Farrell Granath

Farrell Granath asked if Ventas's current pipeline is quantifiably larger than a year ago and about the potential for further margin expansion as SHOP occupancy approaches 90% with Ventas OI.

Answer

J. Justin Hutchens, EVP of Senior Housing and Chief Investment Officer, confirmed that the U.S. senior housing pipeline, currently at $35 billion, is growing and offers more opportunities than a year ago, including more mid-sized deals. He stated that Ventas expects incremental margins in the 50s for 2026, with further expansion anticipated as occupancy moves towards 100%, driven by operating leverage and higher in-house rent increases (8% this year).

Farrell Granath asked if there's a quantifiable difference in the 2026 acquisition pipeline compared to 2025, and about the potential for further margin expansion in SHOP, given current occupancy around 90% and margins at 28%, with higher RevPOR growth and Ventas OI.

Answer

J. Justin Hutchens, EVP of Senior Housing and Chief Investment Officer, confirmed that the pipeline is growing and becoming larger, with more mid-sized deals, indicating more opportunities than a year ago. He stated that with 50% incremental margin in Q4 2025, and expected 50s in 2026, further margin expansion is anticipated. He also noted that 8% in-house rent increases (up from 7% last year) and solid move-in rents support better pricing.

Farrell Granath from Bank of America asked about the expected investment mix for 2026 (loans, triple net, SHOP) based on January and early February closings. She also inquired if recent CMA investigations into UK transactions by peers would influence Omega's UK investment decisions and sought updates on dividend coverage and future dividend strategy.

Answer

Vikas Gupta, CIO of Omega Healthcare Investors, indicated that the 2026 pipeline is strong and in line with 2025 closings, with actionable opportunities split roughly one-third skilled nursing, one-third senior housing, and one-third UK care homes, with much of the UK and US senior housing being RIDEA-focused. He stated that Omega is not concerned about CMA investigations, as their legal checks ensure compliance. Regarding the dividend, Gupta mentioned they are nearing the point of needing to increase it from a tax perspective, typically when FAD payout is in the low 80s, but it remains a board decision.

Farrell Granath asked about the expected investment mix for 2026, including loans, triple net, and SHOP, based on recent closings in January and early February.

Answer

CIO Vikas Gupta indicated that the 2026 pipeline is strong and in line with 2025 closings, with actionable opportunities roughly split into one-third skilled nursing, one-third senior housing, and one-third UK care homes. He noted that much of the UK and US senior housing focus is on RIDEA structures. Farrell Granath also inquired if recent CMA investigations into peers' UK transactions would influence Omega's investment decisions in the UK. CIO Vikas Gupta stated that Omega is not concerned, as their lawyers conduct similar checks, and they have never been in breach, thus not worried about growing in the UK. Additionally, Farrell Granath asked for updates on dividend coverage and future dividend policy. CIO Vikas Gupta mentioned that Omega is nearing the point of needing to increase the dividend from a tax perspective, typically when the FAD payout ratio is in the low 80s.

Farrell Granath of Bank of America Corporation inquired about the company's deal sourcing process, asking about the split between unsolicited and internally generated opportunities. She also asked for the company's philosophy on partnering with new versus existing operators for expansion.

Answer

CIO Vikas Gupta described a comprehensive deal sourcing strategy that includes inbound leads, a dedicated corporate development team actively seeking new relationships and properties, and data-driven initiatives. He noted that while existing partners are a key source of growth, finding new operators is a strategic priority for the company.

Farrell Granath of Bank of America inquired about Omega's process for engaging with new operators in the U.K. and how it differs from the U.S. She also asked if increased deal volume in the U.S. has led to greater competition or changes in cap rates.

Answer

CIO Vikas Gupta explained that the U.K. platform is very similar to the U.S., built over 10 years with a strong bench of now 14 operators, and the underwriting process is the same. He noted that while deal volume has picked up, overall competition remains about the same as it has been, with different players like private equity moving in and out of the space.

Farrell Granath asked for details on the moving pieces within EBITDAR coverage, particularly the cause for the increase in the 'less than 1x coverage' bucket, and also inquired about the drivers behind the recent uptick in the private insurer payer mix.

