Michael Griffin

Michael Griffin requested a deeper dive into Prologis' market rent growth assumptions for 2026, asking for quantification and expected trends, particularly whether market rents are projected to be down in the first half and improve in the second half.

Answer

Managing Director of Global Strategy and Analytics Chris Caton provided the fundamental forecast for 2026, anticipating market vacancies to improve as net absorption approaches 200 million sq ft (up from 155 million last year) and deliveries decline to 180-185 million sq ft. He expects positive aggregate rent growth to emerge more clearly over the course of the year, with vacancies moving from 7.4% to 7.1%-7.2%.

Michael Griffin (Evercore ISI) asked for a deeper dive into Prologis' market rent growth assumptions for 2026, seeking quantification and insights into the expected trajectory, specifically whether market rents might decline in the first half before improving in the second half.

Answer

Chris Caton, Managing Director of Global Strategy and Analytics, detailed that market vacancies are expected to improve throughout 2026, driven by higher net absorption (approaching 200 million sq ft) and declining deliveries (180-185 million sq ft). This trend is projected to reduce U.S. vacancy from 7.4% to 7.1%-7.2%, with positive aggregate rent growth emerging more clearly over the year.

Michael Griffin from Evercore ISI asked at what point move-in rates would need to increase before the company would adjust its ECRI program, and for an update on the acquisition opportunity set, including catalysts for a more positive outlook.

Answer

CEO Joseph Margolis explained that rising street rates provide more headroom to increase ECRIs to existing customers without exceeding street rates, thus expanding the eligible pool for ECRIs. On acquisitions, he expressed caution on the open market due to cap rates but was positive about creating accretive deals through relationships, joint ventures, and the bridge loan program, which acts as a proprietary pipeline. CFO Jeff Norman added that acquisitions are often triggered by seller life events or debt maturities, where the company aims to be present.

Michael Griffin from Evercore ISI asked at what point move-in rates would need to reach before the ECRI program would be adjusted, leading to a reduction in higher ECRIs. He also inquired about the catalysts for an incrementally positive outlook on acquisitions and the current opportunity set in the transaction market.

Answer

CEO Joseph Margolis explained that rising street rates provide more headroom for ECRIs by increasing the pool of eligible customers, rather than necessarily reducing ECRIs. On acquisitions, he expressed caution about the open market due to cap rates but highlighted accretive deals through relationships, joint ventures, and the bridge loan program, which has a 22% conversion rate to acquisitions. CFO Jeff Norman added that acquisitions are often driven by seller-specific life events or debt maturities.

Michael Griffin asked about the softer-than-expected performance in the NYC and Chicago markets. He also posed a broader question on whether a housing market recovery is essential for storage fundamentals to accelerate.

Answer

EVP & CFO Jeff Norman clarified that the New York MSA's weakness was concentrated in New Jersey and Long Island due to new supply, while Chicago actually saw performance accelerate from Q1. CEO Joseph Margolis stated that while a housing recovery would be helpful, it is not necessary for a storage market recovery.

In a follow-up, Michael Griffin of Evercore ISI asked for an explanation for the approximate 12% year-over-year decline in same-store move-in volume during the first quarter.

Answer

CFO P. Scott Stubbs attributed the decline partly to a difficult comparison against a very strong rental volume in the prior year's quarter. He emphasized that overall move-in and move-out volumes are down, but key metrics like occupancy and revenue growth are performing as expected, suggesting the volume drop is not a concern.

Michael Griffin asked about Kimco's recent conversations with retailers regarding their real estate needs for 2026 and 2027, assessing their confidence levels and the impact of tariffs on growth objectives.

Answer

Dave Jamieson, COO, and Conor Flynn, CEO, reported consistent retailer confidence, with a focus on long-term growth despite macro disruptions. They highlighted a 30% increase in GLA executed deals quarter-to-date, 40% spreads on re-leased anchor spaces, over 25 active grocery redevelopment projects, and record small shop occupancy of 92.5%.

Michael Griffin asked about Kimco's recent conversations with retailers regarding their real estate needs for 2026 and 2027, assessing their confidence levels and the impact of tariffs on growth objectives.

Answer

Dave Jamieson, COO, and Conor Flynn, CEO, reported consistent retailer confidence, with a focus on long-term growth despite macro disruptions. They highlighted a 30% increase in GLA executed deals quarter-to-date, 40% spreads on re-leased anchor spaces, over 25 active grocery redevelopment projects, and record small shop occupancy of 92.5%.

Michael Griffin of Evercore ISI requested a breakdown of small shop tenant demand, asking if regional and local players are showing the same strength as national retailers.

Answer

EVP & COO David Jamieson confirmed healthy demand across all categories (national, regional, local), noting over 75% of recent deals were service-related. CEO Conor Flynn added that Q2 small shop deal volume was elevated at 155 deals, driven by demand for e-commerce-resistant services.

Michael Griffin from Evercore ISI asked about the thought process behind choosing to assign a lease from a bankrupt tenant versus taking the space back to re-lease it directly.

Answer

David Jamieson, COO, explained that the decision is made on a property-by-property basis. Key factors include the quality of the assignee and the merchandise mix of the center. They also weigh the economics of recapturing the space to upgrade tenancy and drive higher rents, with a primary consideration being the opportunity to accommodate a grocer, which adds significant long-term value.

Michael Griffin asked about Regency's underwriting rents for anchor and small shop developments versus market rates, and how the company manages to make development projects financially viable given the scarcity of new supply in strip retail, where others struggle.

Answer

Nick Wibbenmeyer, West Region President and Chief Investment Officer, attributed Regency's development success to decades of hard work, strong relationships with leading grocers, robust capital availability, and deep expertise in underwriting costs and forecasting income. He emphasized that while there's no 'secret sauce,' the team's ability to sharpen every aspect of the pro forma allows them to win projects against local developers. Lisa Palmer, President and CEO, underscored that this unique capability is not easily replicated.

Michael Griffin asked about underwriting rents for development projects (anchor and small shop) versus market rates, and how Regency Centers is able to make development projects financially viable despite limited new supply.

Answer

Nick Wibbenmeyer, West Region President and Chief Investment Officer, attributed success to decades of strong relationships with leading grocers, access to capital, and deep expertise in underwriting costs and forecasting income. He emphasized the team's hard work in sharpening every aspect of the pro forma. Lisa Palmer, President and CEO, highlighted the team's experience and track record as a unique 'secret sauce' not easily replicated.

