance.
James Christopher Douglas: Generally, no, just kind of run rate, kind of bad debt. In terms of our guidance, you know, the range is large enough, and that amount of 2.6, I think is something that we will contemplate as we look at updating guidance through the balance of the year. But in terms of the percentage of the overall guidance and NOIs, pretty small, so I don't see it having a material impact there, and we will have to continue to watch that.
James Christopher Douglas: Generally no just kind of run rate.
James Christopher Douglas: Kind of bad debt in terms of our guidance. The range is large enough and that that amount of $2. Six I think is something that we will we will contemplate as we look at updating guidance through the balance of the year, but in terms of percentage of the overall.
James Christopher Douglas: Guidance on NOI, it's pretty small.
James Christopher Douglas: I don't see it having a material.
James Christopher Douglas: Pact, there and we will have to continue to watch that.
James Christopher Douglas: You know, we'll obviously be likely conservative in terms of our accounting of how we handle that and reserve that AR, but, you know, we are not in a position to say that that's uncollectible. And there's nothing past 90 days, so that's the key. Correct. I was just saying, Michael, there's nothing that...
James Christopher Douglas: We'll obviously be likely conservative in terms of our accounting of how we handle that in reserving that.
James Christopher Douglas: But.
James Christopher Douglas: We are not in a position to say that Thats uncollectible and Theres nothing past 90 days sorry.
Speaker Change: Sorry go ahead.
James Christopher Douglas: I was just saying Michael Theres nothing.
Speaker Change: Michael can you hear us.
Michael Anderson Griffin: Yeah, yeah. Sorry. Sorry. There's something going on with my phone. Apologies.
Michael: Yes, sorry, sorry, there was something going on my phone apologies.
James Christopher Douglas: Oh, that's okay. I was just adding that there's no AR past 90 days, so that's kind of a key point on the BAD deck.
Michael: That's okay. I was just I was just adding that theres no theres no AAR past 90 days. So that's kind of a key point on the bad debt question.
James Christopher Douglas: Gotcha. And then just Chris, real quick, is there a current amount of bad debt, like the range in your guidance? And, you know, what would be the total dollar amount assumed in terms of bad debt?
James Christopher Douglas: Got you and then just Chris real quick is there a <unk>.
James Christopher Douglas: Current amount of bad debt like the range and.
James Christopher Douglas: In your guidance and what would be the total dollar amount assumed in terms of bad debt.
James Christopher Douglas: We generally will reserve anything that's over 90 days. That's the way that we handle our bad debt. But, you know, as you'll see this quarter, we actually had a little bit of that came down. We actually had a little bit of collections, and so we're still optimistic that we can bring that back down. Our guidance does not assume that we will have collections above what we have reserved, but if we're able to do that, that would certainly help, as well as potentially offset anything that could be associated with Stewart. But, like we said, I think it's just too early to say, you know, exactly what the impact of Stewart yet is on that AR.
James Christopher Douglas: We generally will reserve that anything thats over 90 days.
James Christopher Douglas: Is the way that we handle our bad debt.
James Christopher Douglas: But as you would even see this quarter, we actually had a little bit of that.
James Christopher Douglas: Came down we actually had a little bit of collections and so we're still optimistic that we can.
James Christopher Douglas: We can bring that back down our guidance does not assume that we will have have collections above what we have reserved but if we're able to do that.
James Christopher Douglas: That would certainly help.
James Christopher Douglas: As well as potentially offset anything that could be associated.
James Christopher Douglas: Stuart, but like we said I think it's just too early to say.
James Christopher Douglas: Actually what the.
James Christopher Douglas: What the impact of Stewart, yet yet is on that on that.
Michael Anderson Griffin: Great, thanks so much.
Speaker Change: Great. Thanks, so much.
Juan Carlos Sanabria: We now turn to Juan Sanabria with BMO Capital Markets. Your line is open; please go ahead.
Michael Anderson Griffin: We now turn to Juan Sanabria with BMO capital markets. Your line is open. Please go ahead.
