Nick Yulico

Nick Yulico asked for clarification on absorption potential, distinguishing between same-store and redevelopment leasing. He also sought an update on redevelopment project timing, delivery, lease-up progress, and how these projects could generate earnings benefits beyond the current year.

Answer

President and CEO Peter Scott clarified that previous absorption comments were for the same-store pool. He highlighted redevelopments as a key driver for total portfolio occupancy, noting a 500 basis point sequential increase in lease percentage in Q4 2025 and another 500 basis points expected in Q1 2026 due to a significant lease with St. Peter's Health. He stated that the primary earnings benefits from these leases are anticipated to begin in 2027.

Nick Yulico asked for clarification on Healthcare Realty's absorption potential, distinguishing between same-store and redevelopment leasing. He also sought an update on redevelopment project timing, lease-up progress, and how these projects are expected to contribute to earnings beyond the current year. Additionally, he questioned the company's acquisition potential given stock price constraints and the profile of target acquisitions to enhance future growth.

Answer

President and CEO Pete Scott clarified that absorption comments were for the same-store pool, while redevelopment projects showed strong momentum with a 500 basis point sequential increase in Q4 2025 and another 500 basis points expected in Q1 2026, with earnings benefits starting in 2027. Regarding acquisitions, Pete Scott noted modest balance sheet capacity ($200M-$300M) and a disciplined approach to JV transactions, targeting yields greater than the implied cap rate. CIO Ryan Crowley added insights on cap rates for core (high 5s to low 6s) and core-plus (low 6s to upper 6s) assets, confirming strong buyer demand.

Nick Yulico inquired about the spread between RevPOR and ExPOR growth, asking if Welltower is assuming this spread will shrink in 2026 and if there's an element of conservatism in their guidance.

Answer

Co-President and CIO Nikhil Chaudhri clarified that the initial ExPOR outlook for 2026 is similar to 2025's start. He explained that higher occupancy drives lower ExPOR by scaling costs. He stated that Welltower does not use 'conservatism' in guidance but frames it based on probabilities, hoping to outperform, especially given that a disproportionate amount of growth occurs over a six-month period starting in April/May.

Nick Yulico inquired about the guidance for the spread between RevPOR and ExPOR growth, noting an assumption that the spread might shrink this year (ExPOR below 1.5% vs. below 1% last year), and asked if there was an element of conservatism.

Answer

Nikhil Chaudhri (Co-President and CIO, Welltower) clarified that the current ExPOR outlook is similar to the initial outlook from the previous year. He noted that a significant portion of year-over-year growth materializes over a six-month period starting in April/May, and the guidance reflects an appropriate view of possibilities.

Nick Yulico asked about the balance between Welltower's increased focus on senior housing and the potential for higher earnings volatility as the company becomes less diversified.

Answer

CEO Shankh Mitra clarified that the company is concerned with risk (probability of losing capital) rather than volatility, which it embraces. He explained that risk mitigation is achieved through a low-leveraged balance sheet and operational excellence via the Welltower Business System, which helps manage tail risk in a complex adaptive system.

Nick Yulico asked for clarification on the mid-5% yield for KOP2, specifically whether it's a GAAP or cash yield and if tenant improvement (TI) costs are factored into the new project cost estimates. He also requested an update on leasing highlights across key markets, including the competitive impact of sublease space in San Francisco and the drivers behind leasing success at West 8th in Seattle.

Answer

CEO Angela Aman confirmed the KOP2 yield is a cash stabilized yield, with TIs and prevailing market leasing economics for remaining vacancy incorporated into the updated costs. EVP and Chief Leasing Officer Rob Paratte highlighted strong demand and rental growth in Bellevue, positive new tenant activity at West 8th in Seattle, and a significant reduction in premium sublease space in San Francisco, indicating a clear market recovery.

Nick Yulico asked for clarification on the mid-5% yield for Kilroy Oyster Point Phase Two (KOP2), specifically whether it's a GAAP or cash yield and if tenant improvements (TIs) are included in the new cost estimates. He also requested an update on key leasing highlights across markets, including the impact of sublease space in San Francisco and drivers for leasing at West 8th in Seattle.

