John Kim

John Kim of BMO Capital Markets asked if real estate valuations for assets being considered for sale, including 555 California Street, could return to or exceed 2019 levels. He also requested more detail on the leasing pipeline, specifically how much would drive near-term occupancy versus being tied to future developments like 350 Park.

Answer

Chairman and CEO Steven Roth and President and CFO Michael Franco asserted they would not sell great assets at distressed prices, using pre-COVID 2019 valuations as the benchmark. Executive Glen Weiss confirmed a significant portion of the current pipeline consists of new deals and expansions that will absorb vacant space and increase occupancy. Michael Franco projected that leasing up PENN 1 and PENN 2 would lift portfolio occupancy to around 94% within approximately 24 months.

In a follow-up, John Kim of BMO Capital Markets asked how many new office development projects are likely to commence concurrently with 350 Park and what rent levels would be needed to justify new construction.

Answer

Steven Roth, Chairman and CEO, bluntly predicted that 'none' other than 350 Park would get off the ground due to high construction costs and interest rates creating a 'frozen' market. He reiterated that new development would require rents around a '$200 a foot' bogey to be economically viable.

John Kim from BMO Capital Markets asked for a breakdown of the anticipated $1 billion in new cash proceeds, specifically the amount from new dispositions, the types of assets being sold, and the potential for new development competition for the 350 Park Avenue project.

Answer

Chairman and CEO Steven Roth clarified the $1 billion includes proceeds from the 770 Broadway and 1535 Broadway refinancings, with the remainder from short-term dispositions, but declined to specify which assets. He later predicted that no other major office projects would get off the ground in the near term to compete with 350 Park, citing high construction and financing costs.

John Kim of BMO Capital Markets asked for a breakdown of the expected $1 billion in new cash proceeds, specifically questioning the amount anticipated from new asset dispositions. He also inquired about potential competition for the 350 Park Avenue development.

Answer

Chairman and CEO Steven Roth clarified that the $1 billion in cash would be generated from the 770 Broadway transaction, the 1535 Broadway refinancing, and enough short-term dispositions to reach the total. He later stated his belief that no other new office buildings would get off the ground to compete with 350 Park due to high construction and financing costs.

John Kim asked for a breakdown of the expected $1 billion in new cash proceeds, specifically the amount from new dispositions, and questioned how many new office projects could realistically start construction alongside 350 Park Avenue.

Answer

Chairman and CEO Steven Roth clarified that proceeds would come from the 770 Broadway and 1535 Broadway transactions, supplemented by short-term dispositions to reach the $1 billion target. He firmly stated his belief that no other major office projects would break ground in the near term due to prohibitive costs and high interest rates, making 350 Park unique because of its pre-lease and capital partner.

John Kim of BMO Capital Markets asked if the full-year leasing forecast includes the NYU lease at 770 Broadway, sought details on the deal's rent structure and occupancy start, and questioned the strategy of potentially reducing rents to boost occupancy at the Mart in Chicago.

Answer

Chairman and CEO Steven Roth confirmed the NYU lease is included in the year-end forecast. He explained the deal involves a significant upfront prepaid rent payment, making the ongoing cash rent lower but equivalent in value when capitalized. Roth added that the Mart's debt-free status allows for opportunistic leasing in a soft Chicago market, leveraging its strong financial position.

John Kim from BMO Capital Markets asked about the earnings impact of the UNIQLO sale, the valuation of remaining Fifth Avenue retail, the timing of MSG's move into PENN2, and the company's capitalized interest policy.

Answer

President and CFO Michael Franco explained the UNIQLO sale proceeds will repay preferred equity and should be neutral to accretive to earnings. He valued the sale at approximately $50,000 per grade square foot. Executive Thomas Sanelli stated that MSG began occupying space in Q2, with full delivery by Q4, and that capitalized interest will roll down in 2025 as the project is delivered.

John Kim from BMO Capital Markets asked about the earnings impact of the UNIQLO sale, the valuation of remaining Fifth Avenue assets, the timing of MSG's move-in at PENN2, and capitalized interest policies.

Answer

Michael Franco, President & CFO, explained the UNIQLO sale was at a 4.2% cap rate, with proceeds repaying preferred equity, making the transaction at least earnings-neutral and likely accretive. He affirmed the high value of remaining Fifth Avenue assets. Thomas Sanelli, an executive, stated MSG's rent commenced in Q2 and will be fully in effect by Q4 2024, and that capitalized interest on PENN2 will roll down in 2025.

John Kim from BMO Capital Markets asked if commentary on a tech sector rebound and luxury retailers buying stores was market-wide or specific to Vornado's portfolio. He also questioned the status of the 350 Park Avenue project with Citadel.

Answer

President and CFO Michael Franco stated the trends are relevant to both the market and Vornado, expecting to capture a significant share of new tech leasing and retail activity due to their prime assets. Chairman and CEO Steven Roth confirmed the 350 Park Avenue project is proceeding 'full steam ahead' with Citadel, but declined to confirm the starting rent, describing it as a formulaic figure dependent on future financing costs.

John Kim inquired about the source of the higher-than-expected bad debt and whether recent development lease-ups contributed disproportionately.

Answer

COO Sean Breslin clarified that the bad debt referenced was within the same-store portfolio, not development assets, and represented a modest 5 basis point variance. He noted that the number of accounts to work through is down 20-25% from year-end 2024, expecting at least a 15 basis point benefit in 2026 from bad debt improvement due to processing cases and sophisticated screening tools. He stated that development lease-ups do not generally show disproportionately higher bad debt.

John Kim asked about the reasons behind the higher-than-expected bad debt and whether a significant portion originated from recent development lease-ups, also inquiring if lease-up communities generally experience higher bad debt.

Answer

Sean Breslin, Chief Operating Officer, clarified that the bad debt variance was a modest 5 basis points within the same-store portfolio, not development assets, and was influenced by court processing times. He anticipates a benefit of at least 15 basis points, potentially more, from bad debt reduction in 2026 due to ongoing case processing and enhanced screening tools. He added that higher bad debt is not typically an outlier for development communities compared to the same-store pool, but can be market-specific.

John Kim of BMO Capital Markets asked about the pricing evolution of the pending D.C. asset sales since they were first marketed. He also requested more detail on the blended lease growth outlook for the third and fourth quarters.

Answer

CIO Matthew Birenbaum stated that cap rates are likely similar to when the deal was struck in late 2024. CEO Benjamin Schall added that a recovery in the assets' rent rolls was key to reaching a transaction value they were comfortable with. COO Sean Breslin projected that Q3/Q4 rent change would likely flatten out rather than decline seasonally, due to softer comps from the prior year.

John Kim asked if the provided development cost breakdown is representative across product types and regions. He also questioned if the 100-150 basis point leakage on renewal negotiations is higher than historical norms.

Answer

CIO Matthew Birenbaum explained the cost breakdown is a blended average for wood-frame construction and varies more by location (e.g., land costs in California) than by product type. COO Sean Breslin confirmed the 100-150 bps spread on renewals is a typical long-term average and that the centralized renewal process enforces strict discipline.

John Kim from BMO Capital Markets questioned the outlook for property tax growth in the coming year, asking why it might decrease despite rising asset values and Sunbelt exposure. He also asked if the recent decline in the reported yield for the current development pipeline was due to project underperformance.

Answer

COO Sean Breslin explained that the primary driver for moderating property tax growth in 2025 will be the diminished impact from the expiration of tax abatement programs, like New York's 421-a. CIO Matthew Birenbaum clarified that the drop in the development pipeline's average yield to 5.9% was not due to underperformance but a change in mix, as high-yield projects were completed and new projects with ~6% yields were added. He noted the average yield is expected to rise as newer projects become a larger part of the mix.

John Kim asked about Equity Residential's strategy for Sunbelt acquisitions, given the significant lack of pricing power, lingering impact of new supply, and negative same-store NOI in expansion markets. He also sought clarification on what 'net effective pricing is down 4%' meant in Washington, DC.

Answer

Mark Parrell (President and CEO) reiterated commitment to a diversified portfolio but stated it's not in shareholders' best interest to move quickly into expansion markets currently due to high prices (sub-5% cap rates) and current market conditions. He highlighted that share buybacks, funded by selling lower-growth coastal assets, improve NOI growth and lower expansion market exposure. Michael Manelis (COO) clarified that the 4% decline refers to the current pricing trend in the micro-submarket of DC (district, northwest), comparing today's net effective prices (including concessions) to the same day last year.

John Kim questioned Equity Residential's continued Sun Belt acquisitions, such as the Arlington, Texas property, despite a significant lack of pricing power and declining same-store NOI in expansion markets, asking if the company considered pausing these acquisitions. He also sought clarification on the 'net effective pricing is down 4%' comment for Washington, DC.

Answer

Mark Parrell, President and CEO, defended the long-term diversified portfolio strategy but stated that current private market prices (sub-5% cap rates, premiums to replacement cost) make continued rapid expansion in the Sun Belt less attractive than share buybacks, which offer better arbitrage and improve the portfolio's growth profile. Michael Manelis, Chief Operating Officer, clarified that the 'net effective pricing is down 4%' in Washington, DC referred to the current pricing trend in specific micro-submarkets (district, northwest) compared to the same day last year, reflecting pressure on absolute rents.

John Kim from BMO Capital Markets requested an update on the full-year blended lease rate guidance. He also asked about current cap rates in Sunbelt versus established markets and whether political uncertainty could create attractive opportunities in D.C. and New York.

Answer

EVP & COO Michael Manelis revised the full-year blended rate guidance to the 2.0% to 2.5% range, down from the original 2.5% midpoint. EVP & CIO Alexander Brackenridge noted that cap rates are around 5% in most markets, sometimes in the high 4s for desirable expansion market assets, and that compelling opportunities have not yet emerged in D.C. or New York.

John Kim of BMO Capital Markets requested an update on the full-year blended lease rate guidance. He also asked about current cap rates in Sunbelt versus established markets and whether political uncertainty might create opportunities in D.C. or New York.

Answer

EVP & COO Michael Manelis indicated that the full-year blended rate growth would likely be in the bottom half of the original 2-3% range, pointing towards 2.0-2.5%. EVP & CIO Alexander Brackenridge noted that cap rates are around 5%, sometimes in the high 4s for desirable assets, and that compelling opportunities have not yet emerged in established markets to alter their acquisition strategy.