Todd J. Meredith: Hi, hello. Just wanted to ask about the dispositions in the joint ventures and how we should think about the impact on FFO and earnings. Granted, your stock is trading at a discount to where you see cap rates, but should we think of it as dilutive to earnings or accretive, or what's the math that you guys are doing on your end?
Juan Carlos Sanabria: Hi, Hello.
Juan Carlos Sanabria: Just wanted to ask about the dispositions and the joint ventures, and how we should think about.
Todd J. Meredith: The impact to earnings.
Todd J. Meredith: Granted your stock is trading at a discount to where you see cap rates should we think of it is dilutive to earnings or accretive or what's the math that you guys are doing on your end.
Todd J. Meredith: Juan, this is Todd. I would say we view it as acquisitive. I think maybe your question is a little more technical just in the immediate term and how that might affect earnings. I think the simple math on the immediate term is that you would use proceeds to pay off variable rate debt, which is in the low to mid-sixes. So I think that puts it right there at nearly neutral, and then it's just a question of how quickly you're repurchasing stock.
Todd J. Meredith: Juan This is Todd I would say we viewed is accretive I think maybe your question is a little more technical just in the immediate term and how that might affect earnings I think the simple math on the immediate term is that you would use proceeds to pay off variable rate debt, which is in the low to mid sixes. So I think that puts it right.
Todd J. Meredith: There at nearly neutral.
Todd J. Meredith: And then it's just a question of how quickly you're you're repurchasing stock and as you heard Chris say you are talking about potentially double digit yields on the equity portion. So thats, where you climb back quickly two very accretive the simple math, we're looking at which you can get at a couple of ways, but I'll look at it as the current implied cap rate for HR.
Todd J. Meredith: And as you heard Chris say, you're talking about potentially double-digit yields on the equity portion. So that's where you climb back quickly to be very accretive. The simple math we're looking at, which you can get a couple ways, but I'll look at it as the current implied cap rate for HR is in the high 7s to 8% range, and then we're looking at asset sales and JVs in the 6.5 to 6.75 range.
Todd J. Meredith: So that's 100 to 150 basis points of accretion. You can also look at that math more specifically around FFO yield, cost of debt, like a WAC basis versus gap cap rates, and you get very similar math. So 100 to 150 basis points accretive. I think the specific question is about how quickly you can get all that done, and we think it's actually timed out pretty well, where it should be absolutely accretive to 2024. It's just a check.
Todd J. Meredith: <unk> is in the high 7% to 8% range and and and then we're looking at asset sales and JV is in the six 5% to six and three quarters range. So that is 100 150 basis points of accretion.
Todd J. Meredith: You can also look at that math more specifically around.
Todd J. Meredith: <unk> yields cost of debt like a whack basis versus GAAP cap rates and you get very similar math, So 100 150 basis points accretive.
Todd J. Meredith: The specific question is about how quickly you can get all that done and we think it's actually timed out pretty well, where it should be absolutely accretive to 2024.
Todd J. Meredith: It's just to check, do you think it's accretive on a FAD or ASFO basis, post-CAT vaccine, given the dividend gap? Yes. Okay. And then just on the disposition front, it seems like the incremental 300 million is kind of at a seven cap. Do you see that as indicative of, kind of, market cap rates today, and is that 7th cap roughly a good placeholder for that incremental $300 million of disposition?
Todd J. Meredith: Just to check.
Todd J. Meredith: It's accretive on a fad or <unk> basis post capex and given the dividend gap.
Todd J. Meredith: Yes.
Todd J. Meredith: Okay.
Todd J. Meredith: I'm not sure where you're getting the 7-cap, Juan. Maybe you picked up something that wasn't intended.
Todd J. Meredith: And then just on the disposition front it seems like the incremental 300 million is kind of at a seven cap do you see that is indicative of.
Todd J. Meredith: And a market cap rates today and is that seven cap hopefully a good placeholder for that incremental $300 million of dispositions.
Speaker Change: I'm not sure where youre getting the seven cap one.
Speaker Change: Maybe maybe you picked up something that wasn't intended.
Todd J. Meredith: Sure.
Todd J. Meredith: I think you said that you were at six and a half. The GAB was at 6 12 and the blend was like 6 34, so roughly the same amount. We're just figuring out what one was. Oh, okay, okay.