Answer

Angela Aman, CEO, confirmed the KOP2 yield is a cash stabilized yield and includes TIs for signed transactions and estimates for remaining vacancy. Rob Paratte, EVP and Chief Leasing Officer, highlighted strong rental growth and new tenant activity at West 8th in Seattle, noting the renovation's success. In San Francisco, he stated that premium sublease space is largely gone, and the market shows clear signs of recovery with significant activity across Kilroy's portfolio.

Nick Yulico asked about the outlook for 2026 lease expirations, expected retention rates, and the anticipated benefit from commencing occupancy on currently signed but not yet occupied space.

Answer

Angela Aman (CEO) detailed the reduction of 2026 lease expirations to 970,000 sq ft from an initial 1.9 million sq ft, noting a limited opportunity for further renewals and a focus on new leasing, particularly with quick occupancy. Rob Paratte (EVP, Chief Leasing Officer) added that San Francisco and Seattle are seeing larger tenants return, a shift from 'bargain' to 'impactful' space demand, and significant AI-driven demand, alongside a reduction of over 2 million sq ft in sublease space.

Nick Yulico asked about the company's strategy for addressing 2026 lease expirations, including expected retention rates and the impact of signed but not yet occupied space. He also inquired about the competitive landscape in San Francisco, specifically regarding Kilroy's space, the availability of sublease space, and the overall depth of the tenant pool.

Answer

CEO Angela Aman detailed the reduction of 2026 lease expirations from 1.9 million to 970,000 square feet, noting a limited opportunity for further renewals and a focus on new leasing. She highlighted the trend of tenants prioritizing quick occupancy, especially in San Francisco. EVP, Chief Leasing Officer Rob Paratte added that larger tenants are returning to San Francisco and Seattle, with a shift from 'bargain space' to 'impactful space.' He also noted a significant reduction in sublease space and strong AI demand in San Francisco.

Nick Yulico asked for details on the commencement schedule for PENN 2 leases, specifically how much of the 80% leased space is expected to turn into GAAP NOI in 2027, and inquired about any other significant lease commencements expected in the current year.

Answer

Steven Roth, Chairman and CEO, stated that more of PENN 2's leased space will be online in 2027 than 2026, but declined to provide detailed month-by-month guidance, suggesting the leases are large and will commence within the next 6-12 months. He humorously advised calling Tom Wolfe-Lye, EVP and Chief Accounting Officer, for more specific details.

Nick Yulico asked for details on the commencement dates for leases at PENN 2, particularly how much of the 80% leased space is expected to translate into GAAP NOI in 2027, and what leases are expected to commence in 2026.

Answer

Steven Roth, Chairman and CEO, stated that more of PENN 2's leased space will be online in 2027 than in 2026. Michael Franco, President and CFO, indicated that while Vornado does not provide detailed month-by-month guidance, the large leases are expected to commence within the next 6 to 12 months. He suggested contacting Tom Wulf for more specific details, acknowledging that such granular information is typically not disclosed.

Asked about the office occupancy trend for the second half of the year and for more detail on the types of tenants looking at PENN2.

Answer

Office occupancy is expected to dip slightly in Q3 due to a known move-out but should end the year around the current level of ~89.3%, with timing of new deals being a key variable. Tenants looking at PENN2 are a diverse mix of industries, including new entrants to the district, drawn by the redeveloped product and superior transit access.

Inquired about the timing of NOI recognition from PENN 1 leasing, requested a leased rate for PENN 1 and PENN 2 to gauge progress, and asked for a quantification of the future NOI benefit from these projects.

Answer

Some NOI from PENN 1 leasing will be recognized in 2024, but it's a rolling program. They did not provide a specific leased rate but stated that over the next ~3 years, PENN 1 and PENN 2 are expected to generate an incremental ~$200 million in NOI, which is a net benefit of ~$150 million after accounting for capitalized interest.

Nick Yulico asked for details on PENN 2 lease commencements, specifically when the 80% leased space will translate into GAAP NOI, how much of that 80% is fully recognized in 2027, and expected commencements for this year, including MLS.