Answer

SVP of Operations Megan Krull explained that the sub-1x coverage operator is a single, non-core specialty hospital asset with volatile earnings, not indicative of the broader portfolio's health. She also clarified that the shift in payer mix towards private pay is primarily driven by the mix of deals completed, specifically an increase in U.K. transactions where private pay is more common.

Farrell Granath inquired about the current lab leasing activity, specifically the 100,000 sq ft under execution or LOI, and whether this indicates a slowdown or is typical for year-end processes. She also sought clarification on the underlying assumptions for the -5% to -10% same-store NOI growth guidance for the Lab segment.

Answer

Chief Development Officer Scott Bohn explained that the lower reported leasing activity is typical for the holiday season and the JPMorgan conference period. He noted that the current pipeline of over 1.5 million sq ft is 50% higher than a year ago, with a favorable shift towards new leasing. CFO Kelvin Moses clarified that the -5% to -10% same-store NOI decline for the Lab segment reflects the lag between occupancy declines and financial impact, with Q1 2026 expected to show a more pronounced income reduction from the 77% occupancy level.

Farrell Granath inquired about the 100,000 sq ft of lab leasing activity under execution or LOI, asking if it indicated a slowdown or was influenced by year-end processes. She also sought clarification on the underlying assumptions for the -5% to -10% lab same-store NOI growth guidance for 2026.

Answer

Chief Development Officer Scott Bohn explained that the lower reported activity was typical for the slower year-end period, including holidays and the J.P. Morgan conference. He highlighted that the current pipeline of over 1.5 million sq ft is 50% higher than a year ago, with a positive shift towards new leasing. CFO Kelvin Moses noted that the disconnect between Q4 2025 occupancy decline and NOI would become more pronounced in Q1 2026, impacting the same-store NOI trajectory.

Farrell Granath asked for an update on the company's tenant risk list, specifically how it compares to the beginning of the year and whether tenants are being added or removed as market sentiment shifts.

Answer

CFO Kelvin Moses noted that the tenant risk exposure has meaningfully decreased over the past 60 days, with existing tenants successfully accessing capital markets. President and CEO Scott Brinker emphasized that while a watch list always exists, confidence in these companies' ability to raise capital has dramatically improved in recent months, a significant change from earlier in the year.

Farrell Granath inquired about the company's tenant risk list, asking how it compares to the beginning of the year and if tenants are being added or removed. She also asked about the influx of demand from AI companies for lab spaces, its impact on supply, and Healthpeak's involvement in any conversions.

Answer

Kelvin Moses, CFO, noted that the tenant risk exposure has meaningfully decreased over the last 60 days, with existing tenants accessing capital markets. Scott Brinker, President and CEO, added that while a watch list always exists, confidence in these companies' ability to raise capital has dramatically improved. Regarding AI demand, Mr. Brinker stated that both pure AI tech companies and AI-native biotech research are positively impacting the Bay Area's supply-demand dynamics and Healthpeak's portfolio, often requiring a 50/50 wet lab/office mix. He views AI's potential to accelerate drug research as highly positive.

Farrell Granath of Bank of America inquired about the potential for further lab occupancy impacts in the second half of the year from tenants failing to raise capital. Additionally, she asked for color on the types of tenants who chose not to renew their leases in the medical office building (MOB) portfolio.

Answer

CFO Kelvin Moses acknowledged that while recent M&A and capital market activity are encouraging, some headwinds from tenant capital raising challenges will persist for the balance of the year. CEO Scott Brinker added context, noting that at-risk tenants represent only about 10% of the total portfolio ABR. For MOBs, SVP Mark Theine stated that non-renewals are not concentrated in any specific tenant type, often resulting from factors like tenant growth that can't be accommodated or physician retirements.

Farrell Granath from Bank of America questioned the potential future impact from tenants' unsuccessful capital raises on lab occupancy and asked about the types of tenants not renewing in the MOB portfolio.

Answer

CFO Kelvin Moses acknowledged ongoing headwinds from the capital markets but pointed to recent positive signs like M&A activity. CEO Scott Brinker provided context that at-risk tenants represent about 10% of the portfolio's ABR. For MOBs, SVP Mark Theine explained that non-renewals are due to typical reasons like tenant growth needs or retirements, not a specific trend, and noted hospital retention is fantastic.

