Upal Rana

Upal Rana asked Colin Connolly for an update on the increased interest from private capital in Cousins Properties' markets and how this trend is influencing the company's approach to deploying capital for external growth opportunities. He also asked Gregg Adzema about the pricing assumptions baked into the full-year guidance for the refinancing of the term loan, Colorado Tower, and 201 North Tryon debt maturities.

Answer

Kennedy Hicks, EVP and Chief Investment Officer, noted an increase in private capital, primarily family offices and high net worth individuals, along with more constructive debt capital, generally focused on smaller deals. She stated that this capital has not yet competed with Cousins Properties on larger acquisitions, maintaining their competitive advantage. Gregg Adzema, EVP and CFO, confirmed a commitment to an unsecured borrowing strategy for the refinancing. He estimated current pricing for 7-year unsecured debt at approximately 5% and 10-year debt at around 5.35%-5.40%.

Upal Rana asked about the increased interest from private capital in Cousins Properties' markets, seeking an update on its current state and how it influences the company's strategy for deploying capital on external growth opportunities. He also asked Gregg Adzema about the full-year guidance, specifically what pricing assumptions are baked in for the refinancing of the term loan, Colorado Tower, and 201 North Tryon.

Answer

Kennedy Hicks, Executive Vice President and Chief Investment Officer, confirmed an increase in private capital, primarily from family offices and high-net-worth individuals, along with more constructive debt capital. She noted that these sources generally focus on smaller deals and have not yet competed with Cousins Properties on larger acquisitions. Gregg Adzema, Executive Vice President and CFO, stated that Cousins Properties is committed to an unsecured borrowing strategy for refinancing the 2026 maturities. He estimated that if done today, 7-year unsecured debt would be priced around 5%, and 10-year debt between 3.5%-5.40%, depending on market conditions.

Upal Rana inquired about the current state of the capital markets, specifically the potential rate for a new bond deal, and asked for an update on plans for the space vacated by Bank of America.

Answer

EVP and CFO Gregg Adzema reported that credit markets have improved, with their recent bond trading approximately 20 basis points tighter, suggesting a lower coupon could be achieved today. President and CEO Colin Connolly added that with the long-anticipated BofA move-out complete, portfolio occupancy is expected to trough in Q3 and then grow, supported by a favorable future lease expiration schedule.

Upal Rana inquired about the status of the Time Warner lease renewal at Domain Point and asked for details on the company's exposure to GSA (General Services Administration) leases.

Answer

EVP of Operations Richard Hickson explained that the ongoing discussions with Time Warner are focused on working through the tenant's long-term space needs. He and CEO Michael Connolly confirmed that Cousins' exposure to GSA leases is de minimis, with only two small leases, and is not expected to have any material impact on their portfolio.

Upal Rana from KeyBanc Capital Markets asked if Cousins is still on track to reach 90% occupancy by 2026 despite a projected 2025 dip, and requested details on the creative IBM lease transaction in Austin.

Answer

President and CEO Michael Connolly affirmed that 90% occupancy is an achievable goal, expecting a recovery to begin in late 2025 after a temporary trough from the Bank of America move-out. He explained the IBM lease was a creative solution where Cousins facilitated IBM's move into underutilized space from Meta after IBM's planned new development failed to secure financing, creating a 'win-win-win' outcome.

Upal Rana sought an update on the IBM move-out in Austin and details regarding the planned redevelopment of an existing ATX building as outlined in the 2026 business plan. He also asked if the $300 million disposition target for 2026 represents the full extent of planned sales or if additional properties are queued for 2027.

Answer

Gerard H. Sweeney, President and CEO, confirmed IBM's phased move-out from Uptown development starting Q1 next year. He detailed plans to redevelop a vacant 157,000 sq ft building at Uptown ATX, with renovation costs of $30-$40 million, targeting a cash yield north of 8% and having 600,000 sq ft of prospects. Regarding dispositions, Sweeney stated that while $280-$300 million is the 2026 target, other properties and land holdings are being queued for sale as market conditions improve, indicating a disposition program for 2027 as well.

Upal Rana sought an update on the IBM move-out in Austin and details on the planned redevelopment of an existing ATX building. He also asked if the $280-$300 million disposition target for 2026 is the full extent of planned sales or if more dispositions are anticipated in 2027.

