Operator: Your next question comes from Joshua Dennerlein with Bank of America. Please go ahead.
Joshua Dennerlein: Yes. Hey, guys. I just wanted to follow up on some of your opening remarks on the lease escalators. I think you said you — for you just signed in 4Q, I think, 2.9%, up from 2.4% in the in-place portfolio. I guess how are the current conversations going for leases renewing in 2023? Are you able to push a little bit more aggressively on the go-forward leases?
John Thomas: Hey, Josh, great question. That’s one of the things that just kind of understated in our comments.
Joshua Dennerlein: Hello?
Operator: Sir, you may proceed.
John Thomas: Maria, can they — can you hear us?
Joshua Dennerlein: Yes.
Operator: Yes. I can
John Thomas: Hey, Josh, can you hear us okay?
Joshua Dennerlein: Yeah. Went out, basically, right when you started talking.
John Thomas: Oh, the best comments I’ve ever made on an earnings call.
Joshua Dennerlein: That’s what I figured. All the good stuff.
John Thomas: Yes, exactly. Shoot, the stock would have gone up 20%. No, just kidding. Hey, Josh, what I was saying was, I think 60% or more of our leases in the fourth quarter, we renewed with — average annual increase was over 3% or 3% or more. And the compounding effect of that is probably the best thing we can do in our leases and just moving our, kind of, average annual escalator up from 2.4%. I think we’re up to 2.5% now, and we continue to move that up. So those conversations continue to be strong. And we continue to have a, kind of, some negotiating power in the average annual increase sort of to move those up beyond historical averages. And our leasing team, led by Amy Hall and her team, are doing a great job, kind of focus on not only in the renewal rate, which again, for last year, was 6% or more, but also that average annual increase.
So, we try to get CPI, we try to get floors in that CPI increaser, but just moving that number up has a long term compounding effect. We don’t sign one-night leases or two — or 30-day leases or even one year leases. We signed five years or more increase — re-leases and extensions on existing leases. And that average increase was a really important part of our strategy to grow in a way over the time.
Joshua Dennerlein: Okay. Appreciate that color. And then, maybe one big picture question for me. Any kind of, like, changes you’re seeing with health systems in the current environment kind of coming out of COVID? I know they did have labor pressures. Just some challenges on that front. Like, anything they’re looking to do differently that might help your business or hurt it a little bit? Just trying to get a sense of the landscape.
John Thomas: Yes. Since 1982, there’s been a push by Medicare and payers to move more care out of the hospital into outpatient settings. And I think health systems realized during COVID, they don’t have enough outpatient space available for the kind of demand in their markets. And so, what we’re seeing differently from health system is a more intensive strategy to open new outpatient locations, in strong democratic locations and that’s what’s leading to a lot of development opportunities for us. All health systems, investment grade and otherwise had challenges in 2022 with inflation and labor shortages and stress of labor and things like that. We’re starting to see that stabilize. And the revenue side or the reimbursement side of healthcare is always a lagging indicator, not a lagging indicator, lagging impact on their P&L statements.