Farrell Granath asked about the impact of sustained quarter-over-quarter leasing and positive VC funding headlines on Alexandria Real Estate Equities' 2026 outlook and inbound sentiment for leasing. She also inquired about the strategy to retain and lease The Fenway office property, asking if this was a one-off decision or a potential approach for other properties.

Answer

Joel Marcus, Executive Chairman and Founder, and Hallie Kuhn, SVP of Life Science and Capital Markets, explained that while VC funding for new companies is sustained, overall venture fund raising is low, leading to conservative decision-making. They noted that the XBI's performance doesn't immediately translate to lab space needs, as most companies are commercial-stage, and public biotech leasing was notably small in Q4. Regarding The Fenway, Joel Marcus and Peter Moglia, CEO and CIO, clarified it was a building and sub-market specific decision, given its nature as an office building with long-term leases to top institutions and existing lab availability elsewhere.

Farrell Granath inquired about Alexandria Real Estate Equities' strategy to retain and lease The Fenway office property as office space, asking if this was a one-off decision or a broader approach for other properties.

Answer

Joel Marcus, Executive Chairman and Founder, and Peter Moglia, CEO and CIO, clarified that the decision for The Fenway property was specific to that building and sub-market, given its existing long-term office leases with top institutions and the availability of lab space elsewhere in The Fenway. It is not indicative of a broader strategy.

Farrell Granath asked for an update on the potential occupancy benefits previously discussed and what factors would increase optimism for a biotech market recovery, such as greater IPO activity or capital market movements.

Answer

Marc Binda, CFO and Treasurer, updated that 617,000 square feet of space, primarily in Greater Boston, San Francisco, San Diego, and Seattle, with $46 million in potential annual rental revenue, is expected to deliver around May 1 next year. Joel Marcus, Executive Chairman and Founder, identified key drivers for optimism as the FDA reopening, earlier-stage venture-backed companies committing to space, and the public biotech sector reigniting. He also noted the need for NIH issues regarding funding and indirect cost limitations to be resolved. Hallie Kuhn, IR Representative, added that while tour activity is strong, decisions are taking longer due to ongoing uncertainty.

Farrell Granath asked for an update on the potential benefits to occupancy, specifically regarding the 600,000 square feet or 1.7% mentioned last quarter, and inquired about the current line of sight. She also asked for insights into what would increase optimism in the biotech market, such as greater IPO activity or different capital market movements, given the continued impact of supply and demand despite early positive indicators.

Answer

Marc Binda, CFO and Treasurer, updated that 617,000 square feet of space, primarily in Greater Boston, San Francisco, San Diego, and Seattle, representing $46 million in potential annual rental revenue, is expected to deliver around May 1 of next year. Joel Marcus, Executive Chairman and Founder, identified three key factors for increased optimism: the cessation of the government shutdown and full FDA operation, earlier-stage venture-backed companies committing to space, and the meaningful reignition of the public biotech sector. He also highlighted the need for the NIH to resolve indirect cost limitations to boost institutional demand. Hallie Kuhn, SVP, added that while tour activity is strong, decisions are taking longer due to ongoing uncertainty.

Farrell Granath inquired about the catalysts behind the significant Campus Point lease, asking if onshoring was a factor, and questioned the recent uptick in free rent concessions and whether they are expected to peak.

Answer

Joel Marcus, Founder & Executive Chairman, clarified the Campus Point lease was driven by a large pharmaceutical company's strategic goal to consolidate its R&D hub in a premier location to attract talent, not by onshoring policies. Marc Binda, CFO & Treasurer, noted that free rent increased in the quarter due to a specific large lease and that the future trend is yet to be determined.

Farrell Granath asked if the new guidance represents a worst-case scenario, particularly concerning biotech capital raising and NIH funding, and questioned the sustainability of the leasing pace from private biotech companies.

Answer

Chief Financial Officer Marc Binda clarified that the guidance is their best estimate based on current facts, not a worst-case scenario. Executive Chairman Joel Marcus and SVP Hallie Kuhn addressed the leasing question, stating that venture funds have significant capital and are deploying it judiciously to strong, well-capitalized companies, supporting a steady, rational pace of activity.

