Jon Petersen

Jon Petersen asked about the level of bad debt in the quarter and any changes to the tenant watchlist. He also questioned at what interest rate the company would expect its leverage levels to increase back towards long-term targets, given recent rate declines.

Answer

CFO Brent Wood reported that bad debt remains a non-factor, consistently in the 30-35 basis point range of revenues, contained to a small number of tenants, and the watchlist has been consistent. Regarding leverage, Wood stated that the decision is fluid, weighing interest rates against equity and other opportunities. He mentioned plans for a $200-250 million unsecured term loan in Q4, potentially pricing in the low 4.3-4.4% range, which is viewed as attractive. He highlighted the company's strong balance sheet (2.9x debt-to-EBITDA) and dry powder, indicating a readiness to increase debt when conditions are favorable.

Jon Petersen asked about EastGroup Properties' bad debt levels for the quarter and any changes to its tenant watchlist. He also inquired about the interest rate threshold at which the company would consider increasing its leverage levels back towards long-term targets, given current lower rates and reliance on equity.

Answer

Brent Wood, CFO, reported that bad debt remains low, around 30 basis points, which is about half the rate of the prior five quarters and contained to a small number of tenants. He added that the tenant watchlist has been consistent. Regarding leverage, Wood stated that the decision is a component of interest rates, equity opportunities, and other factors. He mentioned plans for a $200-250 million unsecured term loan in Q4, potentially pricing in the low 4.3-4.4% range, which is viewed as attractive. With a debt-to-EBITDA ratio of 2.9x, the company has significant dry powder and will continue to monitor public debt markets, noting that the revolver rate is now around 4.7%.

John Petersen asked for an update on Healthpeak's CCRC portfolio, specifically how the company views it as a long-term hold on its balance sheet, given past suggestions of a potential sale.

Answer

Scott Brinker, President and CEO, expressed satisfaction with owning the CCRC portfolio, particularly 100% of it, and praised LCS for their incredible performance in driving value. He highlighted strong fundamentals, significant investments in the buildings, and unprecedented growth, with a compounded growth rate of approximately 9% over the last six years, even through downturns. Mr. Brinker concluded that Healthpeak is happy to hold the CCRC portfolio for the foreseeable future.

John Petersen requested an update on the company's perspective regarding the CCRC portfolio as a long-term hold on its balance sheet, given past discussions about potential sales.

Answer

President and CEO Scott Brinker expressed satisfaction with owning the CCRC portfolio, particularly 100% ownership. He praised LCS's operational performance and the dedicated team's efforts, highlighting strong fundamentals, recent capital investments, and an impressive compounded NOI growth rate of approximately 9% over the past six years, indicating it will remain a long-term hold.

Jon Petersen of Piper Sandler inquired about early order trends from the Quest Diagnostics integration and sought commentary on the Galleri test's repeat testing rate and its trajectory.

Answer

CEO Bob Ragusa reported positive early results from the Quest integration, noting it reduces friction and that 7% of Q2 orders came through the platform from high-volume prescribers. He also expressed satisfaction with the repeat testing rate, which increased to 25% in Q2 from over 20% in Q1, viewing it as a strong indicator of product adoption for a non-reimbursed test.

Jon Petersen asked about the impact of Manhattan's recovering office market on land values and potential asset sales, inquired about a broader strategy for recycling capital, and questioned if the political focus on affordable housing is a net positive for Safehold.

Answer

CEO Jay Sugarman noted that positive dynamics in Manhattan's office and residential markets are beneficial long-term for land values but a near-term impact is unclear. He stated that while they always evaluate the portfolio, creating new ground leases remains the primary focus over selling. On affordable housing, both Sugarman and CIO Tim Doherty agreed that their success comes from providing cheap capital and building credibility with developers to solve the national supply-demand imbalance.

Jon Petersen from Jefferies asked for a breakdown of the drivers behind the revenue guidance reduction, specifically between housing market weakness and PRO integration issues, and whether integration challenges were portfolio-specific.

Answer

EVP & CFO Brandon Togashi explained that the lack of housing market improvement accounted for performance at the low end of the original guidance, with the further reduction attributable to the extended challenges of the PRO integration. President & CEO David Cramer added that these challenges were more market-driven than portfolio-specific, citing the difficulty of rebranding in highly competitive markets like Phoenix.

Jon Petersen from Jefferies asked what hurdles Galaxy might need to cross to sign a deal with a major hyperscaler and whether customer diversification would be a priority for future data center capacity.

Answer

President & CIO Christopher Ferraro clarified that the main factor was a practical matter of availability, as the first 800 MW of capacity was dedicated to CoreWeave. He noted that as Galaxy executes on this project and brings more capacity online, it will demonstrate its delivery capabilities to other hyperscalers. He also agreed that customer and geographic diversification is a natural long-term goal.

Jon Petersen of Jefferies inquired about the primary drivers behind the significant growth in Digital Realty's zero-to-one megawatt business, questioning whether it was due to overall market expansion or market share gains, and asked about specific changes to the company's go-to-market strategy.

Answer

President and CEO Andy Power stated that the growth is a result of a multi-year strategic focus and a combination of a growing market and market share gains. Chief Revenue Officer Colin McLean added that the global platform, full spectrum of offerings, and strong interconnection capabilities are resonating with enterprise clients, leading to the record performance.

Jonathan Petersen inquired about the design changes required to support high-density AI workloads and asked if the impressive rental rates were being offset by higher construction costs for these advanced facilities.

Answer

President and CEO Andy Power stated that while build costs have seen single-digit percentile increases, rental rate growth has far outpaced this inflation. CRO Colin McLean noted AI comprised 50% of bookings. CTO Chris Sharp detailed the company's long-standing focus on modular designs, readiness for liquid cooling, and its HD Colo offering that can support up to 150 kilowatts per rack.