Michael Griffin requested more details on the Brentwood Place acquisition, asking about the timeline to realize mark-to-market rent growth and the expected stabilized cap rate for the asset.

Answer

Nicholas Wibbenmeyer, West Region President and CIO, expressed excitement about the asset's future growth potential beyond its going-in yield. He stated that Regency is targeting a high single-digit IRR over an initial 10-year hold, with clear visibility to further material mark-to-market opportunities beyond that period.

Michael Griffin from Evercore ISI asked about redevelopment opportunities at Shoppers World, particularly concerning the Kohl's box, and sought insight into the high new lease rent spreads in the quarter, questioning if they were skewed by specific deals. He also inquired about the expected timeframe for new anchor tenants to commence occupancy after lease execution.

Answer

COO Jeff Mooallem explained that Shoppers World, acquired in October 2023, offers significant redevelopment potential, with the Kohl's parcel having flexibility due to separate financing. He noted that the 61% new lease rent spread was primarily driven by anchor leases with HomeGoods and Ross, replacing bankrupt tenants, and while future spreads are expected to be strong double-digits, 60% is not a consistent run rate. He anticipates HomeGoods and Ross to open in 2026, with one in the first half and the other in the second half.

Michael Griffin inquired about the opportunity set within Shoppers World, particularly regarding the Kohl's box redevelopment and potential uses, the drivers behind the 60% year-over-year rent spreads on new leases, and the expected timeframe between executing backfilled anchor leases and new tenant occupancy.

Answer

Jeff Mooallem (COO) clarified that the Kohl's parcel at Shoppers World is not included in the new mortgage, providing flexibility for mixed-use or re-tenanting, with an announcement anticipated early next year. He attributed the outsized 60% rent spread primarily to new anchor leases with HomeGoods and Ross in spaces previously occupied by bankrupt tenants, noting future spreads would likely be double-digits but not consistently 60%. He also stated that they aim for HomeGoods and Ross to open in 2026, with one in the first half and the other in the second half.

Michael Griffin from Evercore ISI questioned the rationale for paying off a 2027 mortgage maturity early and asked for details on how the strong leasing environment translates into specific landlord advantages, such as pushing base rents versus improving concessions.

Answer

EVP & CFO Mark Langer explained the early mortgage payoff was a simple economic decision, as the loan had no prepayment penalty and could be replaced with their line of credit at a 100-basis-point lower interest rate. EVP & COO Jeffrey Mooallem detailed that landlord power is being used to secure better rent increases, improve delivery conditions (more 'as-is' deals), and negotiate stronger terms on exclusives and co-tenancy. Chairman & CEO Jeffrey Olson added that future CapEx will be lower due to the portfolio being 97% leased and substantially repositioned.

Michael Griffin from Evercore ISI asked Brian Finnegan about the leasing pipeline outlook for the upcoming year, specifically if retailers are still looking to expand, and how Brixmor is navigating potential macro uncertainties like tariffs.

Answer

Brian Finnegan, Interim CEO and COO, expressed optimism, noting the pipeline is higher than a year ago despite increased GLA signed this year. He highlighted strong demand from specialty grocers, off-price apparel, and health and wellness operators, who are performing well and have strong "open to buys" for 2026. He added that retailers have navigated tariffs with suppliers and that discussions for the 2027 pipeline are already underway.

Michael Griffin inquired about the leasing pipeline outlook for next year, retailer expansion plans, the impact of strong new leasing year-to-date, and any concerns regarding macro uncertainty or tariffs.

Answer

Brian Finnegan, Interim CEO and COO, expressed optimism, noting the pipeline is higher than a year ago despite signing 10% more GLA this year. He highlighted retailers expanding in infill locations and white space, including specialty grocers, off-price apparel, and health/wellness operators, all performing strongly and navigating tariffs effectively. He also mentioned active discussions for the 2027 pipeline.

Michael Griffin of Evercore ISI asked about discussions with retailers regarding recent tariffs, specifically whether they plan to absorb the costs or pass them to consumers, and the potential impact on retailer margins.

Answer

CEO James M. Taylor stated that retailers remain committed to physical stores for the long term, and tariff concerns have not diminished leasing demand. President & COO Brian Finnegan added that retailers have been constructive about navigating tariffs through supplier negotiations and alternative sourcing, while also noting the consumer remains resilient. He pointed to active bidding at retail space auctions as a sign of continued strong demand.

Michael Griffin asked about the decision to maintain the existing bad debt assumption in guidance, questioning whether it reflects conservatism amid uncertainty or if there has been an incremental negative change in the tenant watch list.

Answer

CFO Steve Gallagher stated that holding the guidance was appropriate given the uncertainty around tariffs. President and COO Brian Finnegan clarified that the tenant watch list is actually down considerably following recent bankruptcies and that the portfolio's underlying credit profile is the strongest it has ever been, with low exposure to at-risk categories.

Michael Griffin asked for insights into EastGroup Properties' leasing costs and their expected trend over the next couple of quarters. He specifically questioned whether the company would become more aggressive with tenant improvements (TIs) or remain judicious, particularly for the development pipeline, to finalize deals.

Answer

Marshall Loeb, CEO, noted that in California, TIs and construction costs have been sticky. Overall, leasing costs are typically around $1.10-$1.20 per square foot, with commissions often exceeding actual out-of-pocket costs. He stated that EastGroup, as a larger entity, can fund more TIs than smaller peers if tenant credit is strong. Loeb clarified that delays are generally due to tenants predicting their business needs rather than dissatisfaction with rent or TI packages. He expects commissions to trend up as a percentage of rising rents, while TIs should remain steady, emphasizing that industrial TIs are relatively light compared to other property types.

Michael Griffin asked for insights into leasing costs and their expected trend over the next couple of quarters. He specifically questioned whether EastGroup would become more aggressive with tenant improvements (TIs) or other incentives to finalize development deals.

Answer

CEO Marshall Loeb noted that leasing costs, particularly in California, have been sticky. He stated that typical TI costs are around $1.10-$1.20 per square foot, with commissions often being a larger component than actual construction costs. Loeb highlighted EastGroup's advantage as a larger entity in being able to fund more TIs than smaller peers, provided tenant credit is strong. He emphasized that the primary hurdle is tenants predicting their business needs, not the economics of the deals. He expects commissions to trend up due to higher rents, while TIs should remain steady, noting industrial's relatively light TI requirements compared to other property types.

