Nicholas Yulico

Nicholas Yulico asked about the expected timing of the $2.5 billion asset sales guidance, specifically if the NOI impact would be concentrated in the back half of the year, and requested a range for cap rates across the diverse asset classes being sold. He also sought additional commentary on the board's thought process regarding the dividend decision in March, given the anticipated decline in FFO and FAD for the current year.

Answer

Matt J. DiLiberto, CFO, confirmed asset sales are mostly expected in the second half but declined to provide a blanket cap rate due to asset diversity and competitive reasons, with Harrison Sitomer, Chief Investment Officer, adding that four deals are in negotiation. Marc Holliday, Chairman and CEO, SL Green Realty Corp, stated it's premature for a dividend conversation, emphasizing the board's holistic, long-term view, including strong expectations for 2027 and growing net fee income from the asset management platform.

Nicholas Yulico followed up on the dividend question, seeking more insight into the board's thought process ahead of the March decision, given expectations of declining FFO and FAD this year.

Answer

Marc Holliday, Chairman and CEO, SL Green Realty Corp, stated that it is premature to discuss the dividend, as the board takes a holistic, long-term view, anticipating a strong 2027. He emphasized that the dividend policy is not pegged quarter-to-quarter but underpins a long-term plan of investment, harvesting, and free cash flow. He highlighted the growing fee income from the asset management business, including a new fund launch in 2026, as a significant part of the plan, contributing to the company's earnings trajectory and overall expansion, which the board considers alongside taxable income and cash flow.

Nicholas Yulico sought more details on Park Avenue Tower's occupancy, in-place rents versus market rents, and the FFO performance, including the impact of debt extinguishment gains and other factors.

Answer

Marc Holliday, Chairman and CEO, stated Park Avenue Tower's current occupancy is 95%, with a pending lease bringing it to 96%. In-place rents are about $125/sq ft blended, while market rents for mid-rise to tower space are easily $150-$200+/sq ft. Matt DiLiberto, CFO, explained that an incremental debt extinguishment gain was offset by transaction costs. FFO was also impacted by Ascent (Summit feature) being offline for maintenance in Q3 and higher interest expense due to carrying a larger line balance from delayed sales.

Nicholas Yulico asked for an update on debt financing market trends, particularly the CMBS market's health. He also sought clarification on the company's 'upward bias to guidance' and downside protection for the FFO guidance range.

Answer

Executive Harrison Sitomer stated that New York City real estate is expected to be mostly immune to credit market turbulence due to a 'flight to quality,' citing $6.9 billion in NYC office CMBS completed year-to-date. Marc Holliday added that any impact will likely be on pricing rather than deal availability. Regarding guidance, Matthew Diliberto confirmed comfort with the current range, and Marc Holliday clarified the upward bias is driven by opportunities across debt, equity, and leasing.

Nicholas Yulico of Scotiabank inquired about the drivers behind the Q4 FFO beat and requested details on the composition and focus of the current leasing pipeline.

Answer

Matthew Diliberto, an executive, detailed that the FFO beat was driven by higher NOI, fee income, and investment income. Marc Holliday, Executive, and Steven Durels, Executive, explained the leasing pipeline is broad-based, with two-thirds being new tenants across various industries and locations, not just concentrated in the high-end market.

Nicholas Yulico from Scotiabank asked about the year-to-date outperformance in mark-to-market on leases and how much rents are surpassing expectations. He also inquired about the company's strategy for funding acquisitions, particularly the potential use of common equity for property versus debt investments.

Answer

Executive Steven Durels explained that rent growth is most pronounced on Park Avenue, where rents have been raised four times in the past year, and he expects broader Midtown rent increases in the coming year. CEO Marc Holliday stated that the company is fluid in its investment approach, seeking the best point on the real estate spectrum, whether debt or equity. He noted that funding will come from various sources, including third-party capital, a new debt fund, and over $500 million in asset monetizations, while issuing stock remains an option if opportunities are sufficiently accretive.

Nicholas Yulico inquired about additional strategies to accelerate FFO growth beyond leasing, including G&A efficiencies through AI, managing the development pipeline size, and bringing in equity partners earlier for projects like 343 Madison Avenue.

Answer

Michael LaBelle, CFO, identified leasing vacant space as the primary FFO growth driver and noted AI's current role as a productivity enhancer, not a significant G&A cost reducer. Owen Thomas, Chairman and CEO, stated that BXP intends to bring partners into all future residential developments (e.g., 80% partners). For office developments, BXP is reluctant to share highly profitable projects but will consider partners for projects like 343 Madison to manage leverage, depending on the overall leverage profile.

Nicholas Yulico asked about BXP's strategies to accelerate FFO growth beyond leasing, including G&A efficiencies, managing the development pipeline size, and bringing in equity partners earlier for projects like 343 Madison Avenue.

Answer

CFO Michael LaBelle stated that leasing vacant space is the primary driver for FFO growth. He noted that AI is currently viewed as a productivity enhancement rather than a cost reduction tool for G&A, which is already a de minimis percentage of revenue. Chairman and CEO Owen Thomas explained that for residential developments, BXP aims for 80% equity partners. For office developments, BXP is reluctant to share due to high profitability but will consider partners for 343 Madison Avenue to manage leverage, with future office partnerships depending on leverage profile and new opportunities.

Nicholas Philip Yulico asked if BXP expects to have largely addressed its vacant space by next quarter, given the projected occupancy build-out timeline and the significant leasing in the pipeline.