Answer

Gerard H. Sweeney, President and CEO, confirmed IBM's move-out starts Q1 next year. He detailed plans to redevelop a vacant 157,000 sq ft ATX building, anticipating $30-$40 million in renovation costs, a 3-4 quarter completion, 600,000 sq ft of prospects, and a cash yield north of 8%. Regarding dispositions, Mr. Sweeney stated that while $280-$300 million is the 2026 target, they have other properties and land holdings queued up, expecting a disposition program for 2027 as well to continue portfolio refinement.

Upal Rana from KeyBanc Capital Markets asked for details on the board's decision to reduce the dividend and how Brandywine Realty Trust plans to ramp up cash flow in 2026 to achieve a more sustainable CAD payout ratio. He also sought an update on the strategy to manage the IBM move-out in Austin scheduled for 2027.

Answer

President and CEO Jerry Sweeney explained the board's dividend reduction decision, citing operating cash flow, refinancing needs, development project ramp-up, and capital requirements for recaps. The goal was to conserve $50 million in cash, establishing a sustainable floor for future dividend growth as NOI increases. He also addressed the 2027 IBM move-out in Austin, projecting a $12 million impact after expense savings, which will be offset by incremental income from new development projects. Plans include renovating 500,000 sq ft in Uptown's 902, 904, and 906 buildings, with the first phase potentially delivered in early 2027, leveraging increased density approvals.

Upal Rana requested more color on the leasing pipeline at Uptown ATX and asked for an update on plans to reduce vacancy at five other specific properties that are impacting the portfolio.

Answer

EVP of Operations George Johnstone described the Uptown ATX pipeline as a mix of financial and professional services firms, with advanced negotiations underway with two or three prospects, including a potential full-floor user. President & CEO Gerard Sweeney detailed plans for other assets, including pursuing residential rezoning for the Riverplace complex, marketing 4 Points for sale, and actively leasing up space at Sierra Center and 101 West Elm following renovations.

Speaking for Upal Rana, Gabrielle Horvath asked if tenants are seeking more concessions or smaller spaces compared to earlier in the year, and requested more detail on the GSA lease.

Answer

Executive Vice President George Johnstone responded that there has been no real change in concessions or tenant space requirements on renewals. Executive Vice President Jerry Sweeney clarified the GSA lease is for the IRS at Cira Square, expires at the end of 2030, and that they are in active dialogue regarding future plans. The building is currently at about 80% physical occupancy.

Upal Rana from KeyBanc Capital Markets asked about the high 2025 CAD payout ratio guidance and whether the $24 million in deferred tenant allowances could extend into 2026. He also questioned the drivers behind the negative rent spread forecast for 2025, particularly in Austin.

Answer

CFO Thomas E. Wirth and EVP of Operations George D. Johnstone addressed the deferred tenant allowances, with Johnstone clarifying that most have "use it or lose it" sunset provisions that trigger in 2025, making a spillover unlikely. Regarding rent spreads, Johnstone stated the negative outlook is predominantly driven by a single large renewal in Austin where the company traded a lower face rate for no TI costs, resulting in a positive net effective rent. Excluding that deal, spreads would be positive.

Upal Rana asked about Kilroy's capital allocation strategy and priorities going forward, considering the recent Maple Plaza acquisition and expected space returns. He also requested more details on the Flower Mart project, recent city conversations, and the expectation of continuing to capitalize interest until June 2026.

Answer

Eliott Trencher (EVP, CIO) stated that Kilroy evaluates all alternatives, including asset investments and stock buybacks, and is encouraged by current opportunities. Angela Aman (CEO) added that Kilroy is a net seller this year ($200 million) and sees a unique window where improving leasing fundamentals precede broader institutional investor interest. She noted that Kilroy's improved but still discounted cost of capital means they seek opportunities where their platform can drive value, like Maple Plaza. For Flower Mart, Angela Aman (CEO) explained that recent proposals to the planning department, including mixed uses, provide greater clarity on the entitlement process, now expected through H1 2026, with constructive city conversations.

Upal Rana asked about Kilroy's capital allocation strategy and priorities going forward, particularly in light of the recent Maple Plaza acquisition and anticipated space returns. He also requested an update on the Flower Mart project, including recent conversations with the city and the decision to continue capitalizing interest until June 2026.