Todd J. Meredith: I think you said go ahead was at six five.
Todd J. Meredith: The JV was at six and a half in the blenders.
Todd J. Meredith: Three quarters, so roughly the same amount.
Todd J. Meredith: Okay, okay. I see what you're saying. Now, really, what we're talking about is the transactions between the JV and these other asset sales being in the 6.5 to 6.75 range, both of them being within that range. So, we're not thinking, I mean, that doesn't mean an individual asset might not be at a 7 cap, but no, we're not thinking about asset sales being at 7. So, I think 6.5 to 6.75 is really an indicative range where we think we can transact.
Todd J. Meredith: <unk>.
Juan: Okay. Okay I see what you are saying no really what we're talking about is the transactions between the JV and these other asset sales being in the six 5% to six and three quarters range, but both of them being within that range. So we're not thinking I mean that doesn't mean, an individual asset might not be at a seven cap, but no we're not thinking about the asset.
Todd J. Meredith: Sales being at 7% I think six 5% to six and three quarters is really an indicative range, where we think we can transact.
Todd J. Meredith: Okay.
James Christopher Douglas: Great, thank you. There's just one last one. So the 2.6 million that Stewart owns, is that just the quarterly run rate that they did not pay in the first quarter? How should we think about that dollar amount?
Speaker Change: Great. Thank you.
Speaker Change: One last one.
James Christopher Douglas: So the $2 6 million that Stuart is that just the quarterly run rate that they did not pay their first quarter, how should we think about that.
James Christopher Douglas: All are about.
James Christopher Douglas: Yeah, it's a little over, it's a little over a month. It's about a, you know, but less than a month and a half, 20 months, a month and a half of rent. So, mostly April, and a little bit of March.
James Christopher Douglas: Yes, it's a little over a little over a month.
James Christopher Douglas: But less than a month and a half to a month month and a half of rent.
James Christopher Douglas: Yeah.
James Christopher Douglas: So most mostly April a little bit of a little bit of March.
Richard Charles Anderson: Our next question comes from Rich Anderson with Webush. Your line is open, please go ahead.
James Christopher Douglas: Our next question comes from Rich Anderson with Wedbush. Your line is open. Please go ahead.
Todd J. Meredith: Thanks. So the contributed properties to the joint venture were honor adjacent, which, you know, has always been your sweet spot. So by definition, you know, perhaps, you know, very much at the margin here, but you're reducing your exposure and increasing your exposure off campus as a function of this. Should we read into that, you know, perhaps getting more jazzed up about your concentric circle sort of story, or do you still remain largely committed to growing the honor adjacent side of this?
Richard Charles Anderson: Thanks.
Richard Charles Anderson: So that contributed.
Todd J. Meredith: <unk> properties to the joint venture were on or adjacent which has always been your sweet spot so by by definition.
Todd J. Meredith: Perhaps very much at the margin here, but youre, reducing your exposure and increasing your exposure to off campus as a function of this.
Todd J. Meredith: Should we read into that.
Todd J. Meredith: Getting more jazzed up about your concentric circle sort of story.
Todd J. Meredith: Or do you still remain largely committed to growing the honor adjacent side of the business.
Todd J. Meredith: Yeah.
Todd J. Meredith: Rich, I wouldn't take this as some big signal. I think the bigger message here is that the JV idea, as it has been in the past, but here with KKR, is the idea to not only seed a portfolio that looks a lot like healthcare realty as a whole, but it's also a go-forward investment vehicle that, you know, would continue to be a source of capital and, you know, diversifying our source of capital and allowing us to continue to invest in those types of assets.
Speaker Change: Rich I wouldn't take this as some big signal I think the bigger message here is that the the JV idea as it has been in the past, but here with KKR is the idea to not only see the portfolio that looks a lot like healthcare realty as a whole, but it's also a go forward.
Todd J. Meredith: Investment vehicle that would continue to be a source of capital.
Todd J. Meredith: Buying a source of capital and allowing us to continue to invest in those types of assets and that's a theme you've heard us for years talking about.