Answer

President Douglas Linde clarified that BXP's projections are annual, not quarterly, and expressed confidence in achieving 200+ basis point occupancy increases by the end of 2026 and 2027, driven by 1 million sq ft of signed leases starting in 2026 and strong activity at 360 Park Avenue South. EVP of New York Region Hilary Spann detailed that 360 Park Avenue South has six floors leased, with proposals out for nearly all other floors, and increased tour activity from diverse clients. CEO Owen Thomas added that some urban edge leases in Boston are in existing products requiring less build-out, anticipating 150,000-200,000 sq ft delivery next year.

Nicholas Philip Yulico asked about the progress on BXP's Investor Day occupancy build, specifically concerning the vacant space component, and whether the company anticipates declaring 'victory' on leasing up vacant space by year-end 2026.

Answer

Douglas Linde (President, BXP Inc) reiterated confidence in achieving the projected 200 basis point occupancy increase by the end of 2026, driven by a million square feet of signed leases commencing next year and strong activity at properties like 360 Park Avenue South. Hilary Spann (EVP of New York Region, BXP Inc) provided an update on 360 Park Avenue South, noting six floors leased and proposals out for nearly every other floor, with increasing tour activity from diverse client types. Owen Thomas (CEO, BXP Inc) added that some urban edge leases in Boston are in existing products requiring less build-out, anticipating 150,000-200,000 square feet delivered next year.

Nicholas Yulico of Scotiabank asked about the drivers behind the quarter's mark-to-market on commenced leases, which appeared weaker than the prior quarter, and inquired about real-time leasing spreads.

Answer

Douglas Linde, President & Director, clarified that the reported supplemental numbers were for a small, 400,000 sq. ft. pool of commencements and were skewed by specific as-is or low-TI deals. He stated that for leases signed during the quarter, mark-to-market was slightly positive in Boston and New York, reflecting a healthier real-time trend.

Nicholas Yulico from Scotiabank requested clarification on how to frame the full-year earnings guidance, asking what leasing activity still needs to be accomplished to hit different points within the range.

Answer

CFO Michael LaBelle explained that the guidance range was narrowed due to strong leasing success, which raised the bottom end. The top end was moderated because some new, significant leases will not commence revenue until 2026. President Douglas Linde added that taking space back early to sign new long-term leases also pulls some downtime into 2025, impacting near-term FFO but boosting future revenue and occupancy.

Nicholas Yulico requested quantification of the occupancy drag from new developments being placed into service in 2025, noting that the headline occupancy guidance appeared to exclude these additions.

Answer

CFO Michael LaBelle detailed the moving parts, stating that 2025 development deliveries could create a 70 basis point drag on occupancy if no further leasing occurs. However, he noted this could be offset by a potential 90 basis point positive impact if BXP takes other suburban buildings out of service for redevelopment. Various executives then provided positive leasing updates on the specific development projects.

Nicholas Yulico asked what needs to change for the leasing dynamics to improve in the San Francisco, West Coast, and Boston suburban markets, which have been a drag on portfolio vacancy.

Answer

President Douglas Linde stated that a general return of technology and life science demand is necessary. Senior EVP Rodney Diehl added that San Francisco specifically needs to burn off its significant sublease availability. EVP Bryan Koop noted that in Boston's suburbs, there's a drastic performance difference between BXP's premier, amenity-rich properties like CityPoint and the region's older, vintage office stock.

Nicholas Yulico (Scotiabank) requested a detailed breakdown of Prologis' 2026 same-store growth guidance, specifically asking if the acceleration is primarily driven by easier occupancy comparisons or an anticipated improvement in mark-to-market capture.

Answer

CFO Tim Arndt explained that rent change, or mark-to-market, will be a decreasing factor in 2026, normalizing to high 30s/40% from 50% in 2025, leading to less occupancy drag. He highlighted that a predominant factor is lighter FDLA from the Duke acquisition, which, while still impacting net effective same-store growth by 75-100 basis points, is slowly reducing over time.

Nicholas Yulico requested a breakdown of the same-store growth guidance for 2026, specifically asking if the acceleration is driven by easier occupancy comps or improved mark-to-market capture, and inquired about the expected solar contribution towards the 2030 Essentials revenue target.

Answer

CFO Tim Arndt explained that rent change (mark-to-market) will be a decreasing factor, normalizing from 50% in 2025 to high 30s/roughly 40% in 2026. A predominant factor for same-store growth is lighter FVLA drag from the Duke acquisition, which is slowly reducing. He noted that solar revenues, while growing and surpassing the 1 GW goal, are still nominal compared to rental NOI but will become more meaningful in future years.

Nicholas Yulico sought context on the Q1 net absorption figure of 21 million square feet, comparing it to the prior year and asking what it implies for the overall market.

Answer

Christopher Caton, Managing Director, acknowledged that Q1 is a seasonally light quarter for absorption and emphasized that direct conversations with customers about their growth plans are a more important indicator. Hamid Moghadam, CEO, added that the prior year's Q1 did not have the same election uncertainty that likely muted decision-making in late 2024.

Nicholas Yulico of Scotiabank asked to quantify the FFO drag in 2025 from lower development stabilizations and capitalized interest, and whether 2025 represents a low point for this impact.

Answer

CFO Timothy Arndt acknowledged the factors mentioned, including lower development volumes and higher interest rates, are creating a delta between same-store growth and bottom-line earnings growth. He expressed confidence that these factors are normalizing and resetting the foundation for a return to historical growth levels.

Nicholas Yulico sought clarification on market rent commentary, noting that a 3% decline in the current quarter seemed to already fulfill a large portion of the previous forecast of a 2-5% decline over the next 12 months.

Answer

Chris Caton, Managing Director, clarified that the figures represent different time periods (a quarterly actual vs. a rolling 12-month forecast). Timothy Arndt, CFO, added that it would be fair to interpret from the Q3 data that the full 12-month rent decline may end up closer to the 5% end of the previously guided range.