Michael Griffin from Evercore asked if the development pipeline was underwritten with an expectation of larger tenants and if their absence necessitates a change in leasing strategy.

Answer

President and CEO Marshall Loeb explained that projects are underwritten for a 12-month lease-up and are designed to be multi-tenant. While larger tenants accelerate lease-up (from a current 16 months to a peak of 6-7 months), the company can and is filling buildings with smaller tenants. The return of larger space takers is not required but would significantly speed up the development cycle and trigger new starts.

Michael Griffin of Evercore inquired about the development pipeline, asking if projects were underwritten with the expectation of landing larger tenants and whether the company can fill the space with smaller tenants or needs the larger space-takers to return to accelerate development.

Answer

President and CEO Marshall Loeb clarified that projects are underwritten with a standard 12-month lease-up assumption. He noted that while the lease-up period has extended from a low of six months to about sixteen months, development yields have been maintained or improved. The buildings are designed for multi-tenant use, so they can be filled with smaller tenants, which is the current trend. However, this process takes longer than leasing to a single large user, which has led to a slowdown in the pace of new development starts.

Michael Griffin asked about the health of the company's small and medium-sized business tenants and whether management was monitoring this cohort for signs of margin pressure.

Answer

Executive Marshall Loeb responded that tenant collections remain healthy and bad debt is within the guided range of 40-50 basis points of revenue. He noted their tenants are more dependent on the local consumer economy than global trade. He also pointed out that bad debt is highly concentrated, with just seven tenants accounting for nearly 90% of the bad debt in Q1, suggesting the issue is not widespread across their smaller tenants.

Michael Griffin inquired about the company's strategy regarding the trade-off between increasing occupancy and potentially offering elevated concessions or adjusting rent, and how this balances with revenue growth goals.

Answer

Laura Clark, Chief Operating Officer, explained that the strategy prioritizes driving occupancy, cash flow, and Net Operating Income (NOI). She noted that decisions are made to capture immediate NOI, which may involve adjusting rates, concessions, or tenant improvements (TIs), or signing shorter lease terms. She emphasized that the superior quality of their buildings and proactive team efforts are key to their leasing success.

Michael Griffin of Evercore ISI sought more detail on the market rent decline, asking if the trend improved intra-quarter or if the negative pressure was consistent throughout Q2.

Answer

COO Laura Clark explained that it's difficult to track month-to-month changes, but noted that significant tariff uncertainty at the start of the quarter paused some tenant decision-making, which impacted rents. She added that the company's strategic focus on capturing demand and driving occupancy also played a role in rent levels for the quarter.

Michael Griffin from Evercore ISI sought more detail on the decline in market rent growth, asking if there was any sequential improvement within the quarter from April to June.

Answer

COO Laura Clark noted it is difficult to track month-to-month changes but attributed the quarterly pressure to the sweeping tariff policies announced in April, which caused some tenants to pause decision-making. She emphasized that the company's primary focus is on capturing demand and driving occupancy, which has also influenced rent levels, but leasing activity continued throughout the quarter.

Michael Griffin of Evercore ISI sought more detail on the decline in market rent growth, asking if there was any sequential improvement during the quarter from April to June.

Answer

COO Laura Clark stated it's difficult to measure month-to-month, but attributed the quarterly pressure to uncertainty from sweeping tariff policies announced in April, which caused some tenants to pause decisions. She added that the company's focus on capturing demand and occupancy can also impact rent levels in the current environment.

Michael Griffin from Evercore ISI asked for more detail on the decline in market rent growth, probing whether there was any sequential improvement within the quarter from April to June.

Answer

COO Laura Clark noted it is difficult to track month-over-month changes but attributed the pressure on rents to macroeconomic uncertainty, particularly the sweeping tariff policies announced in April which caused some tenants to pause decisions. She added that the company is focused on capturing demand and occupancy, which can also impact rent levels.

Michael Griffin from Evercore ISI asked for more detail on the decline in market rent growth, questioning if there were any intra-quarter improvements from April to June or if the negative pressure was consistent.

Answer

COO Laura Clark explained that while it's difficult to track month-to-month, the quarter was impacted by uncertainty following tariff announcements in early April, which caused some tenants to pause decisions. She also noted that the company's strategic focus on capturing demand and increasing occupancy can sometimes impact rent levels.

Michael Griffin of Evercore ISI asked for commentary on occupancy expectations, highlighting the 600-basis-point gap between same-store and total portfolio occupancy and whether this spread would change.

Answer

CFO Michael Fitzmaurice clarified that the spread is due to properties being moved into the redevelopment pipeline. He expects same-property occupancy to end the year at its Q1 level of 95.7% after a dip mid-year. Total portfolio occupancy, which dipped due to redevelopments, is expected to end the year around 90-91%.

Questioned the increase in tenant improvement costs and inquired about the company's strategy for external growth and acquisitions following the Crabtree deal.

Answer

The rise in TIs is attributed to strategic investments in redeveloping large, vacant anchor boxes to drive traffic, while inline TIs remain stable. Regarding acquisitions, the company is opportunistic and selective, seeking deals that are accretive and meet specific IRR thresholds, feeling confident to do so because their internal leasing and disposition plans are ahead of schedule.

Michael Griffin of Evercore ISI questioned the timing for re-leasing spaces from bankrupt tenants, specifically asking when leases would be executed and when rent would commence to realize the guided 30-35% mark-to-market uplift.

Answer

EVP, Eastern Region President & COO Wendy Seher projected that lease executions would occur over the next three quarters (Q3 2025 - Q1 2026). She noted a typical 12-month lag for tenant build-outs, with rent commencements expected in the fall of 2026 and spring of 2027.

Michael Griffin of Evercore ISI asked for details on tenant concessions, highlighting the higher tenant improvement (TI) costs in the total lease pool compared to the comparable lease pool.

Answer

CFO Daniel Guglielmone attributed the variance to a single, significant deal with Lifetime Fitness at Santana Row. CEO Donald Wood elaborated that this strategic deal for an entire building was economically favorable and not indicative of a broader trend of rising TIs, stating that concession levels are generally strong.

Michael Griffin of Evercore requested anecdotal examples and details on the benefits observed from the LINOS technology pilot program at its initial six to ten facilities.

