Jason Fox: Let me start, I can let Brooks jump in there on how we’re evaluating going forward within the portfolio. I mean I think the short answer is no. We’re comfortable with our business model in underwriting process. It focuses on buying high-quality real estate and importantly, with companies that we believe in from a credit standpoint, we do target just below investment grade. We think that’s the sweet spot to invest in net lease. We can dictate terms, whether it’s rent increases, lease terms, other provisions or covenants within these leases. And then very importantly, we mentioned this with respect to Hearthside. It’s also played in [indiscernible] and that we buy highly critical real estate. That’s very important to tenant operations.
And even if there is a restructuring, like in the case of Joann, our rent was continue to be paid throughout — in the exited bankruptcy without any disruption. And that’s our business model. We’ve done very well, and our portfolio has performed very well over decades and through numerous economic cycles. So no, I think that the approach is still the same. But yes, we’re always very focused on credit. And we spend, I would say, the majority of our time underwriting deals, talking to the tenants, understanding their market position, meeting with management. But yes, we like our business model.
Greg McGinniss: Okay. And just a final question. More for our education. In terms of the lease renewal process, when does that tend to take place? And just looking at the top 10 disclosure, FM Logistics looks like it’s expiring at the end of next year. When would we typically see a renewal be taking place?
Jason Fox: Brooks, do you want to take that?
Brooks Gordon: Yes, it really takes a few different approaches, and we pursue them all. So we — it takes anything from — we could be as proactive as, say, 5 years in advance for certain situations where we pursue what they call blend and extend transaction, and we’re very proactive with that. We’ve taken that approach for many, many years. There are other situations where we either really like our position or we — the tenant maybe has already signaled to us something where we might wait until later in the lease and not negotiate. you’ve referenced FM Logistics, it’s — I think it’s our 24th or 25th tenant. We’re in active discussions on that, expect we’ll renew them on the majority of that square footage. And so we take a very proactive approach.
But I think the good rule of thumb is around 3 years in advance of lease expiration on balance is kind of where we’re most active in those discussions. And that’s where we see a lot of the leasing activity in our quarterly disclosures.
Greg McGinniss: So when might we expect to see something on FM?
Brooks Gordon: I can’t comment on that specific transaction, but there’s an active situation with them now.
Operator: Our next question comes from Joshua Dennerlein with Bank of America.
Unidentified Analyst: This is on behalf of Josh. I was wondering if you can give color on the guidance assumed as far as your operating assets.
Jason Fox: Toni, do you want to take that?
Toni Sanzone: Sure. Yes. The midpoint of our guidance range assumes our self-storage is generally flat to last year on a same-store basis. And — in general, I think we gave guidance in a full range, which includes the few hotel operating assets that we continue to hold. We do expect to sell one of those this year. But on whole, we expect about $85 million to $90 million of operating NOI and that’s from the total portfolio.
Unidentified Analyst: Okay. And in terms of your — the remaining office assets, is there any kind of insight, if is — may be closing still within that first half of this year that you had mentioned last quarter?
Brooks Gordon: Yes. So we’re making really good progress there. Again, to reiterate, we’ve closed around 80% by expected proceeds. We’re making very good progress on the balance. Another 4 of the larger transactions are under contract and in various stages of closing. That represents another, call it, 17% or 18% by way of proceeds. On the very small amount, that’s outstanding beyond that. We’re evaluating offers now. So we’re making good progress. We think we’re in line with what we discussed in the last several quarters in terms of total proceeds and pricing. So we think we’ll get it done. 1 or 2 transactions — 1 transaction, it’s awaiting a tax ruling under a binding contract. So that’s a little bit out of our control, but it’s not material to guidance, but we do expect we’re on track for that.
Operator: Our next question comes from Eric Borden with BMO Capital Markets.
Eric Borden: I was just hoping you could talk about the overall health and strength of your portfolio. Is there — just given your insight into the tenant financials, is there maybe a pool of tenants that have kind of moved lower but not hit that watch list criteria? And then, conversely, is there — are you seeing signs of strength in any of your tenant industries?
Brooks Gordon: Yes. So to answer your question in a few different ways, I mean, first, I think overall credit quality is very consistent with where it’s been in recent years. Investment-grade ABR is about 1/4 of the portfolio. As I mentioned, watch list is around 5%, so that’s picked up a little bit, and that’s really concentrated in a few tenants that we’ve discussed. Broadly speaking, the overall credit distribution of the portfolio has remained pretty constant, especially at portfolio scale. Certainly, credit for any given company is a — can migrate over time up and down. For example, something like half of our investment-grade tenants were sub-investment grade when we acquired them. And so that credit migration can happen in both directions.