Nicholas Yulico asked about the expected trend for interest expense in the upcoming year and the impact of capitalized interest burn-off. He also sought Vornado's latest thoughts on Farley as a potential source of capital, either through a loan or selling an interest, for future development funding.

Answer

Thomas Sanelli, EVP and Chief Administrative Officer, Vornado Realty Trust, noted that while Penn 2 capitalized interest burns off, 623 Fifth Avenue and 350 Park will have capitalized interest. Michael Franco, President and CFO, Vornado Realty Trust, expects overall interest expense to be 'no worse than flat' due to deleveraging and lower SOFR. Steven Roth, Chairman and CEO, Vornado Realty Trust, described Farley as a unique, high-value asset with significant future rent upside, stating they would not consider selling it but would consider financing it based on tenant credit.

Nicholas Yulico of Scotiabank requested a detailed breakdown of the $25 million annual accretion from the NYU transaction at 770 Broadway. He also asked for the current leased percentage for the PENN 1 property.

Answer

An Unknown Attendee and Executive Glen Weiss provided a breakdown of the NYU deal's accretion, explaining that after accounting for the repaid mortgage, an associated swap, and retained income, the net benefit is approximately $25-26 million. An Unknown Executive confirmed that the leased percentage for PENN 1 is the same as its occupancy, which was reported at 88%.

Nicholas Yulico of Scotiabank asked if sublease space in Hudson Yards is competitive with the Penn District and sought clarification on whether the quoted yield for Penn 2 includes tenant improvement and leasing commission costs.

Answer

Glen Weiss, EVP of Office Leasing, confirmed that Penn 1 and Penn 2 compete directly with new space, including sublets in Hudson Yards, which he views as a positive given Vornado's competitive pricing. Michael Franco, President and CFO, clarified that the incremental yield calculation is based on costs Vornado wouldn't have otherwise spent, and that TIs and commissions would have been required regardless to lease the old space.

Nicholas Yulico from Scotiabank inquired if sublease space in Hudson Yards is competitive with the PENN District projects and asked for clarification on the PENN 2 yield calculation, specifically regarding the inclusion of TIs and leasing commissions.

Answer

Executive Glen Weiss confirmed that PENN 1 and PENN 2 compete directly with new space and sublet space on the West Side, viewing it as a positive indicator of quality, and noted Vornado's pricing is more competitive. President and CFO Michael Franco explained the reported incremental yield on PENN 2 excludes TIs and commissions, as those are costs that would have been spent anyway to lease the old building.

Nicholas Yulico of Scotiabank asked if sublease space in Hudson Yards is competitive with the Penn District projects. He also sought clarification on whether the quoted yield for Penn 2 includes tenant improvement and leasing commission costs.

Answer

Executive Glen Weiss confirmed that Penn 1 and Penn 2 compete directly with new space, including sublets in Hudson Yards, which he views as a positive given Vornado's competitive pricing. President and CFO Michael Franco explained the incremental yield calculation excludes TIs and LCs, as those are costs that would have been spent anyway, but on a lower-quality, less economic older building.

Nicholas Yulico asked if sublease space in Hudson Yards is competitive with the Penn District and sought clarification on whether the quoted yield for Penn 2 includes tenant improvements and leasing commissions (TI/LCs).

Answer

Executive Vice President Glen Weiss confirmed that Hudson Yards sublet space is a competitor, which he views positively as it positions the Penn District against new product at a more attractive price point. President and CFO Michael Franco clarified the quoted 10.2% yield is on incremental redevelopment costs only, as TI/LCs would have been spent regardless. Weiss confirmed the TI/LC cost is around $140/sq. ft. or slightly higher.

Nicholas Yulico of Scotiabank asked for details on recent PENN1 leasing, questioning if high rents were due to specific floor locations and how that impacts future rent potential. He also sought clarity on the FFO growth outlook for 2025 and when FFO might bottom out.

Answer

EVP Glen Weiss confirmed that a recent high-rent lease was in the upper stack of PENN1, which now serves as a benchmark to increase rents throughout the building and at PENN2. President and CFO Michael Franco reiterated that significant earnings benefits from current leasing activity will materialize in 2026, suggesting 2025 FFO would likely be similar to 2024, with material growth to follow.

Nicholas Yulico of Scotiabank asked for the expected office portfolio occupancy trend for the second half of the year and for more detail on the types of tenants looking at PENN2, specifically if they are new to the submarket.

Answer

President and CFO Michael Franco projected that office occupancy would trend down in the next quarter due to a known move-out at 770 Broadway but should end the year near the current level of 89.3%, with potential upside depending on deal timing. Executive Glen Weiss confirmed that tenants looking at PENN2 include new entrants to the district, attracted by the new product and redeveloped streetscape.

Nicholas Yulico of Scotiabank inquired about the office occupancy outlook for the second half of 2024 and asked for more detail on the types of tenants showing interest in PENN2.

Answer

Michael Franco, President & CFO, projected that office occupancy would dip slightly in Q3 before ending the year near the current 89.3% level, with potential upside from new deals. Glen Weiss, an executive, reiterated that PENN2 is attracting a diverse mix of tenants, including new entrants to the district, drawn by the redeveloped product and superior transit access.

Nicholas Yulico of Scotiabank questioned if the estimated $55-$60 million NOI impact from 2024 vacancies was high relative to expiring rent. He also sought clarity on whether the 'flattish occupancy' guidance referred to year-end or average occupancy.