Answer

Greg Lehmkuhl, President & CEO, reported that the LINOS pilot is exceeding expectations, delivering double-digit total labor productivity improvements. He described LINOS as a proprietary system that optimizes all warehouse resources and movements, positively impacting direct and indirect labor, energy usage, safety, and employee turnover. He promised more detailed financial impacts would be shared by year-end.

Michael Griffin from Evercore ISI sought details on the specific factors delaying the anticipated benefits from the PRO platform integration and inquired about the impact of new AI search tools on customer acquisition.

Answer

President & CEO David Cramer attributed the PRO integration delays to a combination of challenging macro conditions in key Sunbelt markets and the time required for rebranding efforts to take hold. On AI, he noted it's early for customer acquisition impact but highlighted internal successes, including an AI agent handling 15% of call center volume and a new contactless rental tool, 'MyStorage Navigator.'

Michael Griffin of Evercore ISI inquired about trends in promotional discounts for new tenants and asked about the potential to further improve search engine rankings and drive demand through the new nsastorage.com domain.

Answer

CEO Dave Cramer stated that while there has been a slight increase in promotional use to support higher street rates, it remains within historical norms. Regarding SEO, he explained that improving organic search rankings is a long-term effort, but paid search spend has been increased effectively since consolidating onto one domain, leading to a significant (approx. 25%) increase in top-of-funnel customer traffic since late last year.

Michael Griffin from Evercore ISI asked about the trend in promotions and discounts for new tenants and whether the company was holding firm on concessions. He also inquired about the potential to further improve search engine optimization rankings and how that translates to demand.

Answer

CEO Dave Cramer responded that concessions are within expected ranges but have seen slightly increased use recently, which is consistent with the strategy of pushing higher street rates and using temporary discounts. On SEO, Cramer confirmed it is possible to improve rankings further through long-term SEO work and short-term paid search, noting that the unified nsastorage.com domain has already driven a significant (approx. 25%) increase in top-of-funnel customer volume since late last year.

Michael Griffin of Evercore ISI inquired about leasing demand from regional and local tenants and whether there has been a noticeable shift in customer demographics toward value-seeking, full-price shoppers.

Answer

President and CEO Stephen Yalof noted that while local tenants are a small portion of NOI, they are an important part of the business and have not shown signs of stress. He confirmed anecdotally that Tanger is attracting new customers, driven by the 'localization' of its centers and the addition of diverse uses like restaurants and health clubs, which bring in new visitors who then stay to shop for value.

Michael Griffin from Evercore ISI inquired about the sources of tenant demand, asking for a comparison between large national retailers and smaller, local 'mom-and-pop' concepts.

Answer

Chairman, CEO & President David Simon acknowledged previous concerns about smaller tenants due to tariff uncertainty but stated they are currently performing well and beating their plans. He expressed more optimism about this segment than in the prior quarter, though he noted the company continues to monitor the situation closely.

Michael Griffin of Evercore ISI asked for a more detailed breakdown of tenant demand, specifically comparing the strength of national retailers versus smaller, local 'mom and pop' concepts.

Answer

Chairman, CEO & President David Simon acknowledged his previous concerns about smaller tenants due to potential tariffs but stated they are currently "beating their plans." He expressed more optimism for this segment compared to the prior quarter, confirming that demand from these tenants remains strong, though it is a situation the company continues to monitor closely.

Michael Griffin of Evercore ISI asked for an explanation of the implied acceleration in same-store expense growth in the back half of the year and inquired about the adoption of AI tools like ChatGPT for customer acquisition in the self-storage space.

Answer

CFO Timothy Martin attributed the expected expense growth to timing of repairs, lapping prior-year efficiencies, and tough comps on property tax refunds, while noting a favorable insurance renewal as a positive offset. On customer acquisition, he stated that traditional internet searches still dominate, as AI is currently less effective for simple, location-based queries like 'storage near me'.

Michael Griffin asked for a breakdown of the same-store expense guidance, which implies an acceleration in the second half of the year. He also inquired about the impact of AI and GPT on new customer acquisition channels.

Answer

CFO Timothy Martin detailed that the expected expense acceleration is due to the timing of repairs and maintenance, lapping prior-year personnel efficiencies, and a tough property tax comp in Q4. This is partially offset by a very favorable insurance renewal. Regarding AI, Martin stated that traditional internet searches still dominate customer acquisition and that while the marketing team is monitoring AI's evolution, its current impact on simple queries like 'storage near me' is limited.

Michael Griffin of Evercore ISI inquired about the drivers behind the year-over-year decrease in personnel expenses and sought an update on the acquisition pipeline, including potential JV buyouts.

Answer

CFO Timothy Martin clarified that the personnel expense decline was due to efficiencies in store staffing and hours management, not wage cuts, and he expects the full-year figure to be closer to flat. Regarding acquisitions, Martin described the market as 'hazy' due to interest rate uncertainty, which has widened the bid-ask spread, but affirmed the company maintains a healthy balance sheet to act on opportunities.

Michael Griffin of Evercore inquired about July operating trends, the implied second-half deceleration in guidance, and the dynamics of the acquisition market, including the strategy for Sunbelt investments.

Answer

SVP & CFO Thomas Boyle stated that July trends were consistent with expectations, with the occupancy gap tightening. He attributed the guided second-half deceleration primarily to the known impact of fire-related pricing restrictions in Los Angeles. CEO Joseph Russell added that the transaction market is up year-over-year, driven by single-asset deals, and their Sunbelt acquisitions are guided by submarket-specific data, not broad market timing.

Michael Griffin asked for details on the rollout and incremental benefits of the dynamic staffing model. He also inquired about the macro assumptions, particularly for the housing market and job growth, that are embedded in the company's guidance.

Answer

Joseph Russell detailed that the dynamic staffing model, guided by predictive data, reduced labor hours by 12% in Q1 and has a long runway for further optimization. H. Boyle stated that while consumer trends have been strong, the guidance's lower end accounts for potential macro weakness, and they are not assuming a strong housing market recovery this year.

Michael Griffin asked if the concessionary environment has changed and whether STAG is offering more incentives, and also inquired about the potential backfill demand for American Tire Distributor's spaces if those leases were rejected.

