Michael Mueller: Okay. So new leasing is in there as well.
Operator: [Operator Instructions]. The next question comes from Michael Gorman from BTIG.
Michael Gorman: Just wanted to maybe synthesize some of the questions here. Obviously, one of the questions on the dividend and then thinking about the 2024 outlook earlier last year. And as we start to think about how ’24 plays out and going into ’25. I just want to make sure if I’m doing my math correctly, the implication here is that if you kind of move towards dividend coverage in 2025, it’s kind of in that 6% to 8% FAD growth in ’25 is what would be implied. I know you’re not giving guidance, but like is that the way to think about how ’24 plays out is that the run rate by the end of the year is going to be such that kind of mid- or even upper single-digits FAD growth is what we’re looking at in the out years?
Todd Meredith: Mike, I would say you’re directionally headed the right way. I think it’s early to be calling that for sure, for ’25 and an earlier question was asked about we’re obviously very bullish on our multi-tenant side. And our single-tenant side is fine. The retention rates are strong, but backfilling single tenant vacates have typically a lag effect. And so we don’t have perfect visibility into expirations for single tenant as an example, in ’25. So it’s early to call the net number, if you will. But you’re right in terms of what the implied math, implied dividend coverage would suggest in terms of the growth potential in ’25. So we’re certainly bullish on that and see a very strong uptick going into ’25. Now like everyone, we’re watching interest rates.
We’re looking at all that, but we’ve brought our variable rate exposure down significantly. We don’t have big maturities in ’24. So from what we can see, we can see that exit velocity of ’24 being quite strong as you said.
Michael Gorman: Okay. Great. And then maybe just helping me out on that as you think about that. I mean exiting ’24, you see a lot of strong absorption, a lot of leasing momentum. So obviously, the NOI coming online is a benefit. Should we expect a normalization in CapEx as a percentage of NOI as well as we get towards the back half of ’24? So if I’m thinking about the guidance of $140 million to $160 million, is that going to be front-end weighted as we think about the CapEx bill this year?
James Douglas: I think it really depends on the ultimate timing of being able to sustain additional new leasing moving forward to the back half of the year and even moving into ’25 but we are certainly seeing a bit of an escalation right now. We ended up for the year, I think it was 18.4% in terms of percentage of NOI that we spent on maintenance CapEx. I would say that what we’re seeing for ’24 is a similar amount. But even if you stay at that level just because you start getting the additional NOI from all of the leasing that occurred late in ’23 and then all the way through ’24, it still drives a benefit. So I think that your earlier question of can we see much stronger growth in FAD? I think the answer is yes, even without assuming a significant decline in your maintenance CapEx as a percentage of NOI.
I would still say that I would think that if we get back to a regular — call it, 15% of leases that are expiring every year, that’s probably the percentage of NOI that you’re talking about of spending on maintenance CapEx. So if we do see some normalization, it’s going to be to that degree. It’s not like we’re assuming that that maintenance CapEx number is going to be cut in half or something.
Michael Gorman: Okay. Great. And then maybe just last one for me. Just on the JV, obviously, being conservative not including that in guidance. How should we think about that conservatism? So if I look at the bridge in your release this morning, is the kind of $5.5 million to $7.5 million of dilution from additional dispositions, is that in place of the JV? Is that the conservatism? Or I’m just trying to understand the potential benefit if the JVs do come to fruition over the course of the year. Does that take the place of those dispositions? Or is it coming through fee income? Or how does that play out?
Todd Meredith: No, I wouldn’t necessarily say it’s a substitute. I think I would continue to expect the disposition. Some of that is just our normal course portfolio optimization. And I think that level is not an unreasonable run rate for us going forward, call it, $200 million, plus or minus. The JV, really, the way to think about that would be maybe 2 ways. One would be to simply say, hey, we have proceeds, we can buy back stock. We could obviously pay off debt, some combination of that for a leverage-neutral impact, and that would be accretive. Obviously, timing is the key point there, how much of that do you get in a year. And then maybe the other way to think about the positive would be maybe somewhat related, but would be to say, hey, if we did anything that involved our redevelopments or developments, it would certainly reduce capital spend that we would have and then you would enhance your return on what dollars you do continue to commit to — smaller dollars that you do commit to those projects.