Todd J. Meredith: And that's a theme you've heard us talk about for years, really making sure we have the right sources of capital to continue to invest in the types of assets we want to invest in. So this is part of that strategy. I wouldn't read into it that we're trying to lighten up or shift our exposure away. In fact, it's probably the opposite, that we would continue to see our exposure predominantly on and adjacent to campus, you know, remaining consistent. Obviously, you're right at the margin, if you really do the math, of 80-20 on the JV.
Todd J. Meredith: Really making sure we have the right sources of capital to continue to invest in the types of assets, we want to invest in so this is part of that strategy I wouldn't read into it that we're trying to lighten lighten up our shift our exposure away and in fact, it's probably the opposite that we would continue to see our exposure to predominantly on an adjacent to campus.
Todd J. Meredith: Remaining consistent obviously youre right at the margin if you really do the math of 80 20 on the JV, maybe it tweaks it a little but we would think over time that wouldn't change materially for healthcare Realty. So so no big signal there just really part of seeing that disconnect and our public valuation versus private taking advantage of that.
Todd J. Meredith: Maybe it tweaks it a little, but we would think over time, you know, that wouldn't change materially for healthcare realty. So no big signal there, just really part of, you know, seeing that disconnect in our public valuation versus private, taking advantage of that in the near term and then, long term, having another source of capital. Okay, I know you're targeting six, six and a half on a leverage basis. I think the market would love a five handle eventually, and perhaps you would too.
Todd J. Meredith: The near term and then long term, having another source of capital.
Todd J. Meredith: Okay.
Todd J. Meredith: I know youre targeting six six and a half on a leverage basis I think the market would love a five handle eventually perhaps you would too.
Todd J. Meredith: With the additional asset sales that you're looking to beyond the 600 million, would you think that a lot of that would still go toward buyback, or would you might intermingle more in the way of deleveraging so that we can maybe test that sub six level at some point in the future? Rich, I would say we're very comfortable at 6.5 currently. I think what you're talking about is a much longer-term view and not taking it away from you, but we're focused on the near term of really driving FFO and FAD per share accretion and managing our leverage.
Todd J. Meredith: With the additional asset sales that youre looking to beyond the $600 million would you think that a lot of that would still go towards buyback or would you might intermingle more in the way of deleveraging. So that we can maybe test that sub six level at some point in the reasonable future.
Todd J. Meredith: Rich I would say, we're very comfortable at six six and a half currently.
Todd J. Meredith: I think what you are talking about is a much longer term view and not taking it away from you, but we're focused on the near term of really driving <unk> and NAV per share accretion and managing our leverage. So we think theres a number of ways that it will naturally through operational improvements in NOI and EBITDA that it will naturally.
Todd J. Meredith: So we think there's a number of ways that it will naturally de-lever naturally through operational improvements in NOI and EBITDA. But clearly, right now, we think the signal that repurchasing shares makes a lot of sense. So that's what we'll do.
Todd J. Meredith: <unk> de lever.
Todd J. Meredith: But clearly right now we think the signal is repurchasing shares makes a lot of sense. So that's what we'll do obviously as conditions evolve, we'll continue to reevaluate it but but not signaling a difference in our view on leverage at this point.
Todd J. Meredith: Obviously, as conditions evolve, we'll continue to reevaluate it, but I'm not signaling a difference in our view on leverage at this point. Okay, last for me, on the dividend, you know, I know you're, you're, we're going to grow into that in terms of the payout. Is there any part of the situation and, you know, involved in dividend policy that you simply can't do, like, because of REIT guidelines?
Speaker Change: Okay last for me on the dividend I know you were going to grow into that in terms of the payout.
Todd J. Meredith: Is there any part of the situation and involved in dividend policy that simply you can't do like because of REIT Guy.
Todd J. Meredith: <unk> lines.
Todd J. Meredith: You know, if you cut the dividend to get a better payout, but, you know, then you perhaps fall below that 90% threshold. Is that sort of intermingled into the strategy, or are you nowhere near that number? And so that's not really, Rich. I would say it's not influencing the strategy.