Answer

President and CFO Michael Franco confirmed the NOI impact calculation is largely correct, as it is driven by a few large, specific tenant move-outs at 1290 Ave of the Americas, 280 Park, and 770 Broadway. He clarified the guidance implies that year-end 2024 occupancy should be roughly flat compared to year-end 2023, while acknowledging it may dip further mid-year before recovering.

Nicholas Yulico from Scotiabank questioned why the company offered discounts this quarter after expressing confidence in occupancy and pricing last quarter, implying concerns about occupancy or move-in volume. He also asked how the company manages rate pushing when the rest of the industry has lower occupancy.

Answer

CEO Joseph Margolis clarified that the company prioritizes long-term revenue maximization, not just occupancy or rate, and the discounting strategy was a proactive test for revenue optimization in changing regulatory environments, not a reaction to occupancy concerns. CFO Jeff Norman stated that rates continue to accelerate, and the company uses data-driven testing to maximize revenue, leveraging its higher occupancy to push rates more effectively than competitors.

Nicholas Yulico from Scotiabank questioned the apparent shift from confidence in high occupancy and pricing last quarter to implementing discounting strategies this quarter, and how the company navigates pushing rates when the rest of the industry might have lower occupancy.

Answer

CEO Joseph Margolis clarified that the company optimizes for long-term revenue, not just occupancy or rate, and the discounting strategy was not a reaction to occupancy but a proactive effort to maximize revenue amidst state of emergency restrictions. CFO Jeff Norman stated they haven't "hit a wall" on rates, which continue to accelerate, and that the fragmented industry allows them to use data-driven tests to find winning strategies for revenue maximization, especially with their higher occupancy.

Nicholas Yulico of Scotiabank asked for the initial and stabilized acquisition yields for assets acquired in Q1 and under contract. He also pointed out the strong sequential jump in move-in rates and asked if this indicated a strategy of pushing rates more aggressively.

Answer

CEO Joseph Margolis stated that Q1 acquisitions had initial yields from 2.3% to 6.5%, stabilizing in the upper 6s to 7%. CFO P. Scott Stubbs acknowledged the positive sequential rate movement but commented that it was still too early in the leasing season to declare a definitive trend or strategic shift.

Nicholas Yulico asked for the reason behind the guided 10% increase in G&A expenses and questioned the pricing strategy, specifically the ability to reduce front-end discounts and the risk of conditioning consumers to expect them.

Answer

Executive P. Stubbs attributed the G&A increase to necessary headcount growth to support a larger portfolio and to renewed technology spending post-LSI integration. CEO Joseph Margolis explained that pricing is highly granular and automated, and he is not concerned about 'training' consumers, as most shop very few alternatives, making digital visibility the most critical factor.

Nicholas Yulico asked about the expected occupancy trend in the fourth quarter and requested an update on the progress of non-revenue synergies from the Life Storage merger.

Answer

CEO Joseph Margolis expects to continue operating at higher-than-historical occupancy levels. On synergies, he reported being on track for $80-$90 million of the $100 million target, with G&A ($53M) and tenant insurance ($27M) outperforming, while property-level synergies are lagging but still achievable over time.

Nicholas Yulico from Scotiabank asked about the implied deceleration in Trilogy's same-store NOI growth guidance for the second half of the year. He also inquired about the drivers behind the lower interest expense guidance and the planned funding mix for future investments.

Answer

CFO Brian Peay and President & CEO Danny Prosky attributed the implied slowdown to significantly tougher year-over-year comps from Q3 and Q4 2024, along with minor seasonal headwinds. Regarding funding, Brian Peay confirmed that lower interest expense guidance resulted from paying down debt with equity raised via the ATM program. He stated future investments will be funded through a combination of retained earnings, potential ATM usage, and capacity on the revolving credit facility.

Nicholas Yulico of Scotiabank questioned the updated Trilogy same-store NOI guidance, which implied a slowdown in the second half of the year. He also asked about the reasons for lower interest expense guidance and the planned funding mix for new investments.

Answer

CFO Brian Peay and President & CEO Danny Prosky explained the implied moderation is due to facing tougher year-over-year comparisons from strong performance in late 2024. Peay confirmed that lower interest expense stems from debt paydown using equity proceeds and outlined a future funding mix of retained earnings, ATM program usage, and their revolving credit facility.

Nicholas Yulico from Scotiabank questioned the reasons for the implied deceleration in Trilogy's same-store NOI growth guidance for the second half of the year. He also asked about the reduction in interest expense guidance and the planned funding mix for future investments.

Answer

CFO Brian Peay and President & CEO Danny Prosky explained that the guidance reflects tougher year-over-year comparisons from strong performance in late 2024, along with some typical seasonality. Regarding funding, Brian Peay confirmed that lower interest expense stems from debt repayment using equity. He outlined a multi-pronged funding strategy using retained earnings, the ATM program, and the company's revolving line of credit, which has sufficient capacity for the entire current acquisition pipeline.

Nicholas Yulico from Scotiabank questioned the updated same-store NOI growth guidance for Trilogy, which implied a slowdown in the second half of the year. He also asked about the reasons for the lower interest expense guidance and the planned funding mix for future investments.

Answer

CFO Brian Peay explained that the implied H2 slowdown for Trilogy is primarily due to more difficult year-over-year comparisons from strong performance in late 2024. He attributed the lower interest expense to debt reduction funded by equity raised via the ATM program. For future funding, he outlined a strategy of using retained earnings, the ATM, and the company's revolving credit facility.

Nicholas Yulico of Scotiabank asked for visibility on the forward AUM of the managed REIT business for 2026 forecasting and questioned if the adjustment to same-store revenue guidance was driven more by rate or occupancy issues.