Answer

EVP, CIO Eliott Trencher stated that the company evaluates all alternatives, including asset investments and stock buybacks, and is encouraged by current opportunities. CEO Angela Aman added that Kilroy is a net seller this year and sees a unique window where improving fundamentals precede full institutional investor interest, making valuations compelling. Regarding Flower Mart, Angela Aman explained that new development scenarios, including a broader mix of commercial and residential uses, were submitted to the planning department in September. These constructive discussions provide greater clarity on the entitlement process, extending interest capitalization through June 2026.

Upal Rana of KeyBanc Capital Markets questioned if Kilroy might exceed its $150 million land monetization goal and asked whether the increase in San Francisco demand is from homegrown companies or those returning to the city.

Answer

CEO Angela Aman stated that while the focus is on the initial $150 million goal, the company is actively evaluating its entire land bank, suggesting more monetizations are possible. EVP & Chief Leasing Officer A. Robert Paratte attributed San Francisco demand primarily to new company formation and expansion rather than a wave of companies moving back.

Upal Rana inquired if the DermTech downsizing met expectations and about demand for the vacated space. He also asked for an update on the market recovery and office demand trends in Los Angeles.

Answer

CEO Angela Aman stated the DermTech outcome, which resulted from a bankruptcy, was roughly in line with expectations. EVP and Chief Leasing Officer Rob Paratte added that the outcome was better than expected and there is leasing activity on the returned space. Regarding L.A., Paratte described the market as fragmented, with Long Beach performing well while the West side has been slower but is seeing an uptick in tours.

Upal Rana asked for the rationale behind the Junction at Del Mar acquisition and its potential integration with the One Paseo campus. He also requested details on why two development projects were moved into the tenant improvement phase and the reason for a stabilization delay.

Answer

CEO Angela Aman and EVP, CIO Eliott Trencher detailed that the Del Mar acquisition was compelling on an as-is basis, with a low double-digit stabilized yield, and offers long-term strategic value through potential integration with One Paseo. Eliott Trencher and EVP, Chief Leasing Officer Rob Paratte explained that moving the development projects was a technical milestone and that a one-quarter stabilization delay on one asset was due to a design pivot from single- to multi-tenant use after a previous tenant's bankruptcy.

Upal Rana sought details on how Getty Realty sourced the Now & Forever acquisition and plans to source future travel center transactions, and requested an update on bad debt for the year and what is included in the updated guidance.

Answer

Chris Constant, CEO, attributed the Now & Forever acquisition to relationship building and market presence. Mark Olear, COO, outlined sourcing for travel centers through existing tenant relationships, business development, and leveraging the fragmented industry structure. Brian Dickman, CFO, confirmed no rent collection issues since the Q1 'zips' situation, with typical 15 basis points rolled through quarterly for bad debt.

Upal Rana asked for details on how the Now & Forever acquisition was sourced and Getty Realty's strategy for sourcing more travel center transactions in the future, and an update on bad debt for the year and what amount is currently factored into updated guidance.

Answer

Chris Constant, CEO, explained Now & Forever was sourced through relationship building. Mark Olear, COO, added that future travel center sourcing involves leveraging existing tenant relationships, business development, and targeting consolidators. Brian Dickman, CFO, confirmed no rent collection issues since Q1, with guidance including a typical bad debt provision of about 15 basis points quarterly.

Upal Rana sought clarity on the investment spending outlook for the second half of 2025 and the factors driving the 8.1% cash cap rate seen in the quarter.

Answer

President & CEO Christopher Constant confirmed a strong outlook for the second half, citing a robust pipeline of over $90 million and active underwriting for new deals. He explained that while the market is generally in the mid-to-high 7% range, some Q2 deals priced just above 8%. He noted the current pipeline is priced in the high 7% area, consistent with their expectations for the year.

Upal Rana from KeyBanc Capital Markets questioned the expected investment pace for the second half of 2025 and the drivers behind the 8.1% initial cash yield achieved in the quarter.

Answer

President & CEO Christopher Constant expressed confidence in a strong second half, citing a robust pipeline and increased acquisition activity. He explained that while the market is generally in the mid-to-high 7% range, some Q2 deals priced slightly higher, driving the average up. He noted the current pipeline is priced in the high 7% area.