Answer

Steven Roth, Chairman and CEO, Vornado Realty Trust, declined to provide detailed month-by-month guidance on lease commencements, noting that the exact timing (three or six months sooner/later) is not dispositive for investors. Glen Weiss, EVP, Vornado Realty Trust, added that more of PENN 2 will be online in 2027 than in 2026.

Nick Yulico asked about the commencement timing for PENN 2 leases, specifically when the 80% leased space would convert to GAAP NOI, and any expected commencements for 2026.

Answer

Steven Roth (Chairman and CEO) and Glen Weiss (EVP) indicated that more PENN 2 leases would be online in 2027 than 2026, with commencements generally occurring over the next 6 to 12 months. Steven Roth declined to provide detailed month-by-month guidance, suggesting to contact Tom Sanelli for more specific information.

Nick Yulico questioned if the decision for lower development starts in 2026 was driven by a focus on improving FFO growth, given the near-term dilutive aspects of development, and asked for clarification on the 2027 benefit. He also asked if AvalonBay would consider funds or JVs to source capital and minimize earnings dilution in a higher interest rate environment.

Answer

Kevin O’Shea, CFO, clarified that lower development starts were not driven by FFO growth concerns but by the opportunity set and economic value add, and that the transparency on capitalized interest impact was for investor understanding, not capital allocation. Ben Schall, CEO, discussed private capital as a tool, mentioning existing JVs and past funds, and potential future uses for portfolio allocation or external growth. Kevin O’Shea, CFO, added that AvalonBay has about $1 billion in leveraged funding capacity annually, allowing flexibility for both development and buybacks.

Nick Yulico asked if the decision for lower development starts this year was driven by a focus on improving FFO growth, given the near-term dilutive aspects of development, and if the company has considered using private capital (funds, JVs) to source capital and minimize earnings dilution in a higher interest rate environment.

Answer

Kevin O’Shea, CFO, clarified that development start volume was driven by opportunity set and economic value add, not FFO growth or dilutive aspects. He explained that transparency on capitalized interest was for investor understanding, not capital allocation. Ben Schall, CEO, confirmed private capital is a tool, citing an existing JV and potential channels for portfolio allocation or external growth. Kevin O’Shea, CFO, added that their leveraged funding capacity averages $1 billion annually, allowing flexibility for both development and buybacks.

Nick Yulico inquired about the stabilization of occupancy and potential for rental pricing improvement in Los Angeles, and whether the strong rent growth seen in San Francisco from concession removal would become a headwind in the current year.

Answer

Angela Kleiman (President and CEO, Essex Property Trust) reported Los Angeles's steady occupancy improvement to 94.7% economic occupancy in Q4, nearing stabilization, and anticipated a 20% decrease in supply for 2026. She clarified that San Francisco's rent growth is primarily a recovery story, not significantly influenced by concession changes.

Nick Yulico asked about the Los Angeles market's occupancy, its progress towards stabilization, and expectations for rental pricing improvement this year. He also questioned if the removal of concessions in San Francisco's market data would create a headwind for rent growth in 2026.

Answer

Angela Kleiman (President and CEO) reported steady occupancy improvement in Los Angeles, with economic occupancy at 94.7% in Q4, nearing the 95% stabilization target. She noted a 20% decrease in supply for 2026, but emphasized that eviction processing timelines still influence delinquency. Regarding San Francisco, she clarified that current concession levels are typical and not a significant factor, as the market's rent growth is primarily a recovery story, still below its pre-COVID potential.

Nick Yulico followed up on MAA's development strategy, questioning the continued focus on new projects given current FFO impacts from slower lease-up periods and lower capitalized interest benefits compared to borrowing costs.

Answer

Brad Hill, President and CEO of Mid-America Apartment Communities, acknowledged current pressures on development properties due to high supply from 2023-2025 but stressed that these are temporary. He highlighted that recurring rents on development projects are 2% above pro forma and past developments exceeded underwritten yields by 90 basis points, justifying new starts for delivery into a stronger 2028-2029 market.