Answer

CEO H. Michael Schwartz indicated it was too early to provide 2026 AUM guidance but expects to have a clearer picture after Q4. CFO James Barry explained that the tightening of the same-store revenue guidance range was primarily driven by weaker-than-expected move-in rates in June, while occupancy performance remained strong and in line with expectations.

Nicholas Yulico from Scotiabank inquired about the potential benefits to the Westwood office market from DEI's conversion of 10900 Wilshire and asked about the primary catalysts needed to drive the company's overall stabilized leased rate higher.

Answer

CEO Jordan Kaplan acknowledged that taking supply offline is always helpful but noted Westwood is a competitive market. He stated that the main catalyst for leasing improvement is a broad economic recovery. Based on historical data, he believes the portfolio's lease rate can increase by approximately 3% annually during a strong recovery.

Nicholas Yulico inquired about the favorable rate on a recent $335 million office loan refinancing and its replicability for future debt maturities. He also asked why the in-service portfolio's occupancy declined despite positive total portfolio absorption.

Answer

President and CEO Jordan Kaplan stated that such favorable rates are very difficult to obtain but reflect strong lender relationships. He reiterated his forecast that the company's average cost of debt will rise 100-200 basis points above pre-COVID levels. Kaplan acknowledged the slight dip in in-service occupancy but attributed it to minor fluctuations, emphasizing the overall positive leasing momentum across the entire portfolio.

Nicholas Yulico of Scotiabank asked for the leasing volume assumption embedded in the 2025 guidance and how January leasing was shaping up, including any potential impact from the recent fires. He later followed up to confirm if the 10900 Wilshire acquisition was a leasehold interest.

Answer

President and CEO Jordan Kaplan noted that tenant showings in January were 'way above' average, a key reason for his optimism, especially combined with historically low lease expirations for the year. He does not believe the fires will have a meaningful impact on leasing. He also confirmed that the company acquired the 10900 Wilshire property in fee, owning both the ground and the building.

Nicholas Yulico of Scotiabank asked for clarification on the accounting treatment for Studio Plaza as it is taken out of service and redeveloped. He also inquired about the company's strategy for its interest rate swaps related to debt maturing this year and next.

Answer

President and CEO Jordan Kaplan described the extensive physical repositioning of Studio Plaza into a multi-tenant building. CFO Peter Seymour added that while the primary impact is lost NOI, the company will keep operating expenses low and likely capitalize some ongoing costs during the lease-up period. Regarding swaps, Kaplan stated there is no reason to swap short-term debt and that the company is working on securing longer-term debt first.

Nicholas Yulico of Scotiabank asked about the Board's thinking on a potential dividend increase, given the improving FAD payout ratio. He also questioned the company's confidence that its Genesis assets would not face lease rejection or rent renegotiation during bankruptcy.

Answer

CEO C. Taylor Pickett stated the Board would likely consider a dividend increase once the FAD payout ratio is sustainably in the mid-80% range, which could be a topic for discussion in the next few quarters. He expressed high confidence in the Genesis portfolio, citing its strong performance and master lease structure, which makes it essential to a successful reorganization and unlikely to be rejected.

Nicholas Yulico of Scotiabank asked for clarification on the LaVie bankruptcy exit, specifically whether the rent escalator would resume and if a straight-line rent benefit would be recognized. He also requested a high-level perspective on potential changes to provider taxes and their impact on the portfolio.

Answer

CIO Vikas Gupta confirmed that with the LaVie master lease assignment, nothing will change regarding rent payments or escalators, and the portfolio has strong coverage above 1.4x. CEO Taylor Pickett and CFO Bob Stephenson affirmed that straight-line rent will kick back in with the new lease. SVP Megan Krull discussed provider taxes, noting the risk is likely a reduction of 1-2%, not a complete wipeout, and the impact is difficult to quantify as it varies by state.

Nicholas Yulico asked for an update on the progress of Maplewood and the transitioned Guardian assets returning to full rent, specifically the occupancy trend at Maplewood's Second Avenue facility. He also followed up on how to model acquisitions given the guidance assumes pre-funding cash but not the investments themselves.

Answer

CIO Vikas Gupta reported that the Maplewood portfolio occupancy is at 91%, with Second Avenue at 85%, and rent paid in January is sustainable with potential for increases. He noted the Guardian transition is performing as planned. He clarified that guidance assumes current rent levels, with any increase from Maplewood pushing results to the high end of the range. CFO Bob Stephenson added that guidance includes pre-funding for a $230M debt payoff and the $600M 2026 maturity, but not for future acquisitions, which would be funded opportunistically.

Nicholas Yulico of Scotiabank asked for details on the 'lease-up portfolio,' questioning its composition and the difference between the projected $20-40 million and $50 million NOI upside. He also inquired about the funding sources for the $300 million in capital investments planned for this portfolio.

Answer

President & CEO Peter Scott clarified that the total potential NOI upside is $50 million, with the $20-40 million figure being a more conservative three-year target due to project timelines. He described the portfolio as a value-add opportunity in strong markets like Denver and Dallas. Scott confirmed the $300 million investment is what's needed to achieve the full $50 million upside and will be funded primarily by the dividend adjustment, though asset sale proceeds are also a fungible source of capital.

Nicholas Yulico requested an update on rent collections from Prospect Medical Holdings and asked for a more specific timeline for the strategic plan update and the related dividend decision.

Answer

CFO Austen Helfrich confirmed that full rent was received from Prospect for February, March, and April. CEO Peter Scott stated that the management team is focused internally on the strategic plan and intends to provide a detailed update on the next quarterly earnings call, at which time the dividend will also be addressed.

Nicholas Yulico asked about the recent downward trend in maintenance capital expenditures as a percentage of NOI and questioned the sustainability of the recent strong quarterly absorption rate of approximately 50 basis points.