Farrell Granath asked about the momentum behind the pipeline acceleration from $300 million to $450 million and how to think about its future trajectory. She also sought updated thoughts on the medical office building (MOB) portfolio, noting improved performance and guidance bump, and asked if the company is considering reinvesting yields from MOB sales or is content with current performance.

Answer

COO Gabe Willhite attributed pipeline growth to ramping up efforts and adding new operators, expecting a strong end to 2025 and start to 2026. CEO Danny Prosky confirmed a more robust pipeline entering 2026 due to stock repricing. Regarding MOBs, Danny Prosky stated they began selling MOBs 4-5 years ago, divesting about a third of their portfolio (the 'worst third'), reducing MOB NOI contribution from 35% to under 17%. They will continue to sell a few more MOBs and redirect capital to senior housing, as they haven't bought an MOB in years and don't see the best risk-adjusted returns there, though they like the remaining institutional-grade assets.

Farrell Granath inquired about the acceleration of American Healthcare REIT's acquisition pipeline from $300 million to $450 million and the future momentum, as well as updated thoughts on the MOB portfolio, including performance improvement, peer sales, and reinvestment strategies.

Answer

COO Gabe Willhite attributed the pipeline growth to ramping up external growth opportunities and adding new operators, expecting a strong end to 2025 and start to 2026. CEO Danny Prosky added that the company enters 2026 with a more robust pipeline than 2025 due to stock repricing in late 2024. Regarding the MOB portfolio, CEO Danny Prosky explained that the company has sold about a third of its MOBs over the past 4-5 years, focusing on divesting smaller, lower-growth assets. He noted that MOB NOI contribution has decreased significantly, and while they will continue selective dispositions, the remaining MOBs are higher quality. The company has not acquired MOBs in years, prioritizing senior housing for better risk-adjusted returns.

Farrell Granath of Bank of America requested more detail on the occupancy acceleration seen in the SHOP portfolio during Q2 and also asked about the drivers behind the improved guidance for the outpatient medical portfolio.

Answer

COO Gabe Willhite and President & CEO Danny Prosky reported that SHOP spot occupancy reached 87.5% at quarter-end and continued to climb in July, reflecting a strong selling season. For the outpatient medical portfolio, CFO Brian Peay and CEO Danny Prosky attributed the improved outlook to successful tenant retention and early renewals by the asset management team, stating they are more optimistic about this segment than they were a year ago as pressures on health systems appear to be easing.

Farrell Granath of Bank of America requested more detail on the SHOP portfolio's occupancy acceleration during the second quarter and move-in expectations for the second half of the year. She also asked about the drivers behind the improved guidance for the outpatient medical portfolio.

Answer

COO Gabe Willhite reported that SHOP occupancy ramped throughout Q2, ending the quarter at a spot rate of 87.5%, with strong leasing momentum continuing into July. Regarding the outpatient medical portfolio, CFO Brian Peay attributed the improved outlook to successful tenant retention and early renewals by the asset management team. President and CEO Danny Prosky added that he is more optimistic as cost-cutting pressures from health system tenants appear to be easing.

Farrell Granath of Bank of America requested more detail on the SHOP portfolio's occupancy acceleration during Q2 and move-in expectations. She also asked for an update on the outpatient medical portfolio, given the recent guidance increase.

Answer

COO Gabe Willhite and President & CEO Danny Prosky reported that SHOP spot occupancy ended Q2 at 87.5% and continued to climb in July, reflecting a strong selling season. Regarding the outpatient medical portfolio, CFO Brian Peay and CEO Danny Prosky stated that performance has improved due to strong tenant retention and renewals. They believe the portfolio is at or near its bottom, with occupancy expected to improve starting in Q4 2025.

Farrell Granath from Bank of America requested more detail on the occupancy acceleration seen during the second quarter and also asked about the improved guidance for the outpatient medical portfolio, questioning if market sentiment was shifting.

Answer

COO Gabe Willhite and President & CEO Danny Prosky reported that SHOP occupancy ramped through Q2, ending at a spot rate of 87.5% and continuing to climb into July. Regarding the outpatient medical portfolio, CFO Brian Peay and CEO Danny Prosky attributed the improved outlook to successful tenant retention and renewals, stating they are more optimistic now than a year ago and believe the portfolio is near a low point.