Nick Yulico questioned MAA's continued focus on development, given current near-term FFO impacts from slower lease-up periods and lower capitalized interest benefits, despite the long-term value creation view.

Answer

Brad Hill, President and CEO of Mid-America Apartment Communities, acknowledged current development pressures due to a surge in supply from 2023-2025, leading to slower lease-ups and concessions. He stressed this is temporary, with recurring rents 2% above pro forma. New developments, delivering in 2028-2029, will benefit from muted future supply and are expected to generate strong returns.

Nick Yulico asked about the Gateway acquisition, specifically how it complements Healthpeak's existing South San Francisco portfolio and the company's comfort with taking on additional vacancy. He also inquired about the expected cadence of total lab occupancy throughout 2026 and any built-in contingencies for tenants' capital raising.

Answer

President and CEO Scott Brinker expressed excitement about the Gateway acquisition, viewing it as an opportunity that complements their significant existing footprint in South San Francisco. He noted the use of proceeds from outpatient sales, highlighting the long-term value creation potential despite initial vacancy. Regarding lab occupancy, Mr. Brinker stated that total occupancy is expected to improve by year-end 2026, assuming continued positive capital market trends, with a pipeline weighted towards new leasing.

Nick Yulico asked about the strategic rationale behind the Gateway acquisition, specifically how it complements Healthpeak's existing South San Francisco portfolio and the company's comfort with taking on additional vacancy.

Answer

President and CEO Scott Brinker expressed excitement about the Gateway acquisition, highlighting its complementary nature to Healthpeak's existing 6.5 million sq ft footprint in South San Francisco. He noted the opportunity to leverage proceeds from Outpatient sales, viewing the 1.5 million sq ft of vacancy as an opportunity for growth. Brinker anticipates a break-even year-one yield with significant long-term growth potential. Regarding the Lab segment, Brinker expects total occupancy to improve by year-end 2026, driven by a strong pipeline weighted towards new leasing, assuming continued positive capital market conditions.

Nick Yulico inquired about the lab portfolio's lease rate versus its occupied rate, seeking clarification on how current leasing efforts are impacting vacancy and the overall physical occupancy.

Answer

CFO Kelvin Moses clarified that the 81% total occupancy in the lab segment is largely consistent with the physical occupied rate, though some tenants may occupy more space than currently needed. President and CEO Scott Brinker added that the impairment was not due to leasing issues, as the campus is approximately 60% leased, but rather a re-evaluation of rents and cap rates against the initial deal valuation.

Nick Yulico asked for clarification on the lab portfolio's lease rate versus its occupied rate, specifically in relation to the reported 81% occupancy. He also questioned the trigger for the lab joint venture impairment this quarter and its connection to leasing performance.

Answer

Kelvin Moses, CFO, clarified that the total lab occupancy of 81% is largely in line with the occupied rate, with some minor instances of tenants occupying more space than needed. Regarding the impairment, Mr. Moses explained it was triggered by unconsolidated JV accounting rules requiring a charge when carrying values fall below fair values for more than a temporary period, emphasizing it's a non-cash item not impacting FFO. Scott Brinker, President and CEO, added that while leasing up the campus (60% leased) is progressing well, the impairment reflects current rents and cap rates compared to the original deal valuation.

An analyst on behalf of Nick Yulico sought clarification on the projection for new lease rates turning positive in Q3, asking if rates are expected to continue improving sequentially into Q4 or revert to a normal seasonal pattern.

Answer

President and CFO Alexander Jessett confirmed that the company's budget assumes a return to normal seasonality. This implies that after turning positive in the third quarter, new lease rates would likely experience a seasonal softening in the fourth quarter, which is historically the weakest period for pricing power.

Elmer Chang from Scotiabank questioned Omega's investment strategy between skilled nursing and senior housing, given the recent portfolio shift, and asked about the company's development exposure in Florida.

Answer

CEO C. Pickett explained that investments are driven by operator relationships rather than a specific segment allocation goal, though the trend towards senior housing may continue. He noted that Florida's reimbursement environment has become more favorable, making it an attractive market for development with the right operator.