John Kim of BMO Capital Markets asked if building occupancy in Boston led to softer new lease rates and inquired about the number of lease breaks in Washington, D.C. since the Investor Day.

Answer

COO Michael Manelis confirmed that leaning into occupancy in Boston during the shoulder season could have contributed to softer new lease rates. Regarding D.C., he stated that while the number of job-related lease breaks has increased from 12 to 28 since the Investor Day, this volume is normal over a two-month period and is not signaling any unusual weakness.

John Kim sought more detail on the post-fire demand spike for larger units in Los Angeles and asked for a breakdown of the 2.5% blended lease growth guidance between new and renewal rates, questioning why new lease growth couldn't be stronger.

Answer

COO Michael Manelis specified that the demand spike for larger units was localized to three submarkets and not widespread, so their base case for gradual L.A. improvement remains. He confirmed that flattish new lease growth combined with ~5% renewals is a plausible path to the 2.5% blend, citing normal Q4/Q1 seasonal weakness on new leases. CEO Mark Parrell added that stronger-than-expected new lease growth represents the biggest potential upside to their guidance.

John Kim asked about the source of residents driving the favorable migration trends in Seattle and San Francisco. He also questioned the timing of the Blackstone acquisition, suggesting they could have waited given the deteriorating operating environment in their expansion markets.

Answer

COO Michael Manelis clarified that the migration is primarily internal, with residents moving from 20+ miles out to be closer to urban offices, rather than a reversal of out-of-state moves. CEO Mark Parrell defended the acquisition timing, emphasizing the trade-off of securing a highly favorable price and basis now, despite weaker near-term rent growth, which was factored into their underwriting.

John P. Kim asked about the recovery in San Francisco, specifically if BXP's high-rise products are attracting AI demand, and for initial thoughts on Salesforce's $15 billion commitment to the city and its potential impact on job growth and office demand.

Answer

Douglas Linde (President, BXP Inc) explained that current AI demand is concentrated in low-rise, south of Mission Street properties, seeking shorter-term, less expensive, furnished space, rather than high-rise towers. He noted strong activity at 680 Folsom Street, which fits AI company growth profiles, and expressed optimism about Salesforce's commitment as the largest private employer in San Francisco.

John P. Kim asked about the recovery in San Francisco, specifically whether BXP's high-rise products are currently attracting AI demand, plans to address this, and initial thoughts on Salesforce's $15 billion commitment to the city.

Answer

President Douglas Linde explained that current AI demand in San Francisco is concentrated in low-rise, south of Mission Street buildings, seeking inexpensive, furnished, short-term space, which differs from BXP's high-rise offerings. He highlighted strong activity at 680 Folsom for AI companies. Rod Diehl commented positively on Salesforce's commitment as meaningful for the city, bringing optimism, but noted that specific details were not yet known.

John Kim from BMO Capital Markets sought clarification on the $390 million of capitalized interest for 343 Madison and inquired about BXP's preferred financing options for the project.

Answer

Michael LaBelle, EVP, CFO & Treasurer, explained the capitalized interest is an imputed figure based on a blended cost of capital over the project's timeline. He stated that BXP has multiple funding sources, including asset sales, private or public equity, dividend adjustments, and various debt options, and has ample time to decide on the optimal mix.

John Kim of BMO Capital Markets asked about BXP's confidence in its full-year leasing plan of 4 million sq. ft. and whether this implies a net occupancy gain of approximately 1 million sq. ft. for the year.

Answer

President Douglas Linde expressed high confidence in achieving the *leased* square footage goal, noting they are already more than halfway there. However, he cautioned against directly translating this to quarter-over-quarter *occupancy* gains due to variable revenue commencement dates, urging investors to focus on the growth in the overall leased percentage as the primary indicator of future revenue.

John Kim inquired about the trend of life science tenants seeking office-only space, asking how widespread it is and whether it's connected to AI's influence on the biotech sector.

Answer

President Douglas Linde explained the trend is driven by companies acquiring later-stage, de-risked products, reducing the need for early-stage lab infrastructure. Executive Rodney Diehl noted this is common in South San Francisco but was unsure of a direct AI link. Executive Bryan Koop observed some instances in Boston but stated it was not yet a major trend.

John Kim asked about the occupancy trajectory, questioning the realism of signing the 2 million square feet of leases needed over the next five quarters to maintain flat occupancy.

Answer

President Douglas Linde expressed optimism, stating that the company expects to sign over 2 million square feet for revenue commencement in 2024 and 2025, which should keep occupancy flat at a minimum. He noted that the formal 2025 guidance and business plan will provide more clarity on the potential for positive absorption.

John Kim asked for more color on the potential reduction in capitalized interest for 2026, considering the $1.75 billion construction spend. He also inquired about the specific reasons why the 1.2 million square feet of known move-outs for next year are not renewing.

Answer

Marc Binda, CFO and Treasurer, explained that 2026 construction costs are driven by finishing the active pipeline (80% leased) and higher CapEx/repositioning for known vacates. He referred to the supplemental's pie chart on page 46 for how they plan to reduce capitalized interest by evaluating various project buckets. Marc Binda detailed the move-out reasons: a non-lab software company in Greater Stanford, a big pharma subsidiary consolidating at Campus Point (leaving space in Torrey Pines), another big pharma subsidiary expanding at SD Tech campus (leaving space in Sereno Mesa), and older product in Cambridge. Joel Marcus, Executive Chairman and Founder, added that LOIs are signed for 83,000 square feet of one known vacate and 40% of another 118,000 square feet.

John Kim asked for more color on the quantum of capitalized interest that may be lowered in 2026, and how this aligns with the expected $1.75 billion construction spend for next year. He also requested commentary on the reasons behind the $1.2 million square feet of known move-outs for next year, specifically whether tenants are moving to new products, shrinking their footprint, or if there were company-specific events.

Answer

Marc Binda, CFO and Treasurer, explained that the $1.75 billion construction spend for next year includes finishing the active pipeline (80% leased) and higher CapEx/repositioning costs for known vacates. For capitalized interest, he referred to the supplemental's pie chart (page 46), outlining strategies for various project buckets, including potential sales and pivots. Regarding known move-outs, Marc Binda detailed specific instances: a non-lab software tenant in Greater Stanford (known vacate for redevelopment), two big pharma subsidiaries in San Diego (consolidated on other Alexandria campuses), and older product in Cambridge. Joel Marcus, Executive Chairman and Founder, added that LOIs are signed for 83,000 square feet of one known vacate and 40% of another.

John Kim asked for more color on the leasing pipeline at Kilroy Oyster Point Phase Two (KOP2), specifically its size compared to last quarter and whether tenants are growing within the South San Francisco market or simply upgrading space. He also inquired about the reasons why 970,000 square feet of tenants are not renewing their leases in 2026 and the company's ability to backfill or extend those leases.

Answer

EVP, Chief Leasing Officer Rob Paratte stated that KOP2 demand and tour activity have continuously increased, expressing confidence in the pipeline for Q4 and into 2026. He noted that the project attracts interest from across the Bay Area, accommodating both tech and purpose-built life science, and that tenants are both seeking additional space and upgrading. CEO Angela Aman explained that the 970,000 square feet of 2026 expirations represent normal course activity, with a 40%+ retention rate on the original 1.9 million square feet, which is back to historical levels.

John Kim asked for more color on the KOP 2 leasing pipeline, its size compared to last quarter, and whether tenants are primarily growing within South San Francisco or just upgrading/relocating space. He also inquired about the reasons for the 970,000 sq ft of potential move-outs next year and the ability to backfill or extend current leases.

Answer

Rob Paratte (EVP, Chief Leasing Officer) stated that demand and tour activity for KOP 2 have continuously increased over the past three quarters, expressing confidence in the pipeline for Q4 and into 2026, attracting interest from across the Bay Area for both tech and life science. He confirmed tenants are both seeking additional space and upgrading. Angela Aman (CEO) explained that the 40%+ retention rate on the original 2026 expirations is a material improvement, with move-outs representing normal course activity due to shifting tenant needs, including some moving to owner-occupied space, aligning with historical patterns.

John Kim of BMO Capital Markets asked about the origins of tenants at KOP2, potential returns on the development, and alternatives considered for the Matilda campus sale, including its cap rate.

Answer

EVP & Chief Leasing Officer A. Robert Paratte stated KOP2 tenants are a mix of new and local companies. CEO Angela Aman noted it was too early for specific returns. EVP & CIO Eliott Trencher could not discuss the Matilda sale's cap rate due to an NDA but confirmed selling was more advantageous than re-leasing the campus given its future vacancy.

John Kim asked if the aggressive leasing terms seen in Q1, such as negative spreads, would be applied to the KOP 2 development to stimulate demand. He also requested a ranking of Kilroy's markets by leasing activity and occupancy growth potential.

Answer

CEO Angela Aman clarified that Q1's negative spreads were driven by a single, low-capital deal with an existing subtenant and not a broader strategy shift. EVP and Chief Leasing Officer Rob Paratte stated they are pricing KOP 2 competitively based on various factors. He ranked Bellevue as the strongest market, followed by San Diego, with Austin also performing well and San Francisco showing positive momentum.

John P. Kim of BMO Capital Markets asked about potential future cost savings, given that 2025 overhead guidance is higher than 2024's actuals. He also inquired about the potential acquisition of Sale Tower in Austin and the types of tenants active in that market.

Answer

Executive Angela Aman explained that 2024 overhead was artificially low as cost-saving initiatives were realized faster than platform reinvestments, and the 2025 guidance represents a more appropriate run rate. Regarding Sale Tower, she stated that while it is a high-quality asset, the pricing was more 'core' than 'opportunistic,' and Kilroy must remain disciplined. Executive A. Paratte added that active tenants in Austin's CBD are primarily professional services, banking, and law firms.

John Kim asked about the earnings impact and timing of the planned $150 million in land sales, including effects from capitalized interest and gains. He also questioned how leasing to a traditional office user at KOP 2 would impact the project's cost, yield, and appeal to life science tenants.