Farrell Granath inquired about American Healthcare REIT's long-term strategy for its Medical Office Building (MOB) and Triple-Net portfolios, especially considering the higher yields available in its operating segments.

Answer

President and CEO Danny Prosky explained that the company is strategically shrinking its MOB and Triple-Net portfolios to redeploy capital into higher-growth Senior Housing. He noted the MOB portfolio has been reduced from approximately 110 properties to the 80s by selling non-core, off-campus assets. The Triple-Net portfolio is now under 10% of NOI, and while not actively for sale, attractive offers would be considered.

Farrell Granath inquired about the occupancy tipping point in the Trilogy segment for accelerating rate growth and margin expansion. She also asked for more detail on potential impacts from Medicaid policy changes on Trilogy's operations.

Answer

President and CEO Danny Prosky stated that Trilogy's occupancy is already above pre-COVID levels, allowing for strong rate increases now. He noted they intentionally keep skilled nursing occupancy around 90% to have beds for high-acuity admissions. On Medicaid, he highlighted that Trilogy's exposure is low at 21% of revenue and shrinking, and that the company has many levers to mitigate potential reimbursement changes, such as converting beds to other care types.

Farrell Granitz asked for further details on the decision-making behind the specific structure of the medical office building (MOB) disposition, beyond the aspects outlined in the opening remarks.

Answer

CEO Shankh Mitra reiterated that the decision was driven by an opportunity cost analysis, focusing on redirecting management's attention to the digital transformation of senior living and the cost of capital. He explained that the structure, including a significant participating profit interest, reflects uncertainty about future asset values and ensures shareholders can still benefit from potential value accretion if the company's macro views on asset prices prove incorrect.

Farrell Granath of Bank of America asked about the long-term potential for margin expansion, given the company's intense focus on managing individual expense line items.

Answer

Vice Chairman & COO John Burkart stated the opportunity is 'substantial' but declined to give a specific target, comparing the potential to the margin expansion seen during the professionalization of the multifamily industry. CEO Shankh Mitra added that while expense control is critical, he would not be surprised if revenue growth ultimately becomes a more significant contributor to margin expansion than cost savings.

Farrell Granath from Bank of America asked if the recent passage of the reconciliation bill has impacted deal flow or increased competition for skilled nursing, senior housing, or SHOP assets. She also inquired about the potential synergies from the integration of the Care REIT team and the expected impact on G&A expenses.

Answer

Chief Investment Officer James Callister stated that the bill has not had a meaningful impact on deal flow, which remains robust due to regional and mom-and-pop operators selling stabilized assets. SVP of IR & Strategy Derek Bunker added that the integration of the UK team is progressing well and that the investment in personnel is crucial for supporting the company's record growth.

Farrell Granath inquired about the potential impact of macroeconomic policy, specifically provider taxes and Medicaid cuts, on CareTrust's portfolio and the strategic rationale for choosing debt investments over property acquisitions.

Answer

President and CEO Dave Sedgwick stated there is no change in the company's outlook on potential Medicaid cuts, noting widespread bipartisan support for senior care. He explained that debt investments are primarily a strategic tool to build relationships that lead to future property acquisitions, citing that half of 2024's investments and the majority of the current pipeline originated from such lending relationships.

Farrell Grana asked about management's conviction going forward, whether guidance included any bad debt provisions, and if there were any shifts or compression in cap rates.

Answer

President and CEO David Sedgwick confirmed that guidance contains no bad debt and none is expected, deferring specific comments on any single operator. An executive added that cap rates for skilled nursing remain stable in the 12.5% to 13.5% range, with minimal compression seen in seniors housing.

Farrell Granath of Bank of America asked about the strategic role of the new SVP of Asset Management, the status of certain loan repayments, and the total amount of deferred rent to be collected from Discovery.

Answer

Chief Investment Officer Kevin Pascoe stated that the new hire, Grant Johnson, is crucial for strengthening the asset management team to support the growing SHOP portfolio. Regarding a specific loan, Pascoe described the operator as 'floundering' and considered the matter largely resolved, with recourse available if needed. Chief Financial Officer John Spaid clarified that approximately $3.3 million in payments, including deferred rent, would be collected from Discovery upon lease termination.

