John Kim: I’m just wondering with one of the tenant issues you didn’t have the money to watch list last quarter. So it obviously came as a surprise. Yes. I mean the question is that these can be others that are not on your watch list today that could pop up.
Brooks Gordon: Yes. Certainly, Hellweg rapidly developing situation. Really, that came into play at the very end of last year. It’s a company that operates with a higher leverage point and a somewhat smaller overall scale. But they’ve operated very consistently for 20-plus years with that set up. And a variety of factors really contributed to what we saw as a very quickly evolving situation. And so we really wanted to be proactive work with their other stakeholders to put them on a better path. So agreed that wasn’t one we had seen a year out, but it’s something we’re addressing proactively and working through it.
Operator: Our next questions come from the line of Anthony Paolone with JPMorgan.
Anthony Paolone: So Toni, on the same-store, I guess you gave the contractual expectations that close to 3% in the first quarter and then drifting down. But like, I guess, if we incorporate the industrial vacancy, these couple of credit items, and then I guess you said another 70 bps, like where does that land us from just a core number for ’24 or like on a comprehensive basis?
Toni Sanzone: Yes. I think the expectation, especially with the rent abatement for Hellweg expected to happen in the first quarter is that would be most negatively impacted our first quarter and then that would sort of stabilize, but still be down over the course of the year kind of reflecting the various items that I highlighted. So I do think that from a comprehensive same-store standpoint, we are looking at a relatively flat year on a full year basis.
Anthony Paolone: And then, I mean, for the cold storage facility, for instance, like what is recovery for an asset like that look like? Like does it have to get released or just a new agreement with the existing operator like what happens with the like that?
Brooks Gordon: Yes. So these are cold storage and fruit packing facility is really right adjacent to the farmland in the Central Valley. So they remain very critical for address operating at farmland, where we are right now is working through the resolution to find the operators of that farmland. And so that land is being sold, and we’re in close contact with the buyer pool on that. I’ll note our rents are quite low there. It’s around 350 per square foot. So we think these facilities will be very attractive and critical to operating land. That said, our guidance, as Toni mentioned, includes vacancy for the remainder of the year in those assets.
Anthony Paolone: And then maybe for Jason, the $1.5 billion to $2 billion of investments that you’re assuming in guidance, can you maybe help us with just your confidence level? You talked about the skew towards sale leasebacks, which just intuitively seems to maybe a bit more idiosyncratic than just being in the market day to day for secondary deals. And so with that level of volume and just the skew towards the deals that you like to do, like I don’t know, I guess, just help us with the confidence level there that you’ll get there.
Jason Fox: Yes, sure. I mentioned earlier, we’ve closed about $200 million of deals year-to-date and be a little underneath that. And then we have another $100 million of capital projects and loan commitment fundings that we expect to complete this year. So a month, five weeks into the year, we have clear visibility into $300 million. And then the pipeline is building, and I think that 2024 is shaping up to be a pretty interesting environment. I mean our view is there is a meaningful pent-up supply of sellers that are out there, both in the U.S., but maybe even more so in Europe actually, given the spike in rates that we saw there over 2023. I think that led to persistently wide spreads and frozen transaction markets. I think sellers’ expectations have adjusted some.
And then with interest rates having come down, that’s really allowed us to get a little bit more aggressive on pricing, lean in deals where we think we have a lot of interest, and I think that combination should help open up deal flow. And you mentioned sale leasebacks. I think it’s especially true there. I think that environment is still quite strong. It’s a very attractive option for corporates and sponsor-backed companies, in particular, those just below investment grade that have fewer cheaper options to fund deals. We think the private bid competition has remained thinned out. The CMBS markets are still not quite back. They remain constrained and unreliable. So I think that’s going to help competitive position. And we’re seeing opportunities.
We also mentioned the capital position we’re in, which is probably as strong relative to our peers as we’ve ever been in sitting on as much cash as we are. So we do like how we’re positioned. We do think the environment is interesting. We have the bias to put that capital to work. But of course, we don’t have visibility into a full year at this point, and a lot of things have to come together. But we feel good about that guidance range at this point in time.
Operator: Our next questions come from the line of Smedes Rose with Citibank.
Smedes Rose: I just wanted to ask you a little bit about the final exit from the office space. It looks like the time line has extended a little bit from kind of early 2024 — to do the first half of ’24. Is there anything that’s delaying that? Or you just have a little more or maybe less visibility on that sale? And is that supporting some of the, I guess, your unchanged midpoint earnings outlook for the year by owning them a little longer?
Jason Fox: Brooks, do you want to take the first after that? Maybe Toni can take the second half.
Brooks Gordon: Sure. Yes, as I mentioned, we still continue to target the remaining office sales for the first half. I’ll note about 80% of our overall office sale program is either closed or under binding contract. Another 10% to 12% of that is under contract in diligence and then the remainder is in progress. From a timing perspective, it really comes down to diligence can take some time on these. I’ll note in a few jurisdictions in Europe, there’s also statutory preemption periods that need to pass before the local jurisdiction approved the sale. So that’s a little bit of it. But we’re making very good progress, and the real heavy lift is complete. And so we’re optimistic on our prospects to complete this imminently and working actively through it.
Toni Sanzone: And in terms of the guidance, I’d say the disposition timing really didn’t have a material impact. I think, if anything, it was maybe about $0.01 from our initial expectations.
Smedes Rose: And then I just wanted to turn back just the pipeline a little bit. Obviously, you increased at the midpoint for the full year. But could you sort of quantify what you see as sort of your near-term pipeline? I think in the third quarter, you talked about maybe $400 million of sort of near-term visibility. Can you just speak to what you’re seeing now and maybe just from the cap rate commentary in the near term?
Jason Fox: Yes, sure. I mean it’s a little difficult right now to quantify the near-term pipeline. It’s certainly building. It does include several large deals, but those are at, I’d call it, very early stages. So it’s kind of difficult to translate that into a number, but we are off to a good start with the deals we closed, and we do like kind of the market backdrop for us right now, as explained a second ago with sale-leasebacks and a lot of seller supply there that we think is going to come to market. So yes, we feel pretty positive. I think cap rates — the cap rates, at least in the U.S., we think, have been stabilizing over the last quarter or so. Interest rates came off the highs from October, the 10-year treasury is bouncing around — in the low 4s.