Answer

Interim CFO Austen Helfrich noted that future capital expenditures will be tied to absorption targets. Executive Todd Meredith and COO Robert Hull expressed confidence in sustaining, and potentially elevating, the current pace of absorption, citing the strong new leasing pipeline required to backfill normal-course expirations and continue driving occupancy gains.

Nicholas Yulico of Scotiabank asked how much AvalonBay's equity price influences future development start volumes and whether the composition of job growth, not just the absolute number, is a contributing factor to current market conditions.

Answer

CFO Kevin O'Shea explained that the company's business model can fund about $1.25 billion in annual starts on a leverage-neutral basis using free cash flow, dispositions, and debt, making it not dependent on the equity markets. COO Sean Breslin confirmed that the weaker composition of job growth (less in finance, tech) has been a headwind but is expected to improve.

Nicholas Yulico asked for the expected development completion value for 2025 compared to 2024. He followed up by questioning if 2025 represents an abnormal year for development's contribution to earnings, given the relationship between NOI from new investment and offsetting capital markets costs.

Answer

CIO Matthew Birenbaum stated that development completions are expected to be only about $350 million in 2025, a significant decrease from the prior year. CFO Kevin O'Shea confirmed that 2025 is somewhat abnormal, with heavier capital costs and lower development NOI ($30M vs. ~$40-45M in 2024). He calculated the net earnings growth from investment platforms at about 140 basis points, which is lower than the typical 150-200 basis points.

Nicholas Yulico of Scotiabank asked about the required increase in net move-in volume to support move-in pricing and questioned if factors beyond the fire ordinance were causing weakness in Los Angeles.

Answer

SVP & CFO Thomas Boyle explained that while move-in rents are currently used promotionally, improving industry demand will eventually allow for higher rates. He clarified that Los Angeles is not showing broader weakness, citing strong 3% revenue growth in nearby Orange County, and reiterated that the primary headwind is the temporary rent restrictions.

Nicholas Yulico asked about the reasons for increased promotional discounts in the third quarter and the outlook for promotions going forward. He also requested a clarification on the accounting treatment for these discounts.

Answer

Executive H. Boyle explained that while about 60% of Q3 customers received a promotion, this level is still modest compared to historical norms of 85-90%. He stated that promotions are used tactically to optimize customer acquisition. For accounting, he clarified that their common '$1 for the first month' offer is treated as a contra-revenue item recognized entirely in the first month of tenancy.

Nicholas Yulico of Scotiabank asked about the property tax outlook, questioning when INVH might see some relief from the current 5-6% growth rate given that home price appreciation has slowed.

Answer

EVP & CFO Jonathan Olsen explained that there is a lag between market value changes and assessed values. While hopeful for relief, he noted that taxing authorities have revenue obligations to meet. He stated the long-term expectation is for property tax growth to return to the historical 4-5% range, but the timing of this normalization is uncertain.

Nicholas Yulico of Scotiabank asked about the property tax outlook, questioning when the company might see relief given slowing home price appreciation and what a sustainable long-term growth rate might be.

Answer

CFO Jonathan Olsen stated that the long-term expectation is for property tax growth to return to its historical range of 4% to 5% annually. He acknowledged that home price appreciation has slowed but noted that assessed values often lag market values and that taxing authorities have revenue obligations to meet. While hopeful for relief, he indicated that property tax will remain a significant expense item with potential for volatility.

Nicholas Yulico of Scotiabank asked if a demand problem or out-migration was causing slower leasing and why easier comps were not leading to better new lease growth expectations for the second half.

Answer

President and CEO A. Bradley Hill asserted there are "no problems whatsoever on the demand side," citing record absorption and attributing slowness to operator caution. EVP Timothy Argo added that while easier comps are a factor, especially for Q4, the primary drivers remain the fundamental supply/demand dynamics.

Nicholas Yulico of Scotiabank inquired about the drivers of weaker blended pricing in Los Angeles and the underlying strength in Northern California's rental market.

Answer

President & CEO Angela Kleiman attributed Los Angeles's underperformance to heavy supply, slow delinquency recovery, and a soft demand environment, not a fire ordinance. For Northern California, she explained that reported blended lease rates understate the market's true strength. Including all leases, the blended rate would be 4% versus the reported 3%, and she noted that a deceleration in the second half of the year is consistent with normal seasonality after a July peak.

Nicholas Yulico asked about Essex's confidence in achieving its initial guidance for blended rate growth acceleration in the second half of the year and questioned the impact of a potential slowdown in tech sector job growth on the portfolio.

Answer

Executive Angela Kleiman confirmed the company's original assumption for a slight increase in blended lease rates in the second half remains intact. She explained that the modest sequential growth outlook is a function of Q1's outperformance against an unchanged full-year guidance. Regarding the tech sector, she noted that job openings at the top 20 tech companies have been steadily increasing monthly since late 2024, indicating future hiring and mitigating concerns of a slowdown.

Nicholas Yulico of Scotiabank asked for clarification on the low-end of guidance, specifically if it assumes regulatory impacts in Los Angeles, and requested the same-store revenue growth forecast for the L.A. market.

Answer

Executive Angela Kleiman explained that while the guidance range accounts for potential downside from policy uncertainty in L.A., such as an eviction moratorium or rent freeze, no specific impact is factored into the base case. Executive Barb Pak added that the forecast for L.A. assumes a modest recovery with occupancy improving to 96% and rent growth of about 2%, with no impact from the wildfires baked in.

Nicholas Yulico of Scotiabank followed up on KOP2 leasing, asking if it involved spec suites for faster NOI commencement, and sought pricing details on a campus sale. In a follow-up, he asked for an update on a large 200,000 sq. ft. expiration in 2026.

