Scott Brinker: No, the fourth quarter number was an outlier. I mean there may be select spaces within the portfolio that would have a negative renewal rate mark-to-market, but that was an outlier. I think 10-year-old TIs, the tenant that wanted to stay in the space with credit – investment-grade credit, no downtime, no TI. So, I mean that was a unique situation. I wouldn’t expect a lot of those.
Mike Mueller: Got it. Thank you.
Scott Brinker: Thanks Mike.
Operator: Your next question comes from the line of Vikram Malhotra with Mizuho. Please go ahead.
Vikram Malhotra: Hi. Thanks for taking the questions. Just maybe first on CCRC rent, I know you mentioned at some point, you might look to divest. But I was a bit surprised just I thought the growth would be higher, at least I was anticipating it and just looking at the outlook. I thought there would be a more sort of robust outlook. So, maybe if you can just compare and contrast or just give a sense of if you are seeing something different from your earlier expectations?
Scott Brinker: Yes. Well, we still see some occupancy growth in 2024. Rental rates will grow, but more in the mid-single digits as opposed to high-single digits just given the fundamentals in that sector. Then obviously, we have had a huge benefit from contract labor coming down over the past 18 months. We are largely through that benefit. We have very little contract labor in the portfolio today. So, you just lose a lot of that benefit in same-store. So, I mean that’s what’s happening at the property level. And then obviously, our accounting for this asset class has an impact as well. Most of the income in this portfolio comes from the prepaid rents on the non-refundable entry fee. That’s usually more than 75% of the total NOI and we just have this GAAP accounting method that we amortize all the entry fees.
And we are leaving roughly $40 million of earnings on the table relative to the cash NOI that’s actually being generated. So, unfortunately, our reporting for CCRCs does not really reflect the underlying performance of that asset class, but chalk that up to GAAP accounting, unfortunately.
Vikram Malhotra: Okay. That makes sense. And then you mentioned sort of relationships or key in MOBs and you have got a great HCA program. I am just wondering two subparts to that. One, is there a likelihood of the HCA program expanding, becoming bigger or other types of properties within HCA? And then second, just is there a pathway for similar programs with larger health systems?
Scott Brinker: The answer is yes across the port. I mean there is a massive opportunity to help these big health systems grow their outpatient network. I might ask John to comment specifically.
John Thomas: Yes. Hey Vikram. I think you are aware, we have been doing this with Northside in Atlanta, have a project that’s actually about to top out and further opportunities on the Northside pretty routinely. Same thing at – we both – both organizations have a great relationship with owner help, and we continue to have development opportunities there as well to come, so standby. But those are just a couple of great examples in fantastic markets.
Operator: Your next question will come from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.
Austin Wurschmidt: Great. Thanks. Scott, you flagged the estimated mark-to-market on lab of 5% to 10%. I am just curious how that compares to the lease expiration you have over the next several years? And I am also curious if there is – what sort of the variation between larger versus smaller requirements? You noted some strength in sort of that smaller segment requirements, so any detail would be helpful. Thank you.
Scott Bohn: Yes, sure. On the mark-to-market, I think it’s slightly lower in the very near-term just with the Amgen leases rolling. It’s kind of weighed down a little bit, those were relatively high rent that grew over that 20-year period as what Pete mentioned. And then on the tenant demand side and leasing, we have talked about over the past several quarters, I mean if you look across all three markets, the after demand probably somewhere between 60% to 75% of that is sub-30,000 square feet. So, it’s been really the strike zone for deals over the past six months to nine months.
Austin Wurschmidt: Yes. But even as we get into sort of ‘25 and ‘26, I mean do you expect that still to be pretty muted, or is there any opportunities? I know you guys have flagged in the past, I think ‘25 was going to be a little bit of a more attractive year. Like does that then reaccelerate still as we get into next year, or has the gradual moderation in market rents sort of wiped away some of that upside?
Scott Brinker: It’s more of the former. ‘23 and ‘24 were more modest because of Amgen and it starts to pick up a lot more materially in ‘25 and thereafter. But keeping in mind, Scott’s bigger picture comment that it is down year-over-year from what we would have said a year ago just because of market fundamentals. But this should be the low point on the mark-to-market, and then we will gather some momentum into ‘25 and beyond.
Austin Wurschmidt: That’s helpful. And then you guys gave a little bit of color around sort of the thoughts around synergies. But I guess I am just curious how much of that $40 million do you think kind of hits right out of the gate when the deal closes? And what is sort of that go-get for the balance of the year? How would you kind of break down the cadence of that? And then thinking about maybe what could end up getting put forward even or even upside beyond maybe the high end of that, just curious about the latest thoughts. Thank you.
Pete Scott: Yes. Hey Austin, it’s Pete. I keep hoping one of these days we will open three combos and see five thumbs out that are green, but it wasn’t this quarter. Maybe it will be next quarter.
Austin Wurschmidt: It just means you do.