Answer

CFO Matts Pinard stated that while they may offer slightly more free rent in higher-vacancy markets, they prioritize holding net effective rents. He noted a recent elevated TI was a long-term building enhancement, not a typical concession. CEO William Crooker addressed the American Tire question, explaining that backfill demand would be market-specific but that the properties are modern and well-sized. He also stressed that ATD represents only 1% of ABR, limiting its overall impact.

Michael Griffin, on for Nick Joseph, asked about the future margin potential for the Trilogy segment as its AL/IL components grow. He also sought insights on the acquisition pipeline, including targeted property types and expected going-in yields.

Answer

President and CEO Danny Prosky confirmed that growing the AL/IL mix will drive margins higher from the current pre-COVID level of 19%. COO Gabriel Willhite added that drivers include unlocking pricing power at higher occupancy and negotiating better Medicare Advantage rates. On acquisitions, Danny Prosky noted they are targeting SHOP assets with yields in the mid-6% to 8% range, focusing on stabilized or moderate value-add opportunities.

Michael Griffin asked if the implied fourth-quarter FFO, excluding one-time benefits, represents a good run rate for 2025. He also sought more color on deal activity, questioning if opportunities are primarily emerging from distressed debt situations and asking for commentary on the availability of debt capital in the senior housing market.

Answer

CFO Brian Peay cautioned against annualizing the Q4 FFO figure due to increasing seasonality in the business. CIO Stefan Oh explained that while recent acquisitions were sourced advantageously through debt positions and special servicer relationships, the future pipeline is diverse and will focus on off-market deals sourced through operators. Peay added that the project-specific financing market remains constrained, which is acceptable as AHR's capital hierarchy prioritizes retained earnings, dispositions, and equity over new secured debt.

Michael Griffin inquired about Easterly's acquisition pipeline and the accretion of deals, considering the expectation of higher interest rates for a longer period. He also asked about the potential impact of the Department of Government Efficiency (DOGE) initiatives and austerity measures on external growth, new development awards, and the attractiveness of government-adjacent properties.

Answer

President and CEO Darrell Crate stated that the pipeline for acquisitions and development is strong, as capital constraints on other developers create opportunities for Easterly. He noted the company is targeting 2.5% growth and has been conservative in its guidance. CFO and CAO Allison Marino added that they target a 50 to 100 basis point spread on new deals, accounting for current interest rates. Regarding DOGE, Mr. Crate acknowledged potential short-term 'turbulence' but expressed long-term confidence, emphasizing Easterly's role as a private partner that can deliver mission-critical facilities more efficiently and cost-effectively than the government, which aligns with DOGE's objectives.

Michael Griffin of Citigroup Inc. inquired about the key drivers for the 2025 guidance, including NOI growth and acquisitions, and asked for expectations on leverage trends. He also sought details on the strategy and yield spreads for government-adjacent property acquisitions.

Answer

CFO Allison Marino explained that the guidance range is based on property NOI growth, G&A, interest rates, and the acquisition pipeline, with leverage expected to remain in the 6.5% to 7.5% range. CEO Darrell Crate added that the company targets a portfolio mix of 70% GSA, 15% high-credit state, and 15% government-adjacent properties. He noted they are finding acquisition opportunities with cap rates 50-100 basis points above their cost of capital, driven by capital constraints among private sellers.

Michael Griffin inquired about the long-term organic growth potential of the project management business, particularly the sustainability of Turner & Townsend's growth rate, and the rationale for optimism in industrial development despite flat leasing.

Answer

CEO Bob Sulentic clarified that while a 20% growth rate isn't sustainable, they expect mid-teens growth for the combined project management business due to its focus on high-growth sectors like data centers and infrastructure. He explained their counter-cyclical industrial development strategy involves acquiring sites when capital is scarce to capitalize on future recoveries.

Michael Griffin asked about the expected pace of the capital markets recovery in 2025 and whether the double-digit growth forecast for resilient businesses is primarily organic or driven by M&A.

Answer

Chair and CEO Bob Sulentic stated that CBRE anticipates a steady, not precipitous, capital markets recovery, noting that buyers and sellers are nearing alignment. He clarified that the resilient businesses' double-digit growth is expected long-term, driven by low double-digit organic growth supplemented by M&A. CFO Emma Giamartino added that resilient businesses will contribute about $1.8 billion in SOP this year, representing roughly 60% of the total, a ratio she expects to maintain even through a transactional recovery.

Michael Griffin from Citigroup asked for more detail on the office leasing pipeline, including the types of tenants and their likelihood to commit. He also questioned the long-term strategy for the Quixote studio platform, asking if it makes sense to retain the business given its limited visibility and recent impairment.

Answer

Arthur Suazo, EVP of Leasing, expressed supreme confidence in closing deals, highlighting that 800,000 square feet of leases are in late-stage negotiations and tenants are showing more urgency. On the studio business, President Mark Lammas and CEO Victor Coleman reaffirmed their belief in a Los Angeles production comeback, citing cost-cutting initiatives at Quixote, a proposed state tax credit increase, and improving profitability among major streamers as key positive factors.

Michael Griffin questioned if an NOI increase should be expected from the Quixote studio business in Q4 and whether the proposed state tax credit might delay production until it's enacted. He also asked for context on the Foothill Research Center sale price and broader trends in transaction values since pre-COVID.

Answer

CEO and Chairman Victor Coleman expressed confidence that the tax credit legislation will pass and that production would not be delayed, as the industry is seeking long-term directional certainty. On the asset sale, he cautioned against using the Foothill price as a market benchmark due to unique factors like a short-term ground lease. He added that overall transaction activity for non-core assets has been surprisingly strong.

Michael Griffin from Citigroup asked about the appeal of office acquisitions in the current market and the potential yields ESRT is underwriting. He also questioned if tenants from higher-priced buildings are now considering ESRT's more value-oriented, amenitized properties.

Answer

Chairman and CEO Anthony Malkin stated that while ESRT is monitoring the market, no office deals have met their criteria yet, with a continued focus on retail and residential opportunities. He confirmed that ESRT is in active negotiations with tenants who have also considered more expensive, newly constructed buildings, as they are attracted to ESRT's value proposition, which includes a full suite of amenities and sustainability partnerships.

Michael Griffin inquired about the leasing pipeline, asking if tenants were migrating from higher-priced properties to ESRT's portfolio and how leasing concessions were trending. He also asked if ESRT was seeing opportunities in the office transaction market and if it would consider providing debt or entering JVs.