Answer

CEO Angela Aman and EVP, CIO Eliott Trencher explained that capitalized interest will likely be lower in 2025, any gains on land sales would be excluded from FFO, and proceeds are expected in phases from late 2025 to 2027. Regarding KOP 2, Angela Aman and EVP, Chief Leasing Officer Rob Paratte stated that two of the three buildings are in shell condition, allowing for office conversion without significant demolition costs, and noted that co-location of office and life science tenants worked well in Phase 1.

John Kim questioned the apparent shift in strategy from an earlier focus on 4% growth with higher leverage to the current 2-3% growth with lower leverage. He also asked about the 2026 guidance being below consensus, potential headwinds, and the impact of government shutdowns on the company's ability to receive rent payments.

Answer

Darrell Crate, President and CEO, clarified that 4% growth was a stretch goal, with 2-3% being the consistent target, and that lower leverage is a key factor to improve cost of capital and investor comparability. Allison Marino, EVP and CFO, explained that 2026 guidance reflects growth from 2025 acquisitions, FDA Atlanta delivery, and some same-store growth, offset by G&A increases, with no dispositions planned. Crate reiterated that government leases are fully funded for over six months, making default on rent payments highly unlikely during shutdowns, which he views as political 'kabuki theater'.

John Kim questioned the apparent shift in strategy from targeting 4% growth with higher leverage to 2-3% growth with lower leverage. He also asked about the 2026 guidance being below consensus, potential headwinds, and the company's financial resilience during government shutdowns.

Answer

Darrell Crate, President and CEO, clarified that 4% growth was a stretch goal, with 2-3% being the consistent target, and that lower leverage is pursued to improve the cost of capital and stock valuation. Allison Marino, EVP and CFO, detailed the 2026 guidance, attributing growth to FDA Atlanta and 2025 acquisitions, offset by G&A, confirming no dispositions. Mr. Crate reiterated that government leases are pre-funded for over six months, making non-payment during a shutdown a U.S. Treasury default, thus ensuring rent collection.

John Kim of BMO Capital Markets asked if Easterly is now "in the clear" regarding the DOGE initiative, inquired about the D.C. acquisition's lease structure and seller motivation, and questioned the company's alternative funding sources.

Answer

CEO Darrell Crate stated that while not entirely over, the company understands DOGE's objectives and feels well-positioned, highlighting that 95% of its leases are firm term. Executive Meghan Baivier described the D.C. lease as modified gross with ~1% annual escalators. CFO Allison Marino and CEO Darrell Crate confirmed they have ample funding from debt, internal cash, and their JV partner, and do not need to access public equity markets to achieve their strategic goals.

John Kim asked about office utilization as a key metric for the Department of Government Efficiency (DOGE) and whether Easterly could be more proactive in measuring it. He also questioned the composition of the $100 million in guided acquisitions (GSA vs. non-GSA) and sought commentary on the expected growth trajectory for Cash Available for Distribution (CAD) relative to FFO.

Answer

President and CEO Darrell Crate distinguished between Washington D.C. offices, where utilization is a focus, and Easterly's mission-critical facilities like labs, where functionality is more important than occupancy metrics. He confirmed the guided acquisitions would likely be in the state, local, or government-adjacent sectors. Regarding CAD, CFO and CAO Allison Marino explained that growth is driven by renewals, operating margins, and accretive acquisitions. Mr. Crate added that the goal is for CAD generation to be within 'striking distance' of the dividend by the end of 2026, noting a higher stock price would accelerate this.

John Kim asked for the average rent per square foot signed year-to-date and how it compares to the $8.42 for 2026 expiring rents, to understand the building blocks for GAAP same-store NOI next year. He also inquired about the acceleration in GAAP same-store NOI this quarter and if it represents a sustainable run rate.

Answer

Brent Wood, CFO, offered to provide specific average rent per square foot numbers offline, noting that rates vary significantly by market. He emphasized that while rental rates are off their peak, they remain sticky, and the primary challenge is demand pace rather than pricing. Regarding GAAP same-store NOI, Wood highlighted a strong operating year for the existing portfolio, projecting an 8.2% cash same-store growth for Q4 with 97% occupancy. He noted a steady increase in same-store occupancy from 95.6% in Q4 2024 to a projected 97% in Q4 2025, indicating good momentum for next year's run rate.

John Kim asked for the average rent per square foot signed year-to-date and how it compares to the $8.42 expiring rents for 2026, to understand the building blocks for next year's GAAP same-store NOI. He also inquired about the acceleration in GAAP same-store NOI this quarter and if it represents a sustainable run rate.

Answer

CFO Brent Wood explained that average rent per square foot varies significantly by market, but rental rates, while off their peak, remain sticky. He noted that achieving strong rental growth is not a major headwind. For specific average rent numbers, he offered to follow up offline. Regarding GAAP same-store NOI, Wood highlighted a 'terrific operating year' for the existing portfolio, with a projected 8.2% cash same-store NOI for Q4 and a 97% same-store occupancy. He indicated steady, stable growth in the operating portfolio throughout 2025, setting a good foundation for next year.

John Kim from BMO Capital Markets asked about the rationale for using the credit facility versus equity given their similar costs, and followed up on the company's comfort level for its net debt to EBITDA ratio.

Answer

EVP & CFO Brent Wood explained that the company continuously monitors capital costs and will utilize its revolver, priced around 5.2%, for near-term needs. President and CEO Marshall Loeb added that while the company maintains a maximum leverage ceiling around 5.0x debt-to-EBITDA, there is no target floor. The current low leverage is a byproduct of opportunistic capital raising, which provides significant flexibility for the future.

John Kim of BMO Capital Markets asked about the company's capital strategy, specifically how management views the cost of using its credit facility versus issuing equity, and what the comfortable upper limit for its net debt-to-EBITDA ratio is.

Answer

EVP & CFO Brent Wood noted that the revolver's cost is around 5.2%, and while the cost of equity has been less attractive recently, they continuously monitor all capital sources. President and CEO Marshall Loeb added that while there is no target floor for leverage, the company's policy is to maintain a maximum debt-to-EBITDA ratio with a 'five handle,' ideally staying below five times. The current low leverage is a byproduct of opportunistic equity issuance rather than a specific goal.

John Kim highlighted the low 5% GAAP leasing spread in Los Angeles during the quarter and asked if this was indicative of a defensive leasing strategy or if it would be representative of future spreads in that market.

Answer

Executive Marshall Loeb described the 5% spread as a 'statistically odd sample set' due to a very small number of leases rolling in Q1 and stated it was not representative of the portfolio's potential. While acknowledging L.A. is a weak market with negative absorption, he expects future re-leasing spreads there to be higher and more aligned with historical rent growth as more leases roll throughout the year.

John Kim asked how the current bad debt level compares to historical averages, its expected trend, and the company's exposure to recent bankruptcies like Conn's.

Answer

CFO Brent Wood stated that year-to-date bad debt is around 50 basis points of revenue, slightly above the historical average of 30-40 bps. Regarding Conn's, he confirmed they were current on rent through October and have only rejected one smaller lease, while still occupying a large 300,000 sq. ft. space. He also noted the tenant watch list has remained stable in size.

John Kim asked about the reasons Canadian customers are not returning (weather vs. political environment) and why this doesn't impact annual RV customers. He also inquired about the Q4 guidance for seasonal/transient decline and assumptions for backfilling Canadian demand with non-Canadians.

Answer

Marguerite Nader, CEO, stated that non-booking Canadian customers cite political issues, explaining that annual customers have made a capital commitment (owning a home/RV on site), unlike seasonal guests. She referenced the COVID-era experience where U.S. demand filled properties and noted current marketing efforts targeting U.S. customers for properties previously occupied by Canadians.

John Kim inquired about the reasons for Canadian customers not returning, specifically the balance between weather and the political environment, and why this doesn't impact annual RV customers. He also asked about the assumptions for backfilling Canadian demand with non-Canadians within the 4Q guidance of seasonal/transient revenue being down 13%.

Answer

Marguerite Nader, CEO, stated that non-booking customers cite political issues, while annual customers, having made a capital commitment (owning a home/RV on site), are not impacted. She referenced the COVID period where U.S. demand backfilled Canadian properties and noted current efforts to market previously Canadian-filled properties to U.S. customers.

John Kim asked about the significant drop in home sales revenue and the low average sales price for new and used homes. He also inquired about the acquisition market, cap rates, and other potential buyers.

Answer

President & COO Patrick Waite explained that current home sales volume is in line with pre-COVID levels and the lower average price is due to a moderation in demand for higher-priced homes and inventory mix. On acquisitions, CEO Marguerite Nader noted the current low deal volume is cyclical and expects future opportunities from the fragmented market. She stated it is difficult to quote cap rates given the lack of recent transactions.

John Kim asked about the significant drop in home sales revenue and the low average sales price for new and used homes. He also inquired about the acquisition market, seller sentiment, and cap rates for MH assets.

Answer

President & COO Patrick Waite explained that home sales volume is in line with pre-COVID levels, and the lower average price reflects a moderation in demand at higher price points and inventory mix. CEO Marguerite Nader commented that while transaction volume is low, the fragmented ownership in the MH/RV space will create future opportunities. She refrained from quoting cap rates due to the lack of recent comparable transactions.

John Kim asked about the significant drop in home sales revenue and low average sales prices, and also inquired about the acquisition market, seller sentiment, and cap rates.

Answer

President & COO Patrick Waite explained that home sales volume is in line with pre-COVID levels, with lower average prices due to demand moderation at higher price points and inventory mix. CEO Marguerite Nader commented that while transaction volume is low, the fragmented market will present future opportunities, but declined to quote cap rates given the lack of recent comparable sales.

John Kim asked about the significant decline in home sales revenue and the low average sales price for both new and used homes. He also inquired about the acquisition market, current cap rates, and other potential buyers.

Answer

President & COO Patrick Waite explained that new home sales volume is consistent with pre-COVID levels, and the lower average price reflects a moderation in demand for higher-priced homes and the specific inventory mix. CEO Marguerite Nader commented that the M&A market is quiet but noted the fragmented ownership base will create future opportunities. She refrained from quoting cap rates due to a lack of recent comparable transactions.

John Kim asked about the significant decline in home sales revenue and the low average sales price for new and used homes. He also inquired about the acquisition market, including seller sentiment, cap rates, and the presence of other buyers.