Answer

CEO Angela Aman confirmed one KOP2 transaction is for a spec suite user. EVP & CIO Eliott Trencher declined to provide specific pricing on the campus sale due to an NDA but stated the price offered a better risk-adjusted return than re-leasing. Regarding 2026 expirations, Aman reiterated that they expect some larger vacates in H1 2026 but had no specific update on the tenant in question.

Nicholas Yulico sought clarity on the assumptions underpinning the full-year occupancy guidance range, particularly after the DermTech move-out, and asked about the potential timing for leasing the spec suites at the KOP 2 project.

Answer

EVP and CFO Jeffrey Kuehling noted that guidance accounts for the 23andMe move-out and the Q3 addition of two unstabilized redevelopment projects. CEO Angela Aman added that accelerating spec suite leasing could push occupancy to the high end of the range. EVP and Chief Leasing Officer Rob Paratte confirmed strong activity at KOP 2, with discussions for both spec suites and larger multi-floor users advancing to space planning.

Nicholas Yulico from Scotiabank asked about the drivers behind the increased cost and delayed stabilization date for KOP Phase 2. He also questioned whether an overall pickup in new leasing activity is necessary to achieve occupancy growth, given the company's historical retention rates.

Answer

Executive Angela Aman attributed the KOP Phase 2 changes to slight delays in municipal approvals and the projected lease-up trajectory. She confirmed that accelerating new leasing activity is essential for occupancy growth and expressed confidence based on the strong leasing volumes seen in recent quarters.

Nicholas Yulico inquired about leasing prospects for Kilroy Oyster Point (KOP) Phase 2, including interest from traditional office users and expansion potential from Phase 1 tenants. He also asked for quantification of the impact of recent short-term leasing on current and future portfolio occupancy.

Answer

CEO Angela Aman and EVP, Chief Leasing Officer Rob Paratte explained that the high quality and advanced stage of the KOP project are attracting a wide range of tenants, including traditional office users. They noted that while long-term expansion from Phase 1 tenants is possible, it's more likely for future phases. Regarding short-term leases, Angela Aman clarified that all are reflected in the public lease expiration schedule and detailed the occupancy impact of specific deals, such as a temporary new lease vacating in Q4 and the DermTech bankruptcy lease.

Nicholas Yulico of Scotiabank inquired about the performance of the non-same-store senior housing operating (SHOP) portfolio, which now constitutes over half of the segment's NOI, and why its occupancy and margin growth appear weaker than the same-store pool.

Answer

Co-President & CFO Tim McHugh explained that the non-same-store portfolio includes newly acquired, under-optimized assets and recent developments, which naturally have lower initial occupancy and margins. He clarified that aggregate bottom-line growth is similar to the same-store portfolio. CEO Shankh Mitra added that comparing to prior periods is misleading because the asset pool is constantly changing.

Nicholas Yulico asked about April's leading indicators for senior housing (tours, leads) and how the uncertain macro environment factored into the decision to raise revenue guidance.

Answer

CEO Shankh Mitra confirmed that they would not have raised both occupancy and rate guidance if they didn't feel good about April's trends. Executive Tim McHugh added that while macro uncertainty is factored into the guidance range, the primary driver is the actual positive business trends, which show no signs of weakness.

Nicholas Yulico of Scotiabank requested a breakdown of the senior housing operating segment between the same-store and non-same-store pools for the upcoming year and asked about the expected NOI growth for the non-same-store assets.

Answer

CEO Shankh Mitra explained that the non-same-store portfolio has lower occupancy, which should lead to higher NOI growth as occupancy increases and margins expand. CFO Tim McHugh specified that by the fourth quarter of 2025, over 90% of the current portfolio is expected to be included in the same-store pool.

Nicholas Yulico asked about lead and traffic trends during the quarter, both year-over-year and sequentially, and the impact of resident turnover on performance.

Answer

John Burkart (COO) confirmed that traffic was up and, more importantly, closing ratios improved, which he attributed to better execution from the operating platform. He also noted that resident turnover has remained consistent.

Nicholas Yulico of Scotiabank asked for a breakdown of the lab segment's same-store occupancy decline, questioning the split between lease expirations and tenant defaults. He also inquired about Healthpeak's capital allocation strategy, including the use of the balance sheet for new outpatient developments, potential lab investments, and stock buybacks.

Answer

CFO Kelvin Moses explained that the lab occupancy decline was roughly one-third from non-renewed expiring leases, one-third from tenant relocations within the portfolio, and one-third from tenants who failed to raise capital. CEO Scott Brinker emphasized that maintaining a strong balance sheet is the top priority, which allows for opportunistic asset sales, share buybacks, and funding attractive developments. He noted that while the company is patient, distressed life science assets represent a future "enormous opportunity."

Nicholas Yulico of Scotiabank asked for a breakdown of the lab segment's same-store occupancy decline and inquired about Healthpeak's capital allocation priorities, including balance sheet strategy, development, and potential stock buybacks.

Answer

CFO Kelvin Moses attributed the lab occupancy decline to a mix of lease expirations, tenant relocations within the portfolio, and tenants who failed to raise capital. CEO Scott Brinker emphasized that maintaining a strong balance sheet is the top priority, followed by opportunistic asset sales, stock buybacks, attractive outpatient developments, and patiently waiting for distressed life science investment opportunities.

Nicholas Yulico of Scotiabank pressed for more mathematical detail on how clinical move-outs in March could significantly impact occupancy in a large portfolio and asked again for March or April occupancy data to better assess the trend.