Farrell Granath of Bank of America inquired about the reasons a large SHOP portfolio acquisition fell through, the expected mix of property versus debt in the $155 million of unidentified investments, and the anticipated timing for the Discovery transition to impact NOI.

Answer

CIO Kevin Pascoe explained the large SHOP deal was terminated after due diligence revealed it was not the right fit regarding structure and accretion, allowing the team to focus on its robust existing pipeline. CFO John Spaid noted the unidentified investment guidance assumes a mix but will likely be mostly fee simple real estate at an 8.2% average yield. Pascoe stated the company is targeting Q3 for the Discovery transition, subject to approvals.

Farrell Granath of Bank of America asked if NHI plans to expand its skilled nursing (SNF) portfolio, about the potential impact from federal Medicaid budget discussions, and whether the 2025 guidance includes assumptions for bad debt or credit loss.

Answer

CIO Kevin Pascoe confirmed NHI is actively looking to grow its SNF portfolio but finds current market pricing 'frothy.' He noted that while they are monitoring Medicaid discussions, it has not yet impacted market activity. CFO John Spaid affirmed that guidance does include a credit loss reserve assumption, which grows in line with the loan portfolio.

Farrell Granath from Bank of America asked for more color on the flat sequential same-store SHOP occupancy in a typically strong quarter and inquired about the drivers for new skilled nursing opportunities, including any potential impact from recent legislation or concerns from health systems.

Answer

CIO Talya Nevo-Hacohen explained that the Holiday portfolio transition created noise in the same-store pool, as 16 of the 21 assets remained, and that occupancy figures would have been more exciting otherwise. She added that the primary driver for transactions is the recovery in fundamental operations, not a change in deal volume. CEO Rick Matros confirmed that the reconciliation bill was a non-issue.

Farrell Granath from Bank of America asked for more color on the flat sequential same-store SHOP occupancy in Q2 and inquired about the drivers behind emerging skilled nursing opportunities, questioning if regulatory factors or health system concerns were at play.

Answer

CIO Talya Nevo-Hacohen explained that the inclusion of 16 transitioned Holiday assets in the same-store pool created 'noise' that impacted the sequential occupancy figures, which would have been stronger otherwise. She noted that the volume of skilled nursing deals is not significantly changed, with operational recovery being the primary driver for transactions. CEO Rick Matros added that the federal reconciliation bill was a 'non-issue'.

Farrell Granath from Bank of America asked for color on the flat sequential same-store SHOP occupancy and inquired about the drivers behind emerging skilled nursing opportunities, including any potential influence from legislative changes or health system pressures.

Answer

CIO Talya Nevo-Hacohen attributed the flat occupancy to transition-related noise from the Holiday portfolio, noting 16 of those assets remained in the same-store pool. She also stated that skilled nursing deal flow hasn't changed significantly, with operational recovery being the main driver of transaction activity. CEO Rick Matros added that the reconciliation bill was a 'non-issue'.

Farrell Granath from Bank of America asked if the recently awarded $200 million in deals were included in the reaffirmed guidance and questioned the conservatism of the SHOP guidance given strong Q1 results. She also inquired about trends in transaction market deal flow and competition.

Answer

CFO Michael Costa clarified that the awarded acquisitions are not yet included in the 2025 guidance and will be incorporated after closing. CEO Rick Matros added that the company is being moderate and will revisit guidance after Q2. EVP Talya Nevo-Hacohen described the transaction pipeline as robust and senior-housing biased, noting that sellers are often private equity firms at their fund's life end, and competition from other public REITs has been tight but manageable.

Farrell Granath asked about the potential operational impact on tenants from the CMS proposed elimination of the inpatient-only list and requested more color on the 3% of uncollected rent, specifically the two facilities mentioned in the press release.

Answer

CEO Ed Aldag stated that operators have not expressed any concern over the elimination of the inpatient-only list, as it primarily shifts procedures to an outpatient setting. He identified the uncollected rent as relating to facilities in Ohio and Pennsylvania, citing an operator's ongoing revenue dispute with Stewart in Ohio and a slow operational ramp-up in Pennsylvania.

Farrell Granath of Bank of America asked about the potential operational impact on tenants from the CMS's proposed elimination of the inpatient-only list and requested more color on the 3% of uncollected rent for July.