Answer

President & COO Patrick Waite explained that new home sales volume is consistent with pre-COVID levels, and the lower average price reflects a moderation in demand at higher price points and the specific inventory mix sold. CEO Marguerite Nader noted that while deal volume is low, the fragmented ownership in the MH/RV space will create future opportunities. She stated it is difficult to quote cap rates due to the lack of recent comparable transactions.

John Kim asked for the expected timeline to reoccupy the 260 sites lost to hurricanes and questioned why the casual RV user segment continues to show weakness. He also inquired about any changes in demand across different generations.

Answer

Marguerite Nader, an executive, estimated that reoccupying the sites would take through the remainder of 2025 and into 2026. Regarding the casual RV user, she explained that recent pressure on seasonal revenue stemmed from a decline in seasonal workers, particularly in Florida, but stressed that underlying demand remains strong, as shown by conversions to annual customers.

John Kim asked if California wildfires or Hurricane Milton impacted operations and if they would affect 2025 insurance renewals. He also questioned why the 2025 expansion site delivery forecast was below the five-year average.

Answer

CEO Marguerite Nader stated that properties were not impacted by wildfires and that while it's too early to determine the effect on insurance rates, an assumption is included in the expense guidance. Executive Patrick Waite projected delivering 400-600 expansion sites in 2025, attributing the lower number to extended entitlement and permitting timelines, particularly in Florida.

John Kim asked for a comparison between the impacts of Hurricane Milton and Hurricane Ian, inquired about the operational status of the assets affected by Ian, and sought an outlook on the upcoming insurance renewal.

Answer

Marguerite Nader, President and CEO, highlighted that unlike with Ian, no properties are currently being considered for removal from the Core portfolio due to Milton, indicating a less severe impact. Paul Seavey, EVP and CFO, clarified that the six assets impacted by Ian have resumed partial operations but will not rejoin the Core portfolio until 2026 at the earliest. Regarding insurance, Marguerite Nader stated it is too early to predict the renewal rate, as it will depend on the final claims from recent storms.

John Kim inquired about the negative cash lease spreads this quarter, the methodology for SL Green's mark-to-market calculation, and the future of 1515 Broadway following the gaming license outcome.

Answer

Matt DiLiberto, CFO, clarified that the mark-to-market calculation benchmarks space occupied within 12 months, comparing fully escalated prior rents to day-one cash rents of new leases. Steve M. Durels, EVP and Director of Leasing and Real Property, added that the Q3 negative spread was an anomaly caused by two specific leases, not indicative of overall market health. Marc Holliday, Chairman and CEO, stated that the casino vision for 1515 Broadway is not 'completely dead' and that SL Green is evaluating all options, including current tenancy, entertainment/hospitality conversions, and future casino opportunities, benefiting from low debt and significant cash flow.

John Kim from BMO Capital Markets asked about the investment gain at 522 Fifth Avenue, questioning if the rapid monetization was expected, why the investment's disclosure was limited on the balance sheet, and if the gain was larger than the guidance increase.

Answer

Chairman & CEO Marc Holliday explained that while the resolution was quicker than anticipated, it was within the range of expected outcomes for opportunistic investments. CFO Matthew Diliberto clarified that the investment was a CMBS vehicle, which follows different disclosure rules than the DPE portfolio, and that the FFO guidance increase reflects the incremental gain net of income that was already included in the original forecast.

John Kim questioned the company's confidence in its full-year leasing and occupancy targets. He also asked about the 500 Park acquisition, specifically the implied mark-to-market and any update on the initial 6.8% acquisition cap rate.

Answer

CEO Marc Holliday expressed confidence in the targets, citing strong tenant demand. For 500 Park, Steven Durels noted a new lease was signed at a rent $10/foot higher than the prior owner asked. Harrison Sitomer updated the acquisition yield to 7.2% from 6.8%, and Marc Holliday added that a $20M+ improvement program is planned to further increase rents.

John Kim of BMO Capital Markets questioned the divergence between leased and financial occupancy trends and asked about the observed impact of the NYC congestion tax on the office market.

Answer

Matthew Diliberto, an executive, explained that financial occupancy temporarily declined due to planned tenant move-outs, and it will trail the rise in leased occupancy as new spaces are built out. Marc Holliday, Executive, and Steven Durels, Executive, noted it is too early to assess the congestion tax's impact but theorized it would benefit properties near transit hubs.

John Kim of BMO Capital Markets asked about the 925,000 sq. ft. Bloomberg lease, questioning if it was in the previously disclosed pipeline and requesting details on its economics. He also sought an update on the One Vanderbilt joint venture sale and whether it remains a necessity for SL Green.

Answer

Executive Steven Durels confirmed the Bloomberg deal was not in the reported pipeline due to its rapid and unanticipated nature. While under an NDA, he noted a substantial positive mark-to-market and concessions appropriate for a renewal. Executive Harrison Sitomer stated the One Vanderbilt JV sale is on track for a Q4 closing. CEO Marc Holliday clarified that while the sale isn't a necessity, it aligns with the original business plan to optimize the asset and enhance fee generation, expecting over $500 million in net proceeds from total asset monetizations by year-end.

John Kim followed up on Elliott, asking if any surprising topics were discussed during their meetings or if Elliott remains a major shareholder of the company.

Answer

Michael Frankel, Co-Chief Executive Officer, declined to comment on the specifics of discussions with investors or their shareholder status, citing investor privacy as the reason.

John Kim from BMO Capital Markets asked why redevelopment yield expectations were lowered by 50 basis points and inquired about the current hurdle rate for new redevelopment projects.

Answer

CFO Michael Fitzmaurice attributed the change to a mix shift in the pipeline, as two stabilized projects with high yields were replaced by three new projects with slightly lower projected yields. He stressed that capital allocation for redevelopments remains a top priority, as demonstrated by the 19% incremental return achieved on projects stabilized year-to-date.

John Kim of BMO Capital Markets asked about the 50-basis-point reduction in redevelopment yield expectations, questioning if it was due to lower rent assumptions and what the new hurdle rate is.

Answer

CFO Michael Fitzmaurice attributed the change to a mix shift in the pipeline, as two higher-yielding projects stabilized and were replaced by three new projects with slightly lower projected yields. He emphasized that capital allocation priority remains on these projects, as the incremental return on projects stabilized year-to-date is a strong 19%.

John Kim of BMO Capital Markets asked about the 50 basis point reduction in redevelopment yield expectations, questioning if it was driven by lower rents, and inquired about the current hurdle rate for new projects.

Answer

CFO Michael Fitzmaurice clarified the yield change was due to portfolio mix, as two projects stabilized and three new projects with different yield profiles were added. He highlighted that the incremental return on stabilized projects year-to-date is an attractive 19%, making it their highest risk-adjusted return and a top capital allocation priority.

John Kim from BMO Capital Markets asked for the rationale behind the 50-basis-point reduction in redevelopment yield expectations and inquired about the current hurdle rate for new redevelopment projects.

Answer

CFO Michael Fitzmaurice attributed the change to a mix shift, as two high-yield projects stabilized and were replaced in the pipeline by three new projects with slightly lower projected yields. He emphasized that capital allocation is driven by high incremental returns, which are currently 19% for projects stabilized year-to-date.

John Kim from BMO Capital Markets noted the 50-basis-point reduction in redevelopment yield expectations and asked if this was driven by lower rent assumptions and what the company's current hurdle rate is for new projects.

Answer

CFO Michael Fitzmaurice clarified that the change was due to a mix shift in the pipeline, as two projects stabilized and three new projects with different yield profiles were added. He emphasized that the capital allocation priority remains on these projects, as they are achieving high incremental returns, citing a 19% incremental yield on projects stabilized year-to-date.

John Kim of BMO Capital Markets requested more insight into the negative cash leasing spreads reported in the quarter, as the average rent signed seemed to imply a negative mark-to-market.

Answer

COO Laura Clark clarified that the negative 5% cash leasing spread was based on a very small sample size of 280,000 square feet of comparable leases. She explained the result was primarily driven by a single lease on a property with an above-market prior rent due to specialized improvements, making it a unique circumstance.

John Kim of BMO Capital Markets questioned why guided GAAP same-store NOI growth is lower than cash growth and asked for the specific GAAP leasing spread assumption for 2025.

Answer

CFO Mike Fitzmaurice explained that the lower GAAP NOI growth guidance (1%) compared to cash (2.5%) is due to a drag from the straight-line rent burn-off of below-market leases that are in their later stages. He then stated that the 2025 guidance assumes GAAP leasing spreads of approximately 30%.

John Kim inquired about the primary drivers behind tenants' slow decision-making and asked how indicative Q3's signed rents are for future leasing, particularly concerning the mark-to-market on 2025 expirations.

Answer

Co-CEO Michael Frankel attributed the leasing slowdown to broad macro-economic and geopolitical uncertainty rather than tenant-specific issues, highlighting stable underlying business fundamentals. CFO Laura Clark added that quarterly rent figures are influenced by the specific mix of leases signed and that recent leasing spreads were in line with full-year guidance. She noted that smaller spaces with shorter lease terms are realizing their mark-to-market potential more immediately.

John Kim asked about the direction of same-store NOI, given guidance implies slowing to 3.5% in Q4 despite improving occupancy, and how solar income is treated in same-store results.

Answer

CFO Tim Arndt explained that the implied deceleration in Q4 same-store NOI is due to a high average occupancy in the same-store pool a year ago, creating a tough comparison. He advised focusing on rent change, which remains very strong. He confirmed that solar revenues and expenses are included in NOI and same-store results, but they are currently small and relatively flat.

John Kim of BMO Capital Markets asked about changes to lease terms like escalators, TIs, and free rent since recent tariff announcements, and also requested commentary on the quarter's lease termination income.

Answer

CFO Tim Arndt stated there were no abnormal changes to lease terms, though concessions continue to normalize. He explained the higher lease termination income was forecasted and is offset by resulting vacancy, with all knock-on effects reflected in guidance. CEO Hamid Moghadam reiterated that these payments, combined with mark-to-market opportunities, make defaults value-accretive.

John Kim asked if demand would fully recover if tariff uncertainty were resolved, or if other factors were causing tenants to be cautious before the April 2 announcements.

Answer

Hamid Moghadam, CEO, stated he could not identify any other significant reason for the caution besides the tariff uncertainty. He declined to speculate on the short-term path of a demand recovery, reiterating that the company is focused on long-term fundamentals rather than trying to predict short-term market movements.