Todd J. Meredith: You just cut the dividend to get a better payout, but then you perhaps fall below that 90% threshold is that sort of intermingled into the strategy or is nowhere near that number and so that's not really influencing the strategy.
Todd J. Meredith: Obviously, we look at that every year and evaluate it, but it's not in our thinking that that's the concern. Our view is that we can grow into it. We think we can do that with operational improvements. It takes, obviously, a little longer by itself, and now when you add the transactions, the capital allocation priorities that we've talked about today, we can accelerate that. So it's really confidence that we can get there.
Todd J. Meredith: Net rich I would say, it's not influencing the strategy. Obviously, we look at that every year and evaluate that but that's not in our thinking that thats. The concern. Our view is that we can grow into it.
Todd J. Meredith: We think we can do that with operational improvements. It takes obviously a little longer by itself and now when you add the transactions the capital allocation priorities that we've talked about today, we can accelerate that so it's really a confidence that we can get there.
Richard Charles Anderson: Okay. Thanks. Thanks, folks. Thank you.
Speaker Change: Okay. Thanks.
Speaker Change: Thanks folks.
Speaker Change: Thank you rich thank you.
Richard Charles Anderson: Okay.
John Joseph Pawlowski: We now turn to John Pawlowski with Green Street. Your line is open. Please go ahead.
Richard Charles Anderson: We now turn to John Pawlowski with Green Street. Your line is open. Please go ahead.
James Christopher Douglas: Hey, thanks for the time. Just a few more questions on the quality of the properties and the $600 million pool of dispositions. Can you share the average age of the properties and then the kind of deferred CapEx profile, is it meaningfully better or worse than your portfolio average?
John Joseph Pawlowski: Okay. Thanks for the time, just a few more questions on the quality of the properties in this $600 million pool dispositions.
James Christopher Douglas: Sure.
James Christopher Douglas: And the shorter way to ask is average age of the properties and then kind of deferred capex profile isn't meaningfully better or worse than your portfolio average.
James Christopher Douglas: The average age is I don't have it I don't have the average in front of me but I would say generally speaking it's a little bit of a newer vintage if you will but not not some material change but I think generally speaking a little newer and on CAFX I don't have the percentage in front of me but we would we would typically say it's sort of in that similar range of a very stabilized portfolio so more in that 15% range versus you know we're spending currently a little bit more like like last year we were a little over 18% obviously that had to do with absorption and spending more on on tenant improvements but but more in that traditional stabilized range yeah I don't have the weighted average but can can give you a range of age you know the oldest building was originally constructed 92 and the the youngest was in 2017 So, let's say generally consistent with the portfolio. Most in the last 20 years, predominantly the last 20 years.
Speaker Change: The average age is I don't have it I don't have the average in front of me, but I would say generally speaking, it's a little bit.
James Christopher Douglas: The newer vintage if you will but not not some material change, but I think generally speaking a little newer.
James Christopher Douglas: And on Capex I don't have the percentage in front of me, but we would typically say, it's sort of in that similar range of a very stabilized portfolio.
James Christopher Douglas: So more in that 15% range versus we're spending currently a little bit more like last year, we were a little over 18%, obviously that had to do with absorption.
James Christopher Douglas: And spending more on tenant improvements, but more in that traditional <unk>.
James Christopher Douglas: Stabilized range and I don't have the weighted average, but can give you a range of age.
James Christopher Douglas: Oldest building was originally constructed 92 and the <unk>.
James Christopher Douglas: <unk> was in 2017, so lets.
James Christopher Douglas: Let's say generally consistent with portfolio most in the last 20 years predominantly last 20 years.
James Christopher Douglas: And then the remaining lease term, the walls on the $600 million, is it pretty close to the portfolio, your portfolio average?
Speaker Change: Okay, and then the remaining lease term the walls on the on the $600 million does it is it pretty close to the portfolio your portfolio average.
James Christopher Douglas: It's a little bit longer. It's about six years versus we're a little over four years on the on the KKRJV assets. It's a little, it's about six versus the overall portfolio being, you know,
James Christopher Douglas: It's a little bit longer it's about six years versus where we're a little over four years on the KKR JV assets its a little its about six versus the overall portfolio being a little over four.