Answer

Executive Vice President Thomas Durels stated that ESRT attracts quality tenants from all submarkets who choose its properties for their value proposition in the active $60-$80 per square foot range. He noted that net effective rents were the highest in three years, with lower leasing costs due to re-leasing built-out spaces. Chairman and CEO Anthony Malkin described the company as 'omnivorous opportunivores,' confirming they are open to all value-add opportunities, including office acquisitions, debt positions, and JVs.

Michael Griffin questioned what the primary catalyst for increased transaction activity would be in a 'higher for longer' interest rate environment and asked if leasing strength in top-tier office buildings is spilling over to lower-tier properties.

Answer

CEO Michelle MacKay explained that the catalyst is the market's recalibration, with cap rates having adjusted to make leverage neutral-to-positive for assets like CBD office and industrial, allowing levered players to re-enter. She asserted this sets the stage for steady expansion rather than a sharp recovery. On the office leasing question, MacKay confirmed that due to high demand and limited new construction for top-tier space, demand is indeed trickling down to the 'next best thing' in quality.

Michael Griffin asked for color on transaction market dynamics, including buyer-seller expectations and the impact of debt market tightness, and questioned if leverage could remain elevated to fund growth.

Answer

CEO Michelle MacKay expressed optimism, citing Fed rate cuts as a catalyst for shifting investor mindset to 'risk on.' CFO Neil Johnston acknowledged lending tightness but noted a strong September for mortgage originations. MacKay firmly stated they do not anticipate increasing leverage, emphasizing a disciplined capital allocation strategy focused on brokerage, services, and continued deleveraging.

Michael Griffin from Citigroup Inc. asked about operator strategies for cost mitigation and the composition and underwriting yields of the acquisition pipeline.

Answer

CEO Rick Matros described operator initiatives such as digital recruiting, improved employee onboarding with mentorship, and competitive wage rebasing. EVP Talya Nevo-Hacohen confirmed the pipeline is tilting towards assets with a care component, like Assisted Living, with going-in yields of 7% to 7.5% that are expected to stabilize higher.

Michael Griffin of Citigroup asked for color on the drivers of occupancy gains in the SNF portfolio and whether to expect more seasonality going forward. He also inquired about the current appetite from lenders for debt capital in the sector, including bridge-to-HUD financing.

Answer

CEO Rick Matros attributed the SNF occupancy gains to improved labor availability, which allows for more admissions. He suggested that declining supply in the skilled nursing sector could potentially mask normal seasonality in the future. EVP & CIO Talya Nevo-Hacohen commented on lending, stating that while lenders are interested, pricing is an issue, and activity in the bridge-to-HUD space continues, primarily from non-bank lenders.

Michael Griffin of Citigroup asked if tenants are renewing leases earlier due to limited space availability and whether leasing concessions have started to decline as a result of strong demand.

Answer

Glen Weiss, EVP of Office Leasing, confirmed seeing robust demand, including tenants discussing renewals years in advance and new tenants seeking immediate occupancy. He noted that while concessions have 'neutralized,' they have not yet broadly declined, but rising rents are improving overall deal economics. Michael Franco, President and CFO, added that some tenants who recently signed leases are already seeking expansion space.

Michael Griffin of Citigroup inquired if tenants are renewing leases earlier due to market tightening, whether concessions are declining, and asked for an outlook on refinancing rates for upcoming debt maturities.

Answer

Executive Glen Weiss noted robust demand from all angles, including early renewal discussions, but stated that concessions have neutralized rather than decreased, with rent growth being the primary improvement. President and CFO Michael Franco added that while some fixed-rate debt will see rate upticks upon refinancing, he believes the company is largely past the period of significant interest expense increases and expects the net impact to be around par year-over-year.

Michael Griffin of Citigroup Inc. asked if tenants are renewing leases earlier due to limited availability and whether leasing concessions have started to decline. He also inquired about expected refinancing rates for upcoming debt maturities.

Answer

Executive Glen Weiss confirmed seeing robust demand, including early renewal discussions and expansions, but noted that while rents have risen, concessions have only 'neutralized' and not yet broadly declined. President and CFO Michael Franco commented that the financing market is much improved, and while some refinancing rates may be higher, the overall interest expense impact should be roughly neutral year-over-year.

Michael Griffin asked whether tenants are renewing leases earlier due to limited space availability, if leasing concessions are declining, and for an outlook on refinancing rates for upcoming debt maturities.

Answer

Executive Vice President Glen Weiss confirmed tenants are renewing years in advance, and while concessions have neutralized, they have not yet declined. President and CFO Michael Franco described the financing market as significantly improved, expecting net interest expense to be relatively stable year-over-year as the worst of the rate hikes is likely over for the company.

Michael Griffin of Citigroup inquired if the PENN2 leasing pipeline is seeing more interest from financial services tenants due to limited availability elsewhere. He also asked whether Vornado prefers acquiring distressed debt or assets outright and what the return hurdles are for new investments.

Answer

EVP Glen Weiss confirmed that tenants from all sectors, including a plethora of financial firms, are flocking to the Penn District, attracted by the quality and location. President and CFO Michael Franco stated that Vornado is opportunistic and open to both debt and direct asset purchases, focusing on value-add and opportunistic returns rather than core buys, without specifying a precise IRR target.

Michael Griffin from Citigroup asked about recent trends in leasing concessions and how management balances the favorable outlook for interest rates with potential recessionary fears.

Answer

Executive Glen Weiss stated that leasing concessions have stabilized, though they remain high, and are being offset by higher starting rents in certain submarkets, leading to positive net effective rent trends. Chairman and CEO Steven Roth commented that the cost of capital is the biggest driver for real estate and that the expectation of a downward trend in interest rates is a significant positive for the business.

Michael Griffin of Citi asked about recent trends in leasing concessions and how management balances the positive outlook for lower interest rates against potential recessionary fears.

Answer

Glen Weiss, an executive, reported that leasing concessions have stabilized, though they remain high, and are being offset by rising rents in certain submarkets. Steven Roth, Chairman & CEO, emphasized that lower cost of capital is a primary driver for real estate value and that the prospect of declining interest rates is a significant positive, outweighing generalized recessionary concerns for the sector.

Michael Griffin of Citi inquired about leasing concession trends in prime submarkets like Park Avenue and the PENN District. He also asked for details on a large upcoming lease expiration in the second quarter.