John Kim of BMO Capital Markets asked about any updated plans for a dedicated data center fund and whether to expect promote income from the partner's share of data center developments this year.

Answer

CEO Hamid Moghadam stated that the current strategy is to act as a developer, monetizing data center assets upon completion to fund the core logistics business. While a dedicated fund or expanding existing fund mandates are possibilities, no decision has been made. He confirmed Prologis will not hold 100% of these assets on its balance sheet long-term. CFO Timothy Arndt clarified that the current data center development activity is on the balance sheet, not within funds.

John Kim pointed out a $0.06 core FFO beat for the quarter and asked why the full-year guidance was only raised by $0.01, seeking to confirm the impact of the Prologis Ventures exit, currency gains, and income taxes.

Answer

Timothy Arndt, CFO, clarified that the company did not view the quarter as a 'beat' because the positive events, including the Ventures gain and certain tax credit sales, were already incorporated into their annual forecast. He also noted that any apparent foreign exchange gains in the P&L are typically unrealized and do not impact FFO due to the company's comprehensive hedging program.

John Kim asked if the company plans to acquire a single insurance company, whether targets operate conservatively, why the estimated price per acre in the supplement was unchanged despite record sales, and why Ritz-Carlton condo sales have stalled.

Answer

Executive Chairman William Ackman stated the focus is on acquiring one well-run, conventionally operated insurance company and then transforming its investment strategy. CEO David O'Reilly explained that the price-per-acre estimate is kept conservative and not updated based on a single quarter. Ackman took responsibility for intentionally slowing Ritz-Carlton condo sales to maximize long-term value by selling the remaining units after the project's quality is physically apparent.

John Kim asked about the lumpiness of Howard Hughes' cash flow and when it might become self-funding, recent home sales activity, the allocation of the $900 million cash injection, and the return hurdles for new investments.

Answer

CFO Carlos Olea explained that cash flow can be lumpy quarterly due to MPC infrastructure costs but that investments are sized to free cash flow, which is expected to grow meaningfully as communities mature. CEO David O'Reilly noted that home sales remain strong and that lower builder price participation reflects slower home price appreciation, not a market slowdown. Executive Chairman Bill Ackman stated that the allocation of the $900 million is to be determined and that return on capital objectives are high, referencing Pershing Square's historical performance.

John Kim of BMO Capital Markets questioned the potential timing of an update on the Pershing Square proposal and requested details on tenant turnover in the Downtown Columbia office portfolio.

Answer

CEO David O'Reilly directed all inquiries regarding the Pershing Square proposal to the board's special committee. Dave Striph, President of Asset Management and Operations, explained that they are actively marketing vacant space in Columbia and exploring strategic alternatives for one building, noting strong ongoing lease negotiations. O'Reilly added that the portfolio has not been negatively impacted by broader D.C. office market trends.

Speaking for John Kim, Eric Gordon asked about capital allocation priorities for new development following the Seaport spin-off and incoming condo proceeds. He also inquired about retail leasing demand and re-leasing spread expectations. John Kim then asked about the 15% year-over-year increase in G&A and its future trajectory.

Answer

CEO David O'Reilly stated that capital allocation is a balance between the highest risk-adjusted returns, including new developments, share buybacks, and community improvements, with multifamily currently being more attractive than office. He expects positive mid-single-digit re-leasing spreads in retail. Regarding G&A, O'Reilly noted it will moderate over time and that the current run rate is sustainable for growth, clarifying that success-based fees are in cost of sales, not G&A.

John Kim of BMO Capital Markets asked about Global Net Lease's target for reducing its office portfolio exposure, the expected timeline, and the potential dilutive impact. He also inquired about when earnings might bottom out and begin to grow, and questioned CEO Michael Weil about a recent personal sale of company shares.

Answer

CEO, President & Director Michael Weil explained that office dispositions will be strategic and opportunistic, without a fixed timeline or percentage target, focusing on maximizing value from high-performing assets. He pointed to the updated 2025 AFFO guidance of $0.92 to $0.96 per share as the current outlook. Regarding his share sale, Weil stated it was for a personal obligation, was his first-ever sale, and does not change his strong alignment with or optimism for the company.

John Kim of BMO Capital Markets inquired about Global Net Lease's strategy for its office portfolio, asking for a target reduction percentage and timeframe, and the potential for earnings dilution. He also asked when earnings might bottom out and begin to grow, and questioned CEO Michael Weil on the timing and messaging of a recent personal stock sale.

Answer

CEO Michael Weil explained that office dispositions will be strategic and opportunistic, timed with value-enhancing lease renewals, rather than being tied to a specific percentage or deadline. He noted the proceeds would be used for deleveraging and future acquisitions. Regarding earnings, he pointed to the raised 2025 AFFO guidance of $0.92-$0.96 per share but did not provide a 2026 outlook. Addressing his personal stock sale, Weil stated it was for a personal obligation, was not indicative of his confidence in the company, and that his alignment with shareholders remains unchanged.

John Kim of BMO Capital Markets inquired about Global Net Lease's long-term target for its office portfolio exposure, the potential for earnings to trough and resume growth, and the timing and messaging of a recent personal stock sale by the CEO.

Answer

CEO Michael Weil explained that office dispositions will be strategic and opportunistic, timed with value-enhancing lease renewals, without providing a specific percentage target or timeline. He noted that proceeds would be used for deleveraging and future acquisitions. Regarding earnings, he pointed to the raised 2025 guidance of $0.92 to $0.96 per share but deferred providing a 2026 outlook. Addressing his personal stock sale, Weil stated it was necessary for a personal obligation, was not indicative of his outlook, and that his alignment with the company remains strong.

John Kim of BMO Capital Markets asked about the long-term target for the office portfolio's size, the potential dilutive impact of sales, and the timeline for earnings to trough and resume growth. He also inquired about the CEO's recent personal share sale.

Answer

CEO Michael Weil explained that office dispositions will be strategic and opportunistic, timed with value-enhancing lease renewals, without providing a specific target percentage or timeline. He noted the high quality of the office tenants. Regarding earnings, he pointed to the raised 2025 AFFO guidance of $0.92-$0.96 per share but deferred on 2026 projections. Addressing his personal stock sale, Weil stated it was for a personal obligation, was his first-ever sale, and does not change his strong alignment with and optimism for the company.

John Kim inquired about the composition of the $300 million in dispositions outside the Multi-tenant Portfolio sale, the potential impact of market volatility on asset sales, and the hurdle rate for future share repurchases.

Answer

CEO Edward Weil explained that the additional dispositions are a continuation of the non-core asset sales from 2024, targeting local private and 1031 buyers, with pricing remaining stable. Regarding buybacks, he noted the current 12% AFFO yield is a highly accretive and opportunistic way to capitalize on the stock's discount to NAV, though the primary goal remains a higher stock price.

John Kim from BMO Capital Markets inquired about the forward sale of the KPN office property in the Netherlands, specifically asking for details on the buyer and their plans for the asset. He also questioned the replicability of this disposition strategy for other office assets before his connection was lost.

Answer

CEO Michael Weil explained that the buyer is a developer intending to reposition the property from office use after the lease expires in 2026, with GNL collecting full rent until then. He noted that this strategy is evaluated on a case-by-case basis and has been successfully used before with other assets, such as the Foster Wheeler property.

John Kim of BMO Capital Markets inquired about the disconnect between strong office leasing activity and flat occupancy rates, asking if an unusually high volume of early renewals was the cause and what the occupancy outlook is for the rest of the year.

Answer

President and CEO Jordan Kaplan explained that the wide gap between leased and occupied rates (270 basis points) is a positive leading indicator of future absorption, driven by larger deals that take longer for tenants to occupy. He also highlighted that over 30% of leasing was for new tenants, which he views as a very strong sign for the portfolio's health.

John Kim followed up on the strong multifamily growth, asking if the 7.7% same-store revenue increase was driven by any one-time items. He also asked about the company's involvement in the new Warner Center development and their long-term plans for the submarket.

Answer

Stuart McElhinney confirmed there were no one-time items, attributing the growth to higher year-over-year occupancy and normal lease turnover. President and CEO Jordan Kaplan added that strong rent growth preceding recent events is now rolling through the portfolio. Regarding Warner Center, Kaplan expressed support for the new development but did not comment on specific transactions and refuted any suggestion that the company planned to exit the market.

John Kim of BMO Capital Markets questioned the economics of the 10900 Wilshire acquisition, asking how a stabilized yield over 10% was achievable for the multifamily component. He also asked what was contemplated for capitalized interest in the 2025 guidance.

Answer

President and CEO Jordan Kaplan clarified his comment was for a yield 'above 10%' on the entire project, not just the multifamily portion. He attributed the attractive economics to a combination of factors, including the purchase price, local rents, building costs, and recognizing a development opportunity others missed due to their platform's expertise. CFO Peter Seymour stated that while specific guidance isn't given, capitalized interest will increase as development expands.

John Kim of BMO Capital Markets asked for clarification on the disclosure of short-term leases, specifically regarding the Warner Bros. expiration at quarter-end. He also questioned the rationale for eliminating submarket-level occupancy and rent disclosures in the quarterly supplement.

Answer

Executive Stuart McElhinney explained their long-term policy is to move leases expiring on the last day of the quarter into the 'short-term' bucket while they remain in occupancy for that day. He clarified the Warner Bros. vacancy officially began October 1st. Regarding the disclosure change, he stated that management felt the focus on small, volatile submarket data was a distraction and that presenting by region is more reflective of how they view the business internally.

John Kim of BMO Capital Markets asked for clarification on full-year guidance, the expected occupancy timeline and lease structure for the new Sunset Pier 94 studio, and the reason for an increase in 2026 lease expirations.

Answer

CFO Harout Djerimariam cited studio performance as the main variable in the guidance range. Chairman & CEO Victor Coleman said Pier 94 is seeing interest for year-to-year and show-to-show leases with fully integrated service packages. EVP of Leasing Arthur Suazo explained the slight rise in 2026 expirations was due to short-term renewals and holdovers.

John Kim of BMO Capital Markets asked about the strategy behind using the revolver to pay down private placement notes beyond the current year's maturity and inquired if the asset sale guidance of $125M-$150M is conservative.