James Christopher Douglas: Okay. Of the remaining ones, Ok, final question from me.
Speaker Change: Okay of remaining a final question.
James Christopher Douglas: You still have about 35 properties in your, what you characterize as an unstabilized bucket. There have been a lot of properties held over the last few years in this bucket. So, I'm just curious. What is the appetite to sell these unstabilized properties, these properties that are not generating nearly any NOI, and redeploying that capital elsewhere in the business? Yeah, that's certainly true.
James Christopher Douglas: Okay.
Anil: Anil question for me.
James Christopher Douglas: Still have about 35 properties in your would you characterize as the non stabilized bucket theres been a lot of properties held over the last few years.
James Christopher Douglas: Bucket so just curious.
James Christopher Douglas: What's the appetite to sell these.
James Christopher Douglas: On stabilized properties. These properties are not generating nearly any NOI.
James Christopher Douglas: Redeploying that capital elsewhere in the business.
James Christopher Douglas: Yeah, that's certainly something that we are always looking at. Also, sometimes it just can be just a timing issue, because we're where we are now, you know.
Speaker Change: Yes, that's certainly.
Speaker Change: Nothing that we are always looking at it also sometimes it just it can can be just a timing issue is that we are now.
James Christopher Douglas: Sure.
James Christopher Douglas: You know, occupancy dropped off, and it's been some time for us to release that back up. And we actually have that in this portfolio already. We've got a significant amount; I'm just trying to count the number of properties. I would say it's probably half a dozen to a dozen properties that are already 100% leased. And so it's now just turning that lease percentage into occupancy and then converting it back. So I'd say it's overall, it's a combination of our efforts that you see going on right now to drive absorption in some of those assets and then some places that, you know, if it's not a market that we're looking to grow in the long term or even a specific sub-market or cluster that we could sell out of that, out of those assets as well. But yes, long term, our goal and expectation is to continue to drive the number of properties in that unstabilized portion of the portfolio much lower.
James Christopher Douglas: Occupancy dropped off.
James Christopher Douglas: Spent some time for us to release that back up.
James Christopher Douglas: And we actually have have that inside this portfolio already we've got <unk>.
James Christopher Douglas: <unk> amount just trying to count the number of properties I would say it's probably.
James Christopher Douglas: Half a dozen to a dozen properties that are already at 100% leased and so it's now just turning that that lease percentage into into occupancy and then converting it converting it back so.
James Christopher Douglas: So I'd say, it's overall, it's a combination of.
James Christopher Douglas: Our efforts that you see going on right now too.
James Christopher Douglas: To drive absorption and some of those assets and then some places that.
James Christopher Douglas: It's not a market that we're looking to grow in long term or even a specific.
James Christopher Douglas: Submarket or cluster that we could sell out of that out of those assets as well, but but yes long term our goal and expectation is to continue to.
James Christopher Douglas: To drive the number of properties in that on stabilized portion of the portfolio much lower.
Speaker Change: Thanks for the time.
James Christopher Douglas: Okay.
Speaker Change: Thanks, John.
James Christopher Douglas: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad now.
James Christopher Douglas: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad now. We now turn to Nikita Belli from J.P. Morgan. Your line is open. Please go ahead.
James Christopher Douglas: We now turn to indicate the belly with JP Morgan. Your line is open. Please go ahead.
Nikita Belli: Good afternoon, guys. The term Medtail has been starting to come up more on conference calls recently in the retail world of medical retail, right? And is that something that you see is, you know, there's some overlap with those properties, you know, those kinds of medical offices and outpatient medical in the retail centers. Is there any similarity, any overlap, any impact that you're seeing on your business, maybe?
Nikita Belli: Hey, good afternoon guys.
Nikita Belli: <unk> net sales has been starting to come up more on conference calls recently in the retail World Medical retail by then.
Nikita Belli: Is that something that you.
Nikita Belli: You see is there is some overlap with those properties.
Nikita Belli: Medical office.
Nikita Belli: Outpatient medical and the retail centers is there any similarity in the overlap any impact that you're seeing on your business maybe.