So again, timing would be a key impact there. So it’s really sort of what do you do with the proceeds from the joint venture structures and what’s the timing of that. And so obviously, since we’re not giving specific direction on that, we’re keeping it out of guidance, and then we will certainly update and layer that in as we progress and have more specifics on that.
Operator: The next question comes from John Pawlowski from Green Street.
John Pawlowski: I want to go back to Juan’s question on what’s changed between now and last May when you signaled total same-store growth from 4% to 6%. And I don’t really care about guidance and things change, but more concerned about a structural shift in the pricing power in the portfolio, stickiness and tenants. And so — I know you pointed to expenses being more challenging, it feels like to divide between 3% same-store growth and 4% to 6% previously signaled is much more — it’s much bigger than just expenses. So can you talk — can you just expand on that? What’s changed in terms of retention of tenants with the multi-tenant or single tenant. What’s changed in the portfolio? It’s a big shift.
Todd Meredith: Yes. I think the way to think about it is, obviously, all the different pieces that go into same-store growth, the occupancy piece, I think probably is one of the key things was really talking about same-store versus total multi-tenant. Obviously, what we see a lot of upside in is even some assets that aren’t in same-store. And those will, over time, roll into same-store. So they could actually come back in and increase same-store but we have assets in our redevelopment side, our development side that generate a lot of upside. And so that’s really why we put the bridge together to really illustrate how all of our multi-tenant properties do get into that range. And over time, that may become really the same-store, but it’s going to be a matter of when those projects roll or when those properties roll into same-store.
But beyond that, at the edges, I’ve talked about some of the challenges have been retention as well. It’s subtle, but it’s an important difference. We’re running currently. I think for the year, we were at about 79%, for the quarter, we’re about 78%. That really needs to hit 80% and really get up there to kind of drive fully the positive absorption that will get us to that 4% to 6%. We’ve been somewhat conservative in what we have in our bridge. We’re not assuming a huge change in that retention, but that would be a bonus or a plus to what we see there that would push it further. Obviously, I mentioned, we already talked about operating expenses. The one other one that I think we’re touching on, but maybe not in the right context here is the single tenant side.
And that certainly is — was lower for us in ’23 and also expected in ’24 simply because of those 2 properties that Kris talked about. So those growing at about 1% is below the escalators that are in place in the single-tenant portfolio of about 2.5. And so that difference is a little bit of a drag on that. So again, we may be able to address some of that. As Kris said, we’re looking to sell one of the assets. The other is a redevelopment play. And so as those evolve and we are able to work out some improvement, we’ve conservatively assumed those go to 0. But if we can generate additional growth out of those, some leasing out of those or a sale, that will help. So there’s some conservatism there, but I would say that’s another piece to the puzzle.
John Pawlowski: Okay. I appreciate all that. Todd, second question on balance sheet and just how you’re managing the duration of the debt. So average months to maturity of — or average years to maturity about 4 years. If you got $1 billion of interest rate swaps expiring 3-ish years, should we expect this type of duration on the balance sheet to remain pretty similar? Or are you more open to issuing longer-term unsecured debt and taking refinancing risk off the table?
James Douglas: Yes. No, I think — this is Kris. I’ll jump in on that. Yes, with everything that’s gone on in the last couple of years related to interest rates going up and the volatility and everything associated with that, we obviously haven’t issued any new long-term debt. But that is always on the table. We’re always looking at that, and it certainly has improved from where we were, call it, 4, 5 months ago, but then you got to look at your use of proceeds. And so if we were to do something like that right now, we don’t really have a matching use of proceeds to be able to redeploy those accretively. But we certainly would anticipate as we move forward that we’d be looking at a long-term debt as a source of financing and refinancing of expiring debt.
Todd Meredith: Yes. Our first debt or unsecured bond maturity is next summer ’25. So certainly, as we get closer to that, we’ll be keeping an eye on that opportunity to extend that maturity and duration as you said.
Operator: [Operator Instructions]. We have no further questions. So I’ll hand the call back to the management team for any concluding remarks.
Todd Meredith: Thank you, Adam, and thank you, everybody, for joining us this morning. We will be available for your follow-up and questions, and we look forward to seeing many of you at some upcoming conferences. Everybody, have a great day. Thank you.
Operator: This concludes today’s call. Thank you very much for your attendance. You may now disconnect your lines.