Answer

CFO Harout Diramerian clarified that repaying the notes was a strategic two-step process to address 2025 maturities and simplify the unsecured debt structure, describing the revolver as an 'evergreen instrument' planned for extension. CEO Victor Coleman confirmed the asset sale guidance is a 'conservative number' targeting three non-core assets but declined to identify specific properties not yet under contract.

John Kim from BMO Capital Markets asked if the company had considered setting a more aggressive, public G&A reduction goal, similar to peers, to help its stock rerate. He also requested a breakdown of the savings between corporate overhead and the Quixote division.

Answer

CEO Victor Coleman responded by highlighting the company's progress, pointing to a roughly $10 million year-over-year decrease in G&A guidance as evidence of their focus on cost containment. He clarified that all of these G&A savings are at the corporate overhead level and are separate from the operational cost savings being implemented within the Quixote business itself.

John Kim asked about the year-over-year increase in G&A expense relative to NOI and what could be done to reduce overhead. He also inquired about the significant increase in Q4 lease expiration square footage compared to the prior quarter's disclosure.

Answer

CFO Harout Diramerian explained that the G&A increase was primarily due to non-cash, incentive-based compensation added in 2024. CEO and Chairman Victor Coleman added that the G&A-to-NOI ratio should normalize as leasing activity drives NOI higher. Coleman also clarified that the Q4 expiration increase was due to Amazon exercising an early termination right at Met Park North.

John Kim, on behalf of Yigal from Citigroup, requested a breakdown of new versus refill prescriptions for Ibsrela and asked for the latest update on the company's ongoing legal proceedings with CMS.

Answer

CEO Mike Raab and CCO Eric Foster noted a positive trend of increasing refills for Ibsrela, indicating patient stickiness, but did not provide specific numbers. Regarding the CMS lawsuit, Mike Raab confirmed that oral arguments are scheduled for September 25 but reminded listeners there is no statutory deadline for a decision.

John Kim from BMO Capital Markets sought more visibility on the revised second-half blended lease rate guidance of just under 1%, asking about the expected trajectory between the third and fourth quarters.

Answer

President & CFO Alex Jessett clarified that after a 0.7% blended rate in Q2, they expect a slight acceleration in Q3 to just under 1%. He expressed high confidence in this forecast due to significant visibility into signed leases and occupancy, with new leases known ~25 days out and renewals ~60 days out.

John Kim from BMO Capital Markets asked for more detail on the positive momentum in April, specifically for new leases, noting that some third-party data sources like CoStar suggested a potential stall.

Answer

President and CFO Alex Jessett directly refuted the idea of a stall, stating, "No, we have not. Not at all." He confirmed that Camden is seeing the expected uptick in performance moving from the first quarter into April and was unsure what data sources were suggesting otherwise.

John Kim asked about the planned increase in revenue-enhancing and repositioning CapEx, inquiring about the typical return on investment and the program's contribution to 2024's financial results.

Answer

President and CFO Alexander Jessett stated that the repositioning program generates an 8% to 10% return on invested capital, which translates to approximately $150 per door in additional rent. He quantified the impact on 2024 NOI at 10 to 15 basis points. Jessett stressed the program's strategic importance in modernizing kitchens and bathrooms, which keeps the portfolio competitive against new supply.

John Kim asked about the drivers behind accelerating migration to Houston and whether a potential change in the U.S. presidency would alter Camden's strategy to reduce its exposure there.

Answer

Executive Vice Chairman D. Keith Oden affirmed that factors benefiting the oil and gas industry are generally positive for Houston's economy and its real estate market. However, he emphasized that Camden's strategy to lower its Houston exposure is a long-standing one that predates recent political cycles. The goal is to bring the market's concentration in line with others in the portfolio, aiming for below double-digit exposure, and this strategic rebalancing effort will continue regardless of election outcomes.

John Kim asked for quantification of the mark-to-market rent opportunity at The Link, potential upside from occupancy and parking, and the level of competition for the asset.

Answer

EVP and Chief Investment Officer Kennedy Hicks quantified the rent spread at approximately $20 per square foot below market and noted upside from leasing available spec suites and growing parking income. She described the acquisition as a relationship-driven deal but acknowledged that the market is becoming more competitive. President and CEO Colin Connolly reiterated the significant rent growth potential across high-end lifestyle office assets.

John Kim asked about the accelerating removal of office inventory, seeking specifics on which markets are most affected, the primary drivers, and whether the properties are being converted to multifamily or other uses.

Answer

President and CEO Colin Connolly explained that the removal of obsolete office space is now a broad-based trend across all of the company's markets. He characterized it as a necessary 'catch-up' on demolition, driven by properties that are no longer viable. He noted that these sites are being reimagined through a combination of teardowns and repositioning for new uses, including multifamily.

John Kim asked about the original expectations for the Saint Ann Court loan investment, the anticipated volume of mezzanine investments in 2025, and the current status of Google's physical occupancy and use of the Sail Tower building.

Answer

President and CEO Michael Connolly clarified the Saint Ann Court investment was a whole loan on a top-tier asset where Cousins was comfortable with any outcome, including the eventual payoff by the sponsor. He emphasized that debt investments are opportunistic and not a core long-term strategy. EVP and CIO Kennedy Hicks added that Google is currently evaluating its space needs at Sail Tower and has begun its build-out process.

John Kim from BMO Capital Markets asked about the identity of a second large lease in Austin, the health of tech leasing, the status of the Saint Ann Court loan and relationship with its owner, the terms of a direct lease at the Bank of America building, and the status of the SVB bankruptcy claim.

Answer

EVP of Operations Richard Hickson identified the second Austin lease as PayPal and confirmed strong tech sector activity. President and CEO Michael Connolly declined to comment on specific borrower discussions for Saint Ann Court due to confidentiality. Hickson detailed the BofA sublessee direct lease as a short-term, two-phase extension. CFO Gregg Adzema confirmed the SVB bankruptcy claim remains active but is not included in guidance.

John Kim from BMO Capital Markets noted that rental homes now constitute 12% of total manufactured housing sites and asked if the company is more actively embracing its rental home business. He also questioned how high this percentage could go and its contribution to recent occupancy growth.

Answer

President John McLaren confirmed that Sun is indeed embracing the rental home business, viewing these residents as future homeowners. He explained that the percentage of rental homes will 'ebb and flow' based on market dynamics and strategy, noting it has historically ranged from 9% to 16%. The company will continue to utilize the rental program strategically to maximize growth within the portfolio.

John Kim from BMO Capital Markets asked how the 1031 exchange circumstance affects the hurdle rate for MH acquisitions, given past commentary on low cap rates. He also sought to confirm that 1031 funds would not be used for RV assets and asked for more detail on the drivers of the significant transient RV revenue decline.

Answer

Executive Gary Shiffman stated that while they have a great opportunity, they will be very disciplined. He suggested high-quality MH cap rates are generally in the 4-5% range but declined to give specifics while actively in the market. He confirmed the primary focus for acquisitions is manufactured housing. Executive Fernando Castro-Caratini attributed the Q1 transient RV revenue decline primarily to seasonality and a reduced number of available transient sites due to successful annual conversions, especially in Florida, and confirmed Q1 should be the trough.

John Kim requested an estimate of the taxable gain from the Safe Harbor sale, compared to the $1.3 billion book gain, and asked about the company's ability to defer this gain through measures like a 1031 exchange or by utilizing Net Operating Losses (NOLs).

Answer

Executive Fernando Castro-Caratini stated that the company is evaluating all strategies to maximize its tax position and will update the market closer to closing. Executive Gary Shiffman confirmed that the language for a 1031 exchange is available in their agreement and nothing would restrict them from using it.

John Kim asked about the motivation for Gary Shiffman's retirement, its potential link to a recent short-seller report, and the key priorities for the upcoming CEO search.

Answer

Gary Shiffman, Executive, stated his retirement is a personal decision based on his stage in life after 40 years with the company and is unrelated to any external reports. He emphasized that the priorities for a new CEO will be to leverage the high-quality portfolio, control expenses, and continue simplifying the business, supported by the recent progress on strategic initiatives.

John Kim of BMO Capital Markets asked if UDR anticipates more acquisition opportunities from developers via its LaSalle JV and questioned the deceleration in UDR's asking rents in Washington D.C. compared to market data.

Answer

President & CIO Joseph Fisher clarified the LaSalle JV is focused on yield-oriented, 1990s-2000s vintage assets, not new developments from struggling developers, as lenders are extending terms. SVP & COO Michael Lacy addressed the D.C. question by explaining that UDR has been more aggressive on renewals (5.5-6% growth), which impacts new lease growth but results in a strong blended rate of ~3.5% and overall revenue outperformance, supported by high occupancy and 10%+ other income growth.

John Kim from BMO Capital Markets sought clarification on the blended lease rate guidance for the first half, asking if it implied a significant positive turnaround in new lease growth in the second quarter. He also asked if the projected revenue from innovation initiatives was still on track.

Answer

COO Mike Lacy confirmed that achieving the high end of the H1 blended lease rate guidance of 1.4%-1.8% is on track, with April's mid-2% blend supporting this. He reiterated that new lease growth turning flat in April was in line with their expectations for the start of the leasing season. CFO Joe Fisher affirmed that the company is still on track with its other income and innovation initiatives, citing continued high-single to double-digit growth in the other income line item and record low resident turnover, which is exceeding expectations.

John Kim questioned if the other income contribution to revenue was light and asked about its margins. He also asked about the specifics of the new rent control in Monterey Peninsula and concerns about it spreading.

Answer

COO Mike Lacy explained that other income margins vary by initiative but that the 2025 growth forecast is strong, and he hopes to exceed it as they did in 2024. An unnamed executive clarified the Monterey measure abides by Costa-Hawkins (no vacancy control) and identified Washington state and potential California state-level bills as the primary other rent control risks being monitored.

John Kim from BMO Capital Markets pointed out an apparent discrepancy between UDR raising its full-year blended lease growth forecast while lowering its 2025 earn-in expectation, and asked which markets outside the Sunbelt were seeing new lease rate pressure.

Answer

SVP of Operations Mike Lacy clarified that the 2025 earn-in is tracking similarly to the 2024 earn-in because the blended lease growth pattern over the last nine months of 2024 mirrors that of 2023. He identified the coastal markets as seeing more pressure on new lease growth in October, attributing it to the higher impact from short-term leases (e.g., summer interns) converting to long-term leases.

