Laura Clark: Yes. We haven’t provided a same-property outlook beyond 2024. But obviously, we are providing you with a three year look at our embedded internal growth, which is $240 million of NOI on a cash basis that represents 42% cash NOI growth.
Vikram Malhotra: And just to clarify, does that 14 to 17 assume steady state like no more properties are repositioned?
Laura Clark: That assumes the current pipeline that we’ve disclosed current pipeline and what we have in process of repositioning and redevelopments at does not have anything outside of what we’ve already disclosed.
Vikram Malhotra: Got it. Okay. Just second, you mentioned the pipeline sort of what’s under contract or I think near-term close. But just from a broader perspective, given the kind of stress in the market. Is there a sort of a broader dollar number you can talk about? Like what are you pursuing in 2024? We’re just trying to get a better sense of like where volumes, acquisition volumes could shake out for the year.
Howard Schwimmer: We really can’t offer guidance on acquisition volume because it’s the one variable we really don’t know. But as Michael pointed out, we have capital. There’s not a lot of capital floating around that can be placed in the market. So we’re in a great position to capture opportunities, but it’s really — it’s just too difficult to give you an idea of what an opportunity could be like that we don’t know about.
Vikram Malhotra: Okay. And just lastly, I wanted to go back for a more competitive question. You cited sort of your infill SoCal markets, 2.7% vacancy I’m just having a hard time reconciling like you have extremely low vacancy, yet you’re seeing higher incentives, arguably no rent growth. I know you haven’t given a market rent growth forecast. But just going by the last data point, no sequential rent growth and then you talked a little bit about bad debt. So I’m just trying to wonder like how competitive is the market in general? And your product, what things are you watching to sort of say, hey, we’re still going to see a gap in fundamentals between our product versus the broader SoCal market.
Michael Frankel: Hi Vikram, thanks so much again for joining us today. First of all, the markets have performed well. Let’s be clear. I mean, with the exception of the IE West, for instance, we saw about 4% growth in the rest of the infill markets that we’re in, which cover 80% of our portfolio in the Greater LA, Orange County, a little bit of San Diego, a little bit in Ontario markets. So the backdrop actually is strong, not weak. And those are great growth rates, actually, particularly given the uncertainty that we saw over the prior year with interest rates and all the rest. And so we’re not too worried about fundamentals. And I think perhaps we were spoiled during the pandemic period, where we saw unsustainable fundamentals and rent growth and occupancy levels.
And the matter how much we try to prepare the market for the fact that those were not very sustainable. Again, it’s a change. The fundamentals remain very strong. And the important thing also to remember is that although fundamentals are strong, reflecting more 2019 levels, which again was a very strong market. So when Laura talks about 1.5-months concessions and that sort of thing, that is a — those are indicators of a very strong market. And yes, some space will lease up in much less time and less downtime. But on an average basis, that is a very strong market. And I think it’s also important to remember that our product is vastly superior in terms of functionality and location as compared to the broader market. And so irrespective of what we may be seeing in the broader market, our portfolio has been outperforming, and I think there’s some great data in our investor deck to that effect, and we expect it will continue to outperform the general market because our properties are better positioned, more functional, our properties are actually of more value to tenants because they can be more productive within our spaces.
So the outlook, I think, is not negative. Actually, to your question, it’s quite positive in terms of the underlying fundamentals.
Vikram Malhotra: Okay. No, fair enough. I was just trying to square that with where the market rent growth is.
Operator: Our next question comes from the line of Vince Tibone with Green Street.
Vince Tibone: How much of the issues at the Suez Canal impact the SoCal Seaport? From what I’ve read, it seems like most ships now avoiding Suez are going around the Cape instead of going through the Pacific and into SoCal. So I’d just love to hear any color you have or you’ve been hearing from your tenants on this topic and how maybe shipping routes are evolving as the situation unfolds?
Michael Frankel: Well, diverting the Suez to go down around the Cape increases time and cost. And even without that, we had a substantial time and cost advantage even compared to going through the Suez Canal, originally associated with coming direct to the Ports of Valley and Long Beach. And so obviously, that benefit in terms of timing and cost here is accelerated and becomes a greater advantage. So we think it does have some positive impact. And I think it also there was some concern about diversification away from Los Angeles and Long Beach, and I think that that’s just really not the case. Actually, LA turns out to be about the safest and most reliable entry point into the United States, which I think reflects in the volumes that we’re seeing.
Howard Schwimmer: And I’d like to add to that also, I think really for the ports and this increased activity, a lot had to do with the labor contract finally solidifying and I saw JLL had some information recently that wrapped a 15% increase just associated with the port contract completion pretty quickly after that was done. So Suez, Panama, et cetera, could lead to incremental activity. But that’s really not the driver. Again, it’s Michael’s comment to the cost and timing.
Michael Frankel: And by the way, Vince, just to add one final note. I think it’s important to recall with respect to our portfolio, that our tenant base demand for their goods and services is predominantly driven by regional consumption. So this is a great benefit that the ports are operating, labor is stable, et cetera, et cetera. But at the end of the day, we’re very much distribution and consumption driven. And we’re serving the largest zone of regional consumption, the most diverse economy in the country here in Southern California by far. So that really was what’s driving these superior fundamentals.
Vince Tibone: No, that’s all helpful color. I appreciate that. I have just 1 quick clarification on just the comments around concessions. I just wanted to confirm that 1.5-months of free rent per year is in regard to new leases? Or are you guys expecting to have to give any form of concessions on renewals to kind of keep people in their spaces?
Laura Clark: Yes, Vince, that’s an aggregate number, so that includes new and renewal.
Vince Tibone: Got it. And it’s like — so is new — like just in terms of the broader marketplace, like is new lease concessions increasing pretty significantly. I don’t mean to keep asking the same question, but just any — any color on maybe what the overall market is doing versus just your expectations would be helpful as well.
Howard Schwimmer: Vince, the new leasing concessions we’re seeing are going to be a bit higher than renewals. And again, it’s really space driven and location driven. So have an abundance of a certain product size in a particular market, you’re probably going to see a little heavier concession being offered.
Michael Frankel: And by the way, I’ll just add 1 more thing here, Vince, where we do see maybe heavier concessions, for instance, in the IE West. We also see that stabilizing. We see absorption over the near-term for the size ranges that have a little bit of additional supply compared to historical periods, and we do see that reverting to a more normalized supply/demand scenario, hard to predict, but arguably over the next 12 months or so.
Operator: Our next question comes from the line of Nikita Bely with JPMorgan.