Answer

Executive Glen Weiss explained that for new leases, concessions are consistent across submarkets at around $140-$150 per square foot for tenant improvements and 13-15 months of free rent; the primary variable is the starting rent. He confirmed the Q2 expiration is the previously disclosed Meta space at 770 Broadway and noted there is already leasing 'action on this space.'

Michael Griffin inquired about Highwoods' 2025 leasing outlook, specifically asking if the forecast includes new leases for major vacancies and if those are necessary for positive net absorption. He also asked about the acquisition strategy, the types of assets being targeted, and the rationale for issuing equity versus executing more non-core asset sales for funding.

Answer

Executive Brendan Maiorana clarified that the 2025 outlook does not assume significant new leasing in the four core vacant assets, noting a large signed lease at Alliance Center doesn't commence until 2026. CEO Theodore Klinck added that these assets have strong backfill progress and prospect activity. On acquisitions, Mr. Klinck stated they are pursuing a disciplined, risk-adjusted approach similar to their post-GFC playbook. Mr. Maiorana explained the funding strategy was a balanced approach, using disposition proceeds and issuing equity to build dry powder for future opportunities.

Michael Griffin asked if the quarter's long weighted average lease term signals growing tenant confidence and inquired about the company's investment return hurdles and potential funding strategies for future acquisitions.

Answer

CEO Theodore Klinck explained that longer lease terms are primarily a function of tenants needing larger tenant improvement (TI) allowances, which requires a longer commitment. He stated that investment hurdles are risk-adjusted, from double-digit IRRs for value-add deals to lower for core assets. CFO Brendan Maiorana identified proceeds from non-core asset sales and the bond market as primary funding sources.

Michael Griffin from Citigroup asked if Kilroy needs to offer greater concessions to secure deals at its high-quality repositioned assets. He also inquired about the transaction market, asking about the types of capital currently active and the IRR hurdles being underwritten.

Answer

Executive A. Paratte and Executive Angela Aman stated they do not need to sacrifice on economics, as the premier quality of the assets drives tenant demand, though they remain competitive. On transactions, Executive Eliott Trencher noted that the buyer pool is diversifying beyond opportunistic funds to include institutional and high-net-worth capital, making dispositions more appealing. As a buyer, Kilroy remains disciplined and focused on value-accretive investments.

Michael Griffin asked for color on the quarter's leasing numbers, particularly the notable jump in tenant improvements (TIs) and its effect on net effective rents. He also inquired about the Los Angeles market outlook and its dependency on a recovery in the film and TV industry.

Answer

CEO Angela Aman and EVP, Chief Leasing Officer Rob Paratte clarified that the higher TIs were a mix-related issue due to the poor, dated condition of two specific spaces and not a broader market trend. Regarding Los Angeles, they acknowledged the market remains soft but highlighted recent positive activity in Long Beach and Culver City. Rob Paratte added that new state film incentives are a positive catalyst and the LA team remains busy with smaller deals.

Inquired whether tenants are renewing earlier due to limited space availability and if leasing concessions are decreasing. He also asked for an outlook on refinancing rates for mortgages coming due this year and general commentary on the debt capital markets.

Answer

Management confirmed robust demand, including early renewals and expansions. While concessions have neutralized, they haven't yet decreased, but rents have risen. The financing market is described as 'night and day' better than a year ago. While some refinancing rates will be higher, net interest expense is expected to be roughly flat year-over-year, with the worst of the increases being over.

Asked about the trend in leasing concessions and how management balances the prospect of lower interest rates with potential recessionary fears.

Answer

Leasing concessions have stabilized, though they remain high. Management believes lower interest rates are a significant positive for the real estate industry, as the cost of capital is the biggest driver of value, and they are planning for rates to normalize, not return to zero.

Inquired about leasing concessions in prime submarkets and asked for details on a large lease expiration in the second quarter, including backfill prospects.

Answer

Leasing concessions are consistently high across all submarkets, with TIs around $140-$150 per square foot and 13-15 months of free rent; differentiation occurs in the base rent. The large Q2 expiration is the previously disclosed Meta space at 770 Broadway, and there is active demand and a pipeline of interest for backfilling it.

Inquired about the nature of stressed market opportunities and their priority in capital allocation, and asked for comments on a reported rent reduction at 650 Madison Avenue.

Answer

Capital allocation priorities are debt maturities first, then opportunistic stock buybacks, and finally acquiring distressed assets. The news report about a rent reduction at 650 Madison was incorrect; the reported net rent of $60 grosses up to the low $90s per square foot.

Michael Griffin from Citigroup Inc. asked about the potential for delays in defense budget appropriations due to congressional dynamics and whether COPT has seen increased pricing power with its private sector tenants.

Answer

CEO Stephen E. Budorick expressed confidence in continued bipartisan support for defense spending increases. EVP Britt Snider added that direct customer conversations indicate no slowdown in demand. Regarding pricing, EVP Anthony Mifsud explained that the primary focus remains on reducing concessions and maximizing tenant retention, which provides a greater cost benefit than aggressively pushing rental rates, though they will take opportunities where they can.

Michael Griffin asked about leasing dynamics, questioning if COPT has greater ability to push rental rates for private sector tenants and where pricing power is stronger between vacancy and renewal leasing. He also inquired about the potential impact of the upcoming election on the company's business and defense spending.

Answer

EVP and COO Britt Snider explained that pricing power is currently stronger on renewals due to significant tenant co-investment in spaces, but the company balances pushing rates with maintaining long-term customer relationships. President and CEO Stephen E. Budorick addressed the election, stating that defense spending has strong bipartisan support and is expected to remain robust regardless of the outcome, though a Trump administration might be 'marginally better' for spending levels.

Michael Griffin inquired about the current labor environment for operators, the potential impact of immigration reform on the labor pool, and whether there has been increased scrutiny in underwriting new acquisitions due to recent concerns about SNF operator financial health.

Answer

SVP of Operations Megan Krull acknowledged the labor environment remains tough, particularly in rural areas, and that immigration policy will be a factor, though no impact has been seen yet. An executive, likely CIO Vikas Gupta, stated that underwriting standards have not changed, as they continue to focus on credit-based deals with strong operators, agreeing that recent operator issues seem idiosyncratic.