John Kim of BMO Capital Markets asked about seasonality, specifically how July lease pricing compared to June, and inquired about the impact of reported negative net migration in Atlanta.

Answer

EVP Timothy Argo confirmed that July's new lease pricing was the best of the year, trending better than June. He clarified that while Atlanta's performance is improving, it still lags the portfolio, and he expressed no concern over broader migration trends, which remain a strong net positive for MAA's footprint.

John Kim asked about the key drivers for the expected FFO per share ramp-up in the second half of the year and requested details on the revenue contribution from the Wi-Fi rollout initiative.

Answer

Clay Holder, EVP, CFO & Chief Accounting Officer, identified the stabilization of lease-up properties, which are outperforming on pricing and yield, as a key driver of FFO growth beyond seasonality. EVP & COO Tim Argo added that the Wi-Fi program will contribute $1-1.5 million in 2025, with the potential for nearly $6 million annually from the current batch of projects once fully rolled out over the next few years.

John Kim asked which specific markets experienced positive blended lease rates in January and which markets are expected to drive performance improvement in 2025. He also inquired about the market rent growth assumption and current gain-to-lease embedded in the guidance.

Answer

Tim Argo, EVP and Chief Strategy Officer, reported that 13 markets showed positive blended rates in January. He expressed bullishness on continued strength from Washington D.C. and Houston, while also highlighting improving trends in Tampa and Orlando. He noted the current gain-to-lease is approximately 1% and that market rent growth is expected to follow a normal seasonal pattern, which should align with the full-year new lease rate guidance.

John Kim from BMO Capital Markets asked about MAA's policy of not excluding storm costs from Core FFO, whether this would change future guidance, and if it alters their view on Florida exposure.

Answer

A. Holder, EVP and CFO, explained that while 2024 storm costs were unusually high, they will likely include a provision for some storm costs in future guidance, though not at 2024 levels. He affirmed MAA's commitment to Florida, stating that the portfolio's diversification helps mitigate market-specific risks like higher insurance costs. He also clarified that cleanup costs are excluded from same-store results to maintain comparability.

John Kim of BMO Capital Markets requested a quarterly breakdown of the second-half blended rent growth guidance and asked about the impact of immigration policy on the LA market.

Answer

EVP & CFO Barb Pak indicated that the Q3 blended rate would be slightly below Q2, with a more significant drop in Q4 to closer to 2%. President & CEO Angela Kleiman stated it is too early to predict the 2026 earn-in. She also noted no direct impact on demand from immigration policy, attributing LA's softness to broader economic uncertainty rather than a specific policy change.

John Kim asked for the expected cadence of blended lease growth throughout the year. He also inquired about the attractiveness of South San Francisco as a multifamily market and details about the planned product there.

Answer

Executive Barb Pak stated that while the full year is expected to average around 3%, the second and third quarters are projected to have the highest blended rent growth. Executive Rylan Burns highlighted South San Francisco's appeal due to its proximity to the world's largest biotech hub. He clarified the project will target higher-income workers and will not include a corporate housing component.

John Kim of BMO Capital Markets asked about the trend in gross versus cash delinquency and how the 50 basis point improvement forecast for 2025 is calculated. He also inquired about current rates for 10-year unsecured notes and the assumptions in guidance.

Answer

Executive Barb Pak clarified that the reported Q4 delinquency was impacted by a noncash charge to eliminate the remaining accounts receivable balance. The 50 bps improvement in 2025 guidance includes 20 bps from this accounting change and 30 bps of true cash improvement. She noted that 10-year unsecured debt is currently in the mid-5% range, and while guidance includes various assumptions, the company will evaluate all financing options at the time of refinancing.

John Kim from BMO Capital Markets asked why Essex's spread between renewal and new lease rates is narrower than peers' and about the impact of the low move-out-to-buy-a-home ratio on pricing.

Answer

Executive Angela Kleiman explained their strategy is to maximize total revenue by balancing rates and occupancy, rather than maximizing a single metric. On homeownership, she stated it's not a significant pricing factor because the cost to own is already prohibitively high (nearly 3x the cost to rent). The move-out-to-buy rate, currently 5%, has always been low and thus doesn't create significant new pricing leverage.

John Kim of BMO Capital Markets asked about the outlook for comprehensive same-store rent growth for the second half of 2025, given its significant outperformance in the first half. He also inquired about plans for the self-storage operating portfolio, including potential conversions to triple-net leases and the cancellability of third-party management contracts upon sale.

Answer

MD & CEO Toni Sanzone explained that comprehensive same-store growth is expected to normalize in the latter half of the year as the rent loss reserve is factored in, though she noted potential for outperformance. CEO Jason Fox added that the company has flexibility with its remaining self-storage assets, likely pursuing a mix of sales and net-lease conversions to exit the operating business by the following year. He confirmed management contracts are typically cancellable with 30 days' notice.

John Kim of BMO Capital Markets asked about the significant outperformance of comprehensive same-store rent growth versus contractual growth and whether it would normalize in the second half of the year. He also inquired about the strategy for the remaining self-storage operating portfolio and the terms of management contracts on sold assets.

Answer

Toni Sanzone, MD & CEO, explained that comprehensive growth is expected to normalize as the full rent loss reserve is assumed for H2, though this could prove conservative. Jason Fox, CEO, added that the remaining self-storage assets offer flexibility for either further sales or conversion to net leases, and he confirmed that management contracts on sold properties are typically cancelable on short notice.

John Kim of BMO Capital Markets inquired about the significant outperformance of comprehensive income over contractual rent growth and the outlook for the second half of the year. He also asked about W. P. Carey's strategy for its self-storage portfolio, including potential conversions to triple-net leases and the terms of management contracts for sold assets.

Answer

Toni Sanzone, MD & CEO, explained that comprehensive income is expected to normalize in the latter half of the year, as current guidance conservatively assumes the full rent loss reserve will be utilized in Q3 and Q4. CEO Jason Fox added that the company maintains flexibility with its remaining self-storage assets, considering both further sales and conversions to net leases, with the goal of exiting the operating storage business by mid-2026. He also confirmed that management contracts on sold properties are typically cancelable with short notice.

John Kim requested a breakdown of the 2025 lease expirations by property type and asked about the company's capacity to issue more euro-denominated debt.

Answer

Head of Asset Management Brooks Gordon detailed that of the 1.8% of ABR expiring in 2025, the vast majority is warehouse and industrial, with about 20% being retail. CEO Jason Fox added that WPC's loan-to-value on its European assets is within a reasonable range, and the company has the capacity and flexibility to issue more euro debt, which enhances the attractiveness of European acquisitions due to wider investment spreads.

John Kim asked about the financial structuring of the Extra Space self-storage conversion, including how ABR was set relative to NOI and the lease escalators. He also inquired about the plan for the Lineage investment.

Answer

CEO Jason Fox explained the self-storage conversion was structured to be earnings-neutral, with rent set to achieve approximately 1.0x coverage of NOI. The leases include fixed escalators above 2% and a percentage rent component. Regarding Lineage, Mr. Fox noted they are in a multi-year lock-up period, and while capital return is uncertain, they expect to receive the dividend, contributing about $0.05 to AFFO in 2025.

John Kim from BMO Capital Markets asked for details on the 8690 North 6th Street acquisition, including the lease-up timeline, expected rents, and the current mark-to-market for the entire Williamsburg portfolio. He also questioned the drivers of the strong multifamily performance and current pricing for such assets.

Answer

EVP of Real Estate Thomas Durels stated that despite a planned redevelopment, strong tenant interest could lead to an early lease-up at the new property, with corner rents expected to be north of $500 per square foot. President Christina Chiu estimated the portfolio's overall rent mark-to-market is 25-30%. EVP & CFO Steve Horn clarified that the multifamily NOI growth was driven by 8% rent growth and lower concessions, not the new units. Ms. Chiu added that multifamily assets are trading at strong valuations, around a 5% cap rate or lower.

John Kim from BMO Capital Markets asked for an update on the Williamsburg retail portfolio, specifically regarding mark-to-market potential and vacancy. He also questioned the potential impact of recent corporate headcount reductions at major tenants like Macy's and Kohl's.

Answer

Chairman and CEO Anthony Malkin stated that their underwriting for the Williamsburg assets forecasted a 30% mark-to-market rent increase and that they have active proposals for the one vacant space. Regarding tenant risk, Malkin clarified that the Macy's space is already subleased with no impact to ESRT, while the situation with Kohl's, which has a long lease term, is yet to be determined.

John Kim asked about the potential scale of the Williamsburg retail portfolio and the path to achieving a 6% yield. He later followed up on the potential impact of layoffs at Flagstar, a major tenant, and ESRT's commitment to its wholly-owned asset structure versus considering joint ventures.

Answer

President and CFO Christina Chiu explained that the yield on Williamsburg assets will increase from 4% to over 6% through contractual free rent burn-off and leasing of a vacant space. Chairman and CEO Anthony Malkin added that ESRT is always proactive in working with tenants like Flagstar to manage their space needs, viewing it as an opportunity. Regarding structure, he stated that while ESRT has maintained a clean, wholly-owned portfolio by choice, they are 'omnivorous opportunivores' and would consider JVs for future opportunities to attract capital, especially for new investments.

John Kim asked about the funding plan for the remaining development spend, the strategy for permanent financing, and the sourcing of the Prologis partnership.

Answer

CEO John Moragne stated that the company has ample liquidity from its credit facility and does not plan for permanent financing on individual deals, preferring to fund through operations or asset recycling. He explained the Prologis deal was sourced via industry relationships and is symbiotic, as Prologis's customer-led development team generates fee income on projects they don't intend to hold long-term, which fits BNL's strategy.

John Kim asked about the funding sources for the remaining build-to-suit pipeline and plans for permanent financing. He also inquired about how the Prologis deal was sourced and why Prologis chose to partner rather than hold the asset.

Answer

CEO John Moragne stated that BNL has ample liquidity via its revolver and ATM program and prefers to self-fund through strategic asset sales rather than seek permanent financing on new developments. He explained the Prologis deal was sourced through direct relationships and fits Prologis's customer-led development strategy, where they act as a fee developer for certain projects and partner with long-term owners like BNL.