Answer

Edward Aldag, Chairman, President & CEO, responded that none of MPT's operators have expressed concern about the proposed change to the inpatient-only list. He specified that the uncollected rent pertains to facilities in Ohio, where the operator has an ongoing issue with Stewart, and a small facility in Sharon, Pennsylvania, that is experiencing a slow operational ramp-up.

Farrell Granath of Bank of America inquired about the potential impact on tenants from the CMS proposed elimination of the inpatient-only list. She also requested more color on the 3% of uncollected rent and the specific facilities involved.

Answer

Chairman, President & CEO Edward Aldag stated that the CMS change simply shifts procedures to an outpatient setting and that operators have not expressed any concern. He identified the uncollected rent as relating to facilities in Ohio and Pennsylvania, citing a revenue payment dispute with Steward for the Ohio location and a slow operational process for the Pennsylvania facility.

Farrell Granath from Bank of America requested commentary on the potential impact of the CMS's proposed elimination of the inpatient-only list on tenants and asked for details regarding the 3% of uncollected rent.

Answer

CEO Edward K. Aldag Jr. stated that operators are not concerned about the CMS proposal, as it primarily shifts procedures to an outpatient setting. He identified the uncollected rent as relating to two small facilities in Ohio and Pennsylvania, which are facing operator-specific challenges, including one stemming from issues with the former Steward relationship.

Farrell Granath requested color on the percentage of encumbered versus unencumbered assets in the portfolio and asked for management's perspective on potential cuts to Medicaid or Medicare.

Answer

CFO R. Hamner stated that just over $6 billion in assets are now encumbered, with the remainder unencumbered. CEO Edward Aldag noted that MPT receives no direct revenue from Medicaid and believes any government budget savings would likely target non-hospital areas, leaving acute care funding stable.

Farrell Granath from Bank of America inquired about the company's cap rate expectations for 2025 and its perspective on how consumer health trends might impact its tenant base.

Answer

CEO Mark Manheimer stated that for the near term, he expects acquisition cap rates to be at or above the 7.4% achieved in Q4. Regarding the consumer, he noted that while the worst of inflation has passed, the lower-end consumer continues to struggle, and there are signs of overall consumer health softening slightly.

Farrell Granath, on behalf of Josh Dennerlein, asked if NETSTREIT would consider increasing its bad debt assumptions and if it has become more stringent in its underwriting process.

Answer

CFO Dan Donlan stated they would not increase bad debt assumptions, clarifying that the recent Big Lots situation involved temporary rent relief, not a permanent credit loss. CEO Mark Manheimer added that while underwriting remains stringent, a key lesson has been to be mindful of high concentrations in public companies due to potential news-driven volatility, reaffirming confidence in the portfolio's asset quality.

Farrell Granath asked about the company's acquisition appetite for IOS versus traditional industrial assets, the competitive landscape, and inbound interest for divesting the office portfolio. He also inquired about the strategy for internal growth, specifically regarding lease renewals and rate escalations for expirations in 2026 and beyond.

Answer

Executive Michael Escalante stated that the company's primary investment focus is on Industrial Outdoor Storage (IOS) assets due to their compelling growth dynamics and cap rate spread over traditional industrial properties. Regarding office dispositions, he noted interest from local specialists and existing tenants, who accounted for 44% of 2024 gross disposition proceeds. For internal growth, Escalante highlighted active repositioning of redevelopment assets and expressed optimism about rent uplift on upcoming lease renewals.

Farrell Granath of Bank of America Securities asked about the specific benchmarks for accelerating industrial property acquisitions and the current trends in industrial re-leasing spreads and rent escalators.

Answer

CEO Michael Escalante explained that the company has met key internal goals, including its deleveraging target, and has built up 'dry powder' to pursue acquisitions in a more normalized cap rate environment. Regarding leasing, he countered the idea of softening terms by highlighting a recent 10-year industrial lease extension where annual rent escalators increased significantly from 1.75% to 3.0%.

Farrell Granath inquired about the focus for dispositions in 2025, asking if any other industries besides carwashes would be targeted. She also sought clarification on whether the 20 basis points of Zips Car Wash exposure was already included in the initial bad debt assumption for the year.