Michael Griffin of Citi asked for the key drivers behind the sequential occupancy growth and whether pre-COVID levels are attainable soon. He also inquired about the acquisition market, asking if deals are driven by motivated sellers or if the market has deepened.

Answer

SVP of Operations Megan Krull attributed occupancy gains to improved staffing, though it remains a challenge, and noted cyclical trends. CEO C. Pickett described the transaction market as very active due to lower rates and increased capital availability, a trend he expects to continue for at least the next 12 months.

Michael Griffin of Citigroup Inc. asked what has changed in the mindset of large tenants to make them more confident in signing leases now. He also inquired about the intended tenant profile for the 10900 Wilshire acquisition, whether it would be for a large tenant or smaller, 'bread and butter' tenants.

Answer

President and CEO Jordan Kaplan suggested that large tenants are no longer posturing for an 'extreme recession' and that DEI's own platform has become more aggressive and effective at capturing demand. Regarding 10900 Wilshire, he stated the building presents multiple 'extremely good options' and the company needs more time to decide on the final strategy before commenting further.

Michael Griffin of Citigroup requested more color on the drivers of positive net absorption and whether larger lease signers are showing more confidence. He also asked about the return hurdles, such as IRR, being used to underwrite potential acquisition opportunities.

Answer

Executive Stuart McElhinney confirmed the positive absorption was driven by strong volume from both core smaller tenants and a rebound in the over-10,000 sq. ft. category. CIO Kevin Crummy explained that for acquisitions, the company is not focused on IRR but rather on price per square foot and the potential to add value through leasing up vacant space, leveraging their operating platform.

Michael Griffin from Citigroup inquired about the year-end asset sales, asking for details on the buyer pool, cap rates, and the use of seller financing. He also asked if the company would consider leasing its 3151 Market life science project to traditional office tenants.

Answer

Executive Jerry Sweeney detailed that the buyer pool was dominated by owner-occupants, family offices, and smaller syndicators, with cap rates from the low 5s to over 10%. Regarding 3151 Market, Sweeney confirmed that while confident in life science demand, they have recently begun marketing the building to traditional office users as well, leveraging its quality and location now that the nearby 3025 project is substantially leased.

Michael Griffin questioned whether increased concessions would be necessary to lease the development pipeline and asked about the broader concession environment. He also inquired if the disposition pipeline consists of assets similar to the recent sale and if seller financing was required due to a lack of available debt capital.

Answer

Executive Jerry Sweeney stated that concessions have not materially increased in Philadelphia, though tenant improvement (TI) allowance requests are up. He noted Austin is more competitive with some upward pressure on TI. Mr. Sweeney confirmed the dispositions are non-core assets and that seller financing was used on one transaction to facilitate the deal in a challenging financing market, but it is not planned for others.

Michael Griffin asked about the strategy for leasing vacant space, particularly in San Francisco, and whether demand must accelerate there for BXP to meet its overall leasing goals.

Answer

President Douglas Linde stated that all regions must contribute to leasing vacant space. Executive Rodney Diehl detailed the San Francisco strategy, which focuses on new amenity centers and spec suites to attract tenants. He noted that while traditional firms are rightsizing, growing demand from new tech and AI companies led to positive net absorption in Q4, a promising sign for the market.

Michael Griffin asked for color on the Bain renewal in Boston and whether the tenant was a potential candidate for the proposed 171 Dartmouth development.

Answer

President Douglas Linde explained that the economics for a new development in Boston do not currently work. The required rent to justify new construction costs of $1,400-$1,600 per square foot would be materially higher than achievable rents in existing premier buildings. He stated the project timing doesn't pencil out right now but could in the future if economic conditions change.

Michael Griffin asked if increased capital flow to early-stage startups was necessary for a leasing pickup and questioned if return hurdles for asset buyers were being adjusted given the interest rate environment.

Answer

SVP Hallie Kuhn noted that early-stage private biotech is only 9% of ARR, so it's not the sole driver of leasing demand. Executive Peter M. Moglia stated the company is comfortable it can achieve its projected disposition cap rates (low-to-mid 7s), factoring in asset quality and market conditions.

Michael Griffin of Citigroup inquired about leasing demand from the tech sector and whether the recent financing of 500 Park indicates a broader reopening of the office debt markets.

Answer

Steven Durels, an executive, confirmed that tech tenant demand has doubled year-over-year in the broader market and that SL Green is in discussions with tech tenants for One Madison Avenue. Matthew Diliberto, an executive, affirmed that lenders are 'back,' citing several large deals and predicting a very active year for the credit markets in 2025.

Michael Griffin from Citigroup Inc. inquired about leasing demand outside of Park Avenue, asking if it's driven by limited availability or value-seeking tenants, and how concessions compare. He also asked about the financing markets, specifically if traditional lenders are warming to office CRE and why they are agreeing to modifications with small principal paydowns.

Answer

Executive Steven Durels stated that concessions peaked last year and that the current demand reflects an awakening of smaller to mid-sized tenants chasing value, not just spillover from Park Avenue. CEO Marc Holliday addressed financing, confirming that major lending institutions are expected to increase balance sheet lending for prime commercial assets in 2025. He explained that lenders are willing to work on modifications for SLG's well-leased, non-overlevered assets with strong sponsorship, preferring to maintain earning assets until the market fully recovers.

Michael Griffin requested more context on the strong Q3 leasing results, particularly in the office sector, asking about demand quality and tenant decision-making confidence. He also asked about the drivers behind the robust U.S. capital markets activity.

Answer

CFO Karen Brennan noted that office leasing demand remains focused on high-quality assets, with a significant 45% uptick in large transaction volume. She highlighted that the U.S. availability rate decreased for the first time since the pandemic, a positive sign of confidence. Global CEO Christian Ulbrich attributed strong U.S. capital markets activity to the market's quick reaction time and significant capital inflows from international investors.

Michael Griffin asked if the company has gained more leverage to push rents or extend lease terms due to strong demand, and whether acquisition activity is increasing now that share buybacks may be less accretive.

Answer

Executive Todd Meredith stated that while the environment is favorable, the primary focus remains on gaining occupancy rather than aggressively pushing rents, though he noted healthy cash leasing spreads. Interim CFO Austen Helfrich addressed capital allocation, emphasizing a dynamic framework that considers reinvestment in the portfolio, JVs, and private market valuations, rather than a simple pivot from buybacks to acquisitions.