John Kim sought clarification on whether recent pricing power is based on April and May leasing, and asked about the potential for sourcing more development opportunities.

Answer

President and CFO Jim Sebra confirmed that commentary on pricing power is based on positive developments in blended rental rates. CEO Scott Schaeffer addressed development, stating that while they see many opportunities, they remain disciplined regarding their cost of capital and balance sheet risk. He noted the Charleston development was a strategic way to grow in a market where accretive acquisitions are difficult.

John Kim questioned why the 2025 renewal guidance of 3% is significantly lower than the 5.4% achieved in Q4 2024, and asked about the narrowing performance spread between value-add and same-store communities.

Answer

CFO James Sebra explained the lower renewal guidance reflects a thoughtful and conservative approach in an unusual market environment, noting current renewal offers are in the 3-3.5% range. He clarified that the value-add performance spread appears narrow because the metric includes all leases at the property, not just newly renovated ones, and that the renovation premium methodology is designed to isolate the upgrade benefit from general market rent movements.

John Kim from BMO Capital Markets asked about market-specific performance on new lease rates and sought details on recent acquisitions, including yields, stabilization timelines, and asset characteristics.

Answer

Executive Janice Richards acknowledged that new lease rate lift was less than hoped for due to supply. Executive Scott Schaeffer detailed that two of the three acquisitions are newly constructed assets (87% occupied) expected to stabilize in Q1 2025, while the third is an older asset targeted for the value-add program. He attributed the attractive 6% stabilized cap rate to moving quickly with available capital and accepting some lease-up risk.

Asked about new construction activity levels in China's Tier 1 versus Tier 2 cities and inquired about the quarterly cadence of impacts from cost-efficiency initiatives and modular unit sales.

Answer

The company does not see a significant change or recovery in New Installation activity in Tier 1 or Tier 2 cities in China at the moment. The benefits from efficiency initiatives are expected to have a gradual, incremental effect going forward across all business areas, rather than being a one-off event.

John Kim of BMO Capital Markets requested a breakdown of the 2.4% blended lease growth guidance into new and renewal rates and questioned why it wasn't higher given strong occupancy. He also asked about acquisition plans and the company's appetite for negative leverage deals.

Answer

CFO Bhairav Patel projected renewal spreads around 3% and new lease spreads in the high 1-2% range, citing a return to normalized growth. CEO Anne Olson acknowledged some conservatism in the guidance, especially regarding high retention rates. SVP Grant Campbell added that while growth is a goal, the company is cautious about its cost of capital and seeks a clear path to positive leverage, favoring creative structures over standard market-rate deals.

John Kim from BMO Capital Markets asked for the specific new and renewal lease assumptions for Q4, the preliminary earnings outlook for the following year, and details on the Denver acquisition's stabilization timeline and going-in cap rate.

Answer

CFO Bhairav Patel stated that Q4 blended rates are expected to be flat, with renewals in the mid-2% range and new leases in the negative mid-2% range. He noted it was too early for a full 2025 outlook but said the current earn-in is less than 1%. SVP Grant Campbell added that the Denver acquisition has a going-in yield of 5% and is expected to take approximately 18 months to reach the stabilized target yield in the mid-to-high 5% range.

John Kim requested clarification on how the company's projected 100 basis point occupancy loss for 2025 aligns with the 9.7 million square feet of leasing already addressed and the 6.9 million square feet of expirations, noting the figures seemed inconsistent.

Answer

CEO William Crooker broke down the ~14 million sq. ft. of expected 2025 leasing into operating and non-operating buckets. CFO Matts Pinard added a key clarification, explaining that the total expected leasing volume includes new speculative leasing on existing and future vacancy, not just the renewal of expiring leases, which helps reconcile the figures.

Inquired about the composition of the expected $1 billion in new cash proceeds, specifically the amount from new dispositions and the type of assets being sold. He later asked about the outlook for new office development in New York and what rent levels would be needed to justify new construction.

Answer

Management confirmed the cash proceeds would come from the 770 Broadway and 1535 Broadway transactions, supplemented by short-term dispositions to reach $1 billion, but declined to specify the assets. They stated that no other new office projects are expected to start due to high costs, and rents would need to be around $200 per square foot to justify new development.

Inquired about the earnings impact of the UNIQLO sale, the valuation of remaining Fifth Avenue retail, the timing of MSG's move into PENN2, and the capitalized interest policy.

Answer

The UNIQLO sale proceeds will repay preferred equity and should be at least neutral to earnings, if not accretive. The sale implies a high valuation for remaining Fifth Avenue retail. MSG rent commenced in Q2 and will be fully online by Q4. Capitalized interest will roll down in 2025 but will be largely offset by new GAAP revenue.

Asked whether commentary on the tech sector's recovery and retailers buying flagship stores was general or specific to Vornado, and inquired about the status and terms of the 350 Park Avenue project with Citadel.

Answer

The commentary is relevant to both the market and Vornado, as the company expects to capture its share of leasing from a resurgent tech sector and is a prime candidate for retailers looking to purchase stores. The 350 Park Avenue project is proceeding as planned, with the public approval process underway. The starting rent for Citadel was not confirmed, as it is based on a formula tied to future financing costs.

Questioned whether Vornado plans to sell street retail assets into the current market strength, if pricing could return to previous peak levels, and for details on the recently disclosed impairment charge on joint venture assets.

Answer

Vornado may sell some retail assets opportunistically and is convinced rents will continue to rise, though perhaps not to previous peaks. The recent Prada and Kering deals suggest values could return to prior levels. The impairment charge was on a handful of smaller JV office assets they intend to exit, not the retail JV, and does not include 1290 Avenue of the Americas or 555 California Street.

John Kim asked whether to expect recurring one-off costs, such as severance, as cost-cutting continues and what impact should be modeled for the coming quarters.

Answer

CFO Mark Dmytruk clarified that the company expects total onetime restructuring costs to be in the $18 million to $22 million range, with approximately $15 million to $16 million already accrued through Q3. He noted this estimate does not include potential future costs that are currently difficult to estimate, such as those related to real estate consolidation.

John Kim, on for Michael Ryskin, asked for details on the investments in the commercial organization and the expected trend for one-time costs, as well as the RFP flow trend for the pharma versus biotech segments.

Answer

CFO Jill McConnell explained that commercial investments target specific therapeutic areas and sales geographies to grow the pipeline, particularly in biotech. She stated that one-time spin-related costs will continue to step down through the first half of 2025. CEO Tom Pike described the overall RFP flow as 'solid' and adequate for the company to achieve its growth targets.

John Kim from BMO Capital Markets questioned if the Accredo Health vacancy in the Memphis acquisition was previously known, the renewal prospects for Communication Test Design, the meaning of 'transitory vacancy' mentioned in prepared remarks, and the reason for the large increase in the pursuit pipeline.

Answer

Executive Anthony Saladino confirmed the Accredo Health vacancy was a known move and part of the plan, with some space being converted and a smaller office portion under contract for divestiture. James Connolly, Head of Asset Management, explained the Communication Test Design tenant's one-year renewal is tied to their client contract and they are likely to extend for at least one of their two buildings. Saladino clarified that 'transitory vacancy' refers to leases executed but not yet commenced, with rent expected in Q1. Executive Jeffrey Witherell attributed the pipeline's growth directly to securing capital from the Sixth Street transaction, which allows them to actively pursue deals.

John Kim, on for Michael Ryskin, asked about future M&A priorities beyond the current focus, including potential geographic expansion, and inquired about turnover rates for frontline workers.

Answer

CEO Adam Schechter stated that the M&A pipeline remains focused on hospital, health system, and regional lab deals that are accretive in year one. He characterized the Invitae deal as an atypical strategic one-off. CFO Glenn Eisenberg addressed turnover, noting that attrition has improved to pre-pandemic levels in biopharma and is making progress in diagnostics. However, he acknowledged that the frontline worker environment remains competitive, contributing to overall labor costs.

John Kim from BMO Capital Markets questioned if the 4.36% disposition cap rate was high for the current market and asked for more detail on which specific California submarkets were being exited.

Answer

EVP, Co-CIO John McGrath and EVP & CFO Paul Beldin explained the cap rate is based on full-year 2021 NOI and is influenced by a buyer's underwriting of significantly higher property taxes in California post-sale. McGrath clarified that AIR is not exiting entire markets but is selectively selling underperforming assets with high capital needs in areas with greater regulatory risk, as part of a strategy to reduce overall California exposure.

John Kim asked for a comparison of the Q4 blended lease growth rate of -8.5% to Q3, questioned the split between concessions and face rent reductions, and inquired about the attractiveness and potential timing of tapping the unsecured bond market to lower leverage costs.

Answer

Keith Kimmel, President of Property Operations, noted that Q4's negative blended rate was heavily influenced by new leases aimed at building occupancy, while renewal rates remained positive. He stated there is no effective difference between reducing face rents and offering concessions, as the company prices units individually based on net effective rent. CFO Paul Beldin commented that the unsecured bond market is an attractive option for diversifying capital sources, especially given AIR's BBB rating from S&P, but did not provide a specific timeline for a potential issuance.

John Kim of BMO Capital Markets asked about the timeline for the planned business separation and whether Aimco was considering more dispositions due to cap rate compression. He also inquired about the student population impact in Philadelphia.

Answer

Chairman and CEO Terry Considine deferred questions on the separation timeline to an upcoming SEC filing. On dispositions, he noted the market is relatively illiquid but that Aimco is more interested in pursuing joint ventures than outright sales. EVP of Property Operations Keith Kimmel stated that about 1,000 residents in Philadelphia are direct students, but the universities' status has a broader impact on the city's economic vibrancy.

John Kim of BMO Capital Markets inquired about Aimco's strategy for balancing occupancy and rental rates amid recent declines in both. He also asked for details on the 1.6% bad debt figure, its geographic concentration, and the perceived risk of non-collection.

Answer

Keith Kimmel, EVP of Property Operations, explained that Aimco optimizes for total contribution margin on a market-by-market basis rather than prioritizing a single metric. Paul Beldin, CFO, clarified that the July bad debt figure appears higher due to a shorter collection window and is expected to normalize. Kimmel added that the greatest bad debt pressures are in Los Angeles and Miami, driven by local regulations and hospitality employment, respectively.