Jon Petersen from Jefferies inquired about the prevalence of higher power demands from warehouse automation and how Prologis is managing this in a power-constrained environment.

Answer

CEO Hamid Moghadam estimated that power demand could increase 5x, from ~5 kWh to 25 kWh per square foot with full automation and EV charging. President Dan Letter added that Prologis is 'way in front of this,' leveraging expertise from its mobility business to launch a new behind-the-meter energy generation solution to bridge the gap as utilities struggle to keep up with demand.

Jonathan Petersen of Jefferies inquired about leasing spreads for 2025 and 2026 renewals, the implications of political discussions in Washington D.C. regarding the USPS, and the historical and future use of Operating Partnership (OP) units in acquisitions.

Answer

President Jeremy Garber stated that the company does not disclose specific leasing spreads but pointed to same-store NOI guidance. CEO Andrew Spodek addressed the political climate, noting that while they monitor discussions, their direct dealings with the USPS remain 'business as usual' and focused on efficient, long-term leasing. Spodek also explained that OP units are a key tool for sourcing off-market deals, accounting for 10-15% of acquisition volume on average, with usage determined by stock price and transaction specifics.

Jonathan Petersen asked for the amount of catch-up rent payments included in fourth-quarter revenue and how to model the revenue run rate for the upcoming year.

Answer

Robert Klein, Chief Financial Officer, advised focusing on the forward-looking run rate, which is now clear since the vast majority of 2023 and 2024 leases have been executed. He highlighted the contractual rent escalators detailed in the investor presentation as the key indicator for future growth, rather than focusing on past catch-up payments.

Jonathan Petersen asked about specific markets with strong leasing spread upside through 2026, any observed impacts from tariffs on inventory or demand, and whether increased activity from large e-commerce players like Amazon could benefit LXP's vacant big boxes.

Answer

Executive Vice President James Dudley identified Sunbelt markets, particularly Phoenix and Dallas, as having the best opportunity for strong mark-to-market rent growth. He noted that tenant reactions to tariffs have been mixed, with some pausing, some accelerating imports, and others proceeding as planned. Regarding e-commerce, he confirmed that major players, including Amazon and other large retailers, are actively looking for space, and their activity has picked up.

Jonathan Petersen of Jefferies inquired about leasing spread expectations for 2025 and 2026, any known tenant move-outs, and the company's reaction to the recent election results, particularly concerning the onshoring of manufacturing.

Answer

James Dudley, EVP, outlined two known move-outs for 2025 and projected that remaining 2025 expirations are 34% below market, while 2026 expirations are approximately 24% below market. Regarding the election, Dudley stated it was too early to say definitively but noted that government spending programs are difficult to undo and that supporting domestic manufacturing has bipartisan support.

Jonathan Petersen asked if there are further operational efficiencies to be gained on the OpEx line or if it's now more tied to inflation. He also inquired about the typical delay or tail on property tax assessments reflecting changes in asset values.

Answer

President and CEO Christopher Marr stated that while the 'low-hanging fruit' on efficiencies has been picked, the company will continue to find savings, such as using AI to reduce repetitive tasks. CFO Tim Martin explained that predicting the tail on property tax assessments is 'impossible,' as municipalities vary, but noted that current pressure on NOI and higher cap rates provide evidence to challenge assessment increases.

Jonathan Petersen inquired about the economics of the new CoreWeave expansion, asking if the rent structure remains the same, and questioned the milestones needed to reduce CoreWeave's customer concentration below 50% by 2028.

Answer

CEO Adam Sullivan confirmed that the rental economics are identical to previous agreements, with the contracts aligning completely after about two years. To achieve customer diversification, he stated the company is focused on expanding its capacity at existing and new 'blue-chip' sites to attract additional 'blue-chip' clients.

Jonathan Petersen asked about the capital strategy for the 100-megawatt HPC transition, specifically whether construction would begin before a lease is signed. He also inquired about financing structures for future deals and the repeatability of the customer-funded CoreWeave model.

Answer

CEO Adam Sullivan stated that the company's strategy is to secure a client contract before committing capital to the site transition. Regarding future financing, he explained that the market is moving toward a model where clients fund a portion of the CapEx (20-30%), and Core Scientific would use project-level debt financing for the remainder of the build-out.

Jonathan Petersen from Jefferies asked about the capital strategy for the 100-megawatt HPC transition, specifically whether spending would precede a signed lease, and what financing structures the company is considering for future deals.

Answer

CEO Adam Sullivan stated that the company intends to secure a client contract before committing capital to the 100 MW transition to ensure the build-out meets specific requirements. For future financing, he described a model where clients might fund the 20-30% equity portion of the CapEx, with Core Scientific using project-level debt financing for the remainder.

Jonathan Petersen asked for the move-in rate trend for the LSI portfolio specifically and the cadence of the overall improvement to flat year-over-year. He also inquired about any observed impacts from job losses in the D.C. market and the potential effects of a job-loss-driven recession.

Answer

Executive P. Stubbs noted the LSI rate trend was similar to the combined pool and that the improvement to flat occurred mainly in January due to an easy prior-year comparison. CEO Joseph Margolis stated it was too soon to see any impact in D.C. and acknowledged that while a job-loss recession would be a headwind, storage has historically shown resilience due to diverse demand drivers.

Jonathan Petersen inquired if STAG holds any material security deposits for American Tire and asked about the impact of election uncertainty on leasing and transaction activity.

Answer

CEO William Crooker confirmed there are no material security deposits related to American Tire and reiterated that their rent is current. Regarding the election, he noted hearing anecdotally that some tenants are delaying leasing decisions but has not seen a material impact on the acquisition market.