Answer

EVP & Chief Investment Officer J. Hutchens reiterated that higher mortality late in the quarter created a lower jumping-off point for Q2, contrasting it with the large positive impact of the upcoming key selling season. EVP & CFO Robert Probst maintained the company's policy of not providing intra-quarter data, directing analysts to focus on longer-term trends and the reaffirmed full-year guidance.

Nicholas Yulico asked for an explanation of the gap between the high single-digit January rent increases and the 4.5% full-year RevPOR growth guidance. He also sought to confirm if guidance assumes a $1 billion equity raise and asked for a year-end leverage outlook.

Answer

Executive J. Hutchens detailed the mechanics causing the variance, including the timing of increases, lower acuity of new residents, and a lag in new move-in rates. CFO Robert Probst confirmed the guidance assumes all-equity funding for investments and that Ventas expects to continue driving net debt-to-EBITDA down into its target range.

Nicholas Yulico from Scotiabank asked for the initial cash yield on recent acquisitions versus the stated year-one yield and questioned the rationale for purchasing LTAC assets as part of the Kindred resolution.

Answer

CEO Debra Cafaro clarified that a 7.5% year-one yield implies a day-one yield in the low 7% range. She explained the LTAC purchase was a strategic part of a holistic resolution with Kindred, designed to improve master lease coverage and strengthen Kindred's credit profile, making them a better long-term tenant.

Nicholas Yulico from Scotiabank asked about the real-time impact of tariffs on construction costs and requested a deeper, location-quotient-style analysis of their job-sector exposure in Washington, D.C.

Answer

CIO Alec Brackenridge explained that while tariffs add uncertainty, falling construction costs and 'hungry' contractors accepting lower margins are providing an offset, though it remains difficult for new projects to underwrite. CEO Mark Parrell stated their D.C. government job exposure mirrors the sector's contribution to the local economy and that a property-level review showed a broad-based portfolio without concerning concentration in any single government department.

Nicholas Yulico of Scotiabank questioned whether the low end of the FFO guidance range reflects the potential non-leasing of key developments. He also asked for the assumed tenant retention rate for the remainder of the year and any significant move-outs.

Answer

CFO Scott Musil confirmed that the development leasing assumptions are a key variable, along with other new leasing and bad debt expense, but affirmed they feel good about hitting the bottom end of the FFO range even in a tougher environment. EVP of Operations Christopher Schneider stated that the anticipated retention rate for the year is 70% to 75%, consistent with prior years, and that remaining rollovers are all under 100,000 square feet.

Nicholas Yulico from Scotiabank asked what factors constitute the low end of the FFO guidance range and what tenant retention rate is assumed for the remainder of the year.

Answer

CFO Scott Musil affirmed the company's confidence in hitting the low end of its FFO guidance, noting that variables include development lease-up, other new leasing, and bad debt expense. EVP of Operations Christopher Schneider stated that the anticipated retention rate for the full year is between 70% and 75%, which is consistent with historical averages.

Nicholas Yulico asked whether the accelerated tenant improvement reimbursement related to the boohoo lease was an unexpected item or if it had been included in prior guidance.

Answer

CFO Scott Musil confirmed that the item was unexpected and not in prior guidance. He explained that the accelerated recognition of the TI reimbursement liability resulted in a benefit of approximately $4.4 million, which was offset by the write-off of a $5.5 million straight-line rent receivable, leading to the net $0.01 per share reduction in 2024 FFO guidance.

Asked if sublease space in Hudson Yards is competitive with the Penn District projects. He also sought clarification on the Penn 2 yield calculation, specifically whether it includes TIs and leasing commissions, and what the all-in yield would be.

Answer

Management confirmed they compete with new space in Hudson Yards, which they view positively as their pricing is more competitive. They clarified that the quoted incremental yield on Penn 2 does not include TIs and leasing commissions, as those are costs that would have been incurred regardless. The TI/LC cost was estimated to be around $140 per square foot or slightly higher.

Nicholas Yulico inquired about the expected trend of blended lease rate growth throughout 2025, specifically asking for a comparison between Sunbelt and coastal markets, and about the company's investment strategy and capital deployment plans.

Answer

COO Mike Lacey detailed the cadence for blended rate growth, projecting 1.4%-1.8% in the first half of 2025, accelerating to 2.8%-3.2% in the second half, driven by abating supply pressures. He noted coastal markets would see blends around 2.5%-3%, while the Sunbelt would be closer to 60-90 bps. CFO & CIO Joe Fisher clarified that the 'net seller' guidance was a timing issue from 2024 sales and affirmed UDR remains opportunistic, with capital available for JVs, DPE investments, and potential development starts.

Nicholas Yulico from Scotiabank inquired about UDR's capital allocation strategy, specifically regarding stock buybacks, and asked about the status of its joint venture acquisition pipeline.

Answer

CFO Joe Fisher stated that stock buybacks are 'not on the menu' at current prices. The company's capital allocation focus is on recycling capital within its Debt & Preferred Equity program, pursuing joint venture acquisitions, and executing creative OP unit transactions. Fisher explained that the delay in JV acquisitions was due to a partner's internal mandate review and expects activity to resume within 60 days. UDR is not currently seeking additional JV partners.

Nicholas Yulico asked for a quantification of the impact from known move-outs on the revised same-store occupancy guidance and whether the leasing activity delayed into 2025 was speculative or already secured.

Answer

CFO Laura Clark detailed that the 25-basis-point reduction in occupancy guidance was driven roughly half by the timing of new lease commencements shifting into 2025 and about 10 basis points by the LL Flooring move-out. She clarified that the delayed leasing is based on current negotiations and activity, not yet-signed leases, reflecting a shift in expected commencement from Q4 2024 to Q1 2025.