Answer

CEO Peter Mavoides stated that beyond managing industry exposures below the 15% soft ceiling, most disposition activity is driven by property-level and tenant-specific risk management rather than systemic industry concerns. Regarding the guidance, he explained that their credit loss assumption is a comprehensive process that includes downtime and recovery estimates for specific assets, plus a general reserve. He confirmed that their overall credit loss assumption for the year has not changed materially since guidance was first issued.

Farrell Granath from Bank of America sought clarity on the Zips bankruptcy's impact on guidance, asking if the revised forecast assumes a worst-case scenario for the rejected leases. She also asked about the newly signed $50 million-plus portfolio transaction, its origin, and whether it signals a strategic focus on larger deals.

Answer

CFO Brian Dickman clarified that the revised AFFO guidance incorporates a range of potential outcomes for the Zips properties, not a single worst-case scenario, assuming the sites are re-leased within the year with a significant rent recapture. CEO Christopher Constant added that the new portfolio deal is a direct sale-leaseback with a new relationship, which is perfectly aligned with Getty's core strategy of sourcing direct, relationship-based transactions.

Farrell Granath of Robert W. Baird & Co. inquired about the current state of the transaction market, asking if it remains tight and whether there has been a shift in dynamics. She also asked if increased investor interest in the convenience and auto services sectors is leading to greater competition and impacting Getty's deal-making.

Answer

CEO Christopher Constant acknowledged that while sellers believe cap rates should decline, Getty sees a persistent 'disconnect' between buyer and seller expectations. He affirmed that Getty's direct sale-leaseback model allows it to navigate this market. Regarding competition, he noted increased interest in their sectors but expressed confidence that Getty's deep industry relationships, expertise, and direct sourcing strategy remain key differentiators that will allow them to continue executing their pipeline.

Farrell Granath of Bank of America inquired about the health of the consumer and any recent shifts in the competitive landscape for acquisitions.

Answer

CEO Joey Agree described a bifurcated consumer, with lower-income cohorts under pressure, benefiting trade-down retailers like Walmart. He stated that competition for acquisitions continues to dwindle due to high rates and a slow 1031 market, with the main challenge being sellers' own price expectations.

Farrell Granath of BofA Securities asked for commentary on the health of the lower-end consumer and whether there have been any shifts in the competitive landscape for acquisitions.

Answer

CEO Joey Agree observed that the consumer is bifurcated, with pressure on the low-income cohort leading to a trade-down effect that benefits tenants like Walmart. He also noted that competition for assets continues to dwindle due to a slow 1031 market and higher interest rates, with the primary challenge now being sellers' own price expectations.

Farrell Granath asked for commentary on the current sale-leaseback market and the company's perspective on the car wash industry following a recent acquisition.

Answer

CEO Jason Fox noted that the current investment pipeline is more heavily weighted towards traditional sale-leasebacks compared to 2024, driven by M&A activity and financing market dislocations. Head of Asset Management Brooks Gordon added that the company's car wash exposure is small and with a best-in-class operator, Title Wave, which he differentiated from the recently bankrupt Zips.

Farrell Granath inquired about the nature of demand for the vacant Badcock and Frisch's properties, including the types of inbound interest and industry verticals. She also asked if NNN maintains a credit watch list and what percentage of ABR it represents.

Answer

CEO Stephen Horn confirmed strong interest in the Frisch's and Badcock assets from a wide range of users, including restaurants, car washes, and auto service tenants, due to their desirable small-box format. CFO Kevin Habicht acknowledged a watch list exists but stated no tenants on it rise to a level of immediate concern that would alter the 2025 credit loss outlook, adding that names like AMC have stabilized.

On behalf of Josh Dennerlein, Farrell Granath asked what portion of the acquisition pipeline was sourced pre- versus post-IPO and whether there has been an uptick in inbound inquiries or deals from repeat sellers since going public.

Answer

Co-CEO and Co-President Randy Starr estimated the pipeline sourcing was split about 50/50 between pre- and post-IPO. He confirmed a 'meaningful percentage' of the pipeline is from repeat sellers and that the company has 'absolutely' seen an increase in inbound inquiries since the IPO, attributing it to their favorable market position and increased transaction activity.