Chris Caton: Hi. It’s Chris. Yeah. Indeed, we saw international outperform in the fourth quarter. Our view is that it’ll outperform in 2024. And there are wide range of international markets that are enjoying really strong market rent growth. Latin America, both Brazil and Mexico. Turning to Europe, probably Northern Europe is the strongest, and then here in North America, Toronto is a market that’s also enjoying outsized growth.
Tim Arndt: Yeah. UK is outperforming too.
Operator: And the next question comes from the line of Vikram Malhotra with Mizuho. Please proceed with your question.
Vikram Malhotra: Hi. Thanks for taking the question. Just two quick ones. So, just first of all going back, Chris, I guess to your comment around 250 million in demand, if I heard that correctly in ’24. Can you just give us what’s the actual number in ’23, you’re comparing that to? And with your leading indicators just how long does the — do the leading indicator sort of take in terms of conversion to leases? So, that’s just the first one to understand the comparison of the trajectory. And then second, do you mind just giving us some specifics on what you’re baking in for numbers for cash rent spreads and where portfolio mark-to-market is? Thank you.
Chris Caton: Hey. It’s Chris. Thanks for the question, Vikram. I’ll take the first one. So, 250 million square feet of net absorption in 2024 compared to 192 million square feet of net absorption in 2023. And we consult a wide range of leading indicators, some of which are contemporary and some that have a nine months to 12-month lease.
Tim Arndt: Vikram, I’ll take on the — excuse me, it’s Tim, on the lease mark-to-market. I’ll just say again, I don’t particularly value the cash view of the lease mark-to-market. I think it’s fraught with a few issues. But to answer the question, we saw that 49% at the end of the year. And I would expect, we’ve seen a pretty wide divergence in cash to net effective of rent spreads because of a few things, the absolute level rents has been so high and the bumps has been pretty large around 4% as you’ve known. So the roughtly…
Chris Caton: And also Duke.
Tim Arndt: Duke is a factor as well, of course. So, the roughly 20, 25 points that we’ve been seeing lately, I expect we’ll see mostly continue into next year.
Operator: And the next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.
Todd Thomas: Hi, thanks. Just wanted to ask about capital deployment, two questions actually. First, can you talk a little bit more about the acquisition pipeline today and whether you are seeing an increase in seller interest to transact more deals coming to market and more product hitting the market? And then second, the spread between stabilized yields and cap rates for both development stabilizations and new starts narrowed in the quarter, can you talk a little bit about that trend in spreads and what we might expect in ’24, particularly as you move forward? Just given the mix of build-to-suits in spec developments and some of the higher and better-use projects that you’re ramping up on.
Dan Letter: Todd, this is Dan. I’ll respond to your questions here. First of all, yes, is the quick answer to your first part of the question regarding the acquisition pipeline. Our teams are out there, turning over every stone, but it was a low-volume year in the marketplace last year and I expect that to be much, much higher this year. So, very strong acquisition pipeline. And then spreads on the stabilized yields in our development portfolio, yeah, we’ve been talking for the last several quarters about that tightening. I remember five, six quarters ago talking about cap rate expansion and that spread tightening and what that would do to impact overall development portfolio. And that really just has to do with the cost of capital, volatile capital markets and who knows where that’s going to go from here.
It’s certainly going to have something to do with the tenure and what the tenure does and the volatility in the capital markets. But overall, we build in forward risk in our overall development portfolio for the numbers that you actually see in that spread. Go ahead, Tim.
Chris Caton: Yeah. I’ll just highlight, I think if we look at the development portfolio, see the margin they are estimated at 22. Historically, that’s still a very good margin. And under conservative, underwriting assumptions, I would remind everybody we’ve got an inflated cost to carry. And there we’ve got longer lease-up times and things that we expect that will be. So I am pretty confident will be several points above that estimated margin anyway.