Todd J. Meredith: It's a good question. I would say it's not a new concept, but it is certainly a trend that has been underway for quite some time.
Speaker Change: It's a good question I would say, it's not a new concept, but it is certainly a trend that has been underway for quite a while.
Todd J. Meredith: We've looked at those types of properties to buy or even develop over the years, and we're pretty selective about them. We tend to really try to focus more around the hospital and for higher-acuity services. What you tend to see in those medtail, medical retail locations, they're very convenient. They tend to have fairly low acuity services. They're very convenient for the consumer when they're doing other things in the retail setting.
Speaker Change: We've looked at those types of properties to buy or even develop over the years and we're pretty selective about it.
Todd J. Meredith: We tend to really try to focus more around the hospital and for more higher acuity services. What you tend to see in those those med tail medical retail locations. They are very convenient they tend to have fairly low acuity services theyre very convenient for the consumer when theyre doing other things.
Todd J. Meredith: In the retail setting and so we think theres a lot of room for that it's certainly needed and good for the consumer but it is generally not our target we haven't seen it be a big problem for what we're trying to do which is focus more on the higher acuity services that tend to be closer to the hospital and location.
Todd J. Meredith: And so we think there's a lot of room for that. It's certainly needed and good for the consumer, but it is generally not our target. We haven't seen it be a big problem for what we're trying to do, which is focus more on the higher acuity services that tend to be closer to the hospital in location.
Todd J. Meredith: And maybe on the development side, any new major developments or redevelopments that you plan to start over the next 12 months, and maybe some return hurdles on those potential projects versus the ones that are already in process?
Speaker Change: Got it.
Todd J. Meredith: Maybe any on the development side any new major developments Redevelopments that you plan to start over the next 12 months and maybe some return hurdles on those.
Todd J. Meredith: Potential projects versus the ones that are in process.
Todd J. Meredith: Sure. I'll just comment that, generally speaking, we have disclosure around our pipeline or in terms of our active projects. We are sensitive to the fact that, you know, starting new projects right now can be a dilutive initial exercise even though the long-term returns might be very attractive. But our comment would be that we're kind of pausing or cautious right now about starting new projects just for the moment, simply because we want to be mindful of that dilution effect in the near term.
Speaker Change: Sure I will just comment that generally speaking we have disclosure around our pipeline.
Todd J. Meredith: Or in terms of our active projects, we are sensitive to the fact that starting new projects right now can be dilutive initial exercise, even though the long term returns might be very attractive.
Todd J. Meredith: But our comment would be that we're kind of pausing or cautious right now about starting new projects just for the moment simply because.
Todd J. Meredith: We want to be mindful of that dilution effect in the near term.
Todd J. Meredith: That said, you know, we're looking at JVs that could involve development projects, both existing projects as well as new. So we're certainly looking at that as something we want to continue doing as an activity in creating shareholder value over the long-term, but we're mindful of sort of that near-term impact. In terms of return, Rob, I don't know if you have any thoughts just in terms of that. I don't think it's changed from what you've seen us disclose, but, you know, it's ticked up a bit. Yeah, I mean, I think, generally, it's going to be dependent on.
Todd J. Meredith: That said, we're looking at Jv's that could could involve development projects, both existing projects as well as new so we're certainly looking at that as something that we want to continue doing as an activity in creating shareholder value long term, but we're mindful of sort of that near term impact in terms of return Rob I don't know if you have any.
Todd J. Meredith: Thoughts just in terms of I don't think its changed from what you've seen us disclose but.
Todd J. Meredith: It's ticked up a bit yes, I mean, I think generally it's.
Robert E. Hull: Yeah, I mean, generally, it's going to be dependent on how well leased it is and how much risk you're taking, but in prior quarters and years, we've sort of used 100 to 200 basis points above where we think similar stabilized assets are trading today. So if they're in the mid-sixes today, you're probably looking in that 8 to 9 range on a new development. Redevelopment; certainly, we target higher returns for that.
Robert E. Hull: It's going to be dependent on how well leased it is and how much risk youre, taking but.
Robert E. Hull: In prior quarters and years, we sort of use the 100 to 200 basis points above where we think.
Robert E. Hull: Similar stabilized assets are trading today so.
Robert E. Hull: I think if they are in.
Robert E. Hull: In the mid sixes today, you're probably looking in that in that eight to nine range on a new development.
Robert E. Hull: Redevelopment, certainly certainly we target higher returns for that.
Robert E. Hull: Yeah.
Robert E. Hull: Okay.
Robert E. Hull: Yes.
Austin Todd Wurschmidt: We have a follow-up question from Austin Wurschmidt with KeyBank. Your line is open, please go ahead.
Robert E. Hull: We have a follow up question from Austin <unk> with Keybanc. Your line is open. Please go ahead.
Austin Todd Wurschmidt: Yes, thanks for taking the follow up just another one on the asset sales I guess is the goal to sell some some of the more stable assets into joint ventures or outright. So that you can monetize that value and I guess on the flip side could we see any improvement in your same store growth for either the single.
Todd J. Meredith: Just another one on asset sales. I guess the goal is to sell some of the more stable assets into joint ventures or outright? And I guess on the flip side, could we see any improvement in your same-store growth for either of those? and Tenant Assets last quarter and the impact they have. Yeah, Austin, I think you're right at the margin where it makes sense to be selling and JVing stabilized assets simply because we're looking at the assets we can really get that multi-tenant occupancy gain pushed through the company's bottom line.
Todd J. Meredith: Tenant assets that you sold last quarter and the impact they have on single tenant growth and then similarly for the multi tenant assets that you announced this quarter. Thank you.
Speaker Change: Yes Austin.
Todd J. Meredith: Thank you right at the margin that it makes sense to be selling and JV ing stabilized assets simply because we're looking at the assets we can.
Todd J. Meredith: Really get that multi tenant occupancy gain.
Todd J. Meredith: Pushed through the company's bottom line and so that's where we have a lot of optimism. Obviously there are some that fall out of what Chris addressed early on the unstable properties, where we may just say hey, we don't think we can drive occupancy. There. We'll go ahead and sell that but on the margin I would say you would see us JV ing.
Todd J. Meredith: And so, that's where we have a lot of optimism. Obviously, there are some that fall out of what Chris addressed earlier on the unstabilized properties where we may just say, hey, we don't think we can drive occupancy there. We'll go ahead and sell that. But on the margin, I would say you would see us JVing more and selling more stabilized assets. And certainly, today in the market, financing is more conducive to those types of properties.
Todd J. Meredith: More and selling more stabilized assets.
Todd J. Meredith: And certainly today in the market financing is more conducive to those types of properties that said as I. Just mentioned, we would also look at potentially JV ing. Some development projects, whether they are existing projects or new projects. So we're looking at both of those and I think I don't know, Chris if you want to touch on the impact that could have I think it's too early to really get <unk>.
Todd J. Meredith: That said, as I just mentioned, we would also look at potentially JVing some development projects, whether they're existing projects or new projects. So, we're looking at both of those. And I think, I don't know, Chris, if you want to touch on the impact that could have. I think it's too early to really get too far into the impact of how that might change the same store. We'll obviously update that as we make progress on asset sales or JVs. Yeah.
Todd J. Meredith: Too far into the impact on how that might change same store, we will obviously update that as we as we make progress on asset sales or JV, yes, I agree.
Speaker Change: Got it thank you.
Todd J. Meredith: This concludes our Q&A. I'll now hand it back to Todd Meredith for closing remarks.
Speaker Change: This concludes our Q&A.
Todd J. Meredith: Back to <unk> for closing remarks.
Todd J. Meredith: All right. Well, thank you, everybody, for joining us this morning. We appreciate your time, and we look forward to visiting with many of you in the next few weeks at various conferences. Thank you, everybody. Have a great day.
Todd J. Meredith: Alright, well. Thank you everybody for joining us. This morning, we appreciate your time and we look forward to visiting with many of you in the next few weeks at various conferences. Thank you everybody have a great day.
Operator: Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
Operator: Ladies and gentlemen, today's call is now concluded. Thank you for your participation you may now disconnect your lines.
Operator: Yes.
Operator: Okay.
Operator: Yes.
Operator: Okay.