Upal Rana from KeyBanc Capital Markets asked about the potential impact of tariffs on Getty's auto-centric tenants, the company's current cost of capital and investment spreads, and expectations for cap rate trends amid interest rate volatility.

Answer

CEO Christopher Constant explained that it is too early to determine the full impact of tariffs on tenants but the company is monitoring the situation closely. CFO Brian Dickman detailed that the cost of capital for recently raised funds is in the mid-to-high 6% range, generating spreads of 110-120 basis points on a pipeline yielding in the high 7% area. Mr. Constant added that cap rates have remained stable and it's too early to see significant movement from recent market news.

Upal Rana from KeyBanc Capital Markets questioned the operational details of the Zips situation, asking how quickly a new operator could take over the spaces and if the remaining five Zips locations are at risk. He also asked about the expected degree of cap rate moderation in 2025 given the current interest rate environment.

Answer

COO Mark Olear stated the Zips units are relatively new and could be put back into operation quickly. CFO Brian Dickman added that the company assumes the five non-rejected leases will remain with Zips as they are likely stronger stores. On cap rates, CEO Christopher Constant pointed to the current pipeline's yield in the high 7% range as a good indicator of modest compression from 2024's 8.3% average, noting little appetite for further significant compression.

Upal Rana of KeyBanc Capital Markets questioned if the bid-ask spread has improved during the year and what the outlook is for 2025. He also noted the slight deceleration in cap rates during the quarter and asked if management expects them to decline further in Q4 based on recent activity.

Answer

COO Mark Olear stated that the bid-ask spread persists, but Getty is confident in its ability to source deals through its relationship-based strategy. Regarding cap rates, he pointed out that the current pipeline is at a blended rate in the mid-8% area, which is higher than the year-to-date average of 8%. This suggests near-term closings could see a higher cap rate, though he acknowledged rates may compress again in 2025.

Upal Rana sought Agree Realty's perspective on the current consumer environment, specifically if any impacts are emerging in their industry categories beyond auto parts, given macro ambiguities. Rana also asked about the impact of accelerated depreciation policies on the transaction or 1031 market.

Answer

Joey Agree, President and CEO, indicated positive flow-through for most of their categories, as tenants like Walmart and TJX benefit from the 'trade down' effect, particularly among middle-class consumers. Agree noted no material impact from accelerated depreciation in their core segments, possibly minor effects in niche areas like car washes or C-stores.

Upal Rana asked about the impact of the current consumer environment, including macro factors, tariffs, and job market softness, on Agree Realty's industry categories beyond auto parts. He also inquired about any observed impact of the accelerated depreciation policy on the transaction or 1031 market.

Answer

President and CEO Joey Agree noted positive flow-through for most categories, as their 'trade down' tenants (e.g., Walmart, TJX) benefit from discerning shoppers. He stated no material impact from the accelerated depreciation policy in their core spaces, possibly only on the edges for car wash or C-store sectors.

Upal Rana asked about the management of construction costs amid the development ramp-up and whether rising costs could compress the targeted 50-150 basis point yield spread.

Answer

President and CEO Joey Agree explained that the company has thoroughly analyzed the impact of tariffs and estimates they represent only about 1.5% of total project costs, which is well within their standard 7-10% project contingency. He expressed confidence that they can manage these costs through sourcing adjustments and are not concerned about a material impact on their development spreads.

Upal Rana from KeyBanc Capital Markets inquired about how large the development pipeline could potentially become and whether the new commercial paper program positions the company to pursue more investments.

Answer

CEO Joey Agree reiterated the medium-term target of investing $250 million per year in development and confirmed they are on track with a 'very large' pipeline and shadow pipeline. He noted both the development and developer funding platforms are benefiting from market conditions. However, he clarified that the commercial paper program, while providing cheaper short-term capital than the revolver, does not impact their investment calculus or weighted average cost of capital, and thus does not change their investment capacity.

Upal Rana from KeyBanc Capital Markets Inc. inquired about the potential size of the development pipeline and whether the new commercial paper program would enable the company to pursue more investments.

Answer

CEO Joey Agree reiterated the company's medium-term target of investing $250 million annually in development and confirmed the current pipeline is 'very large.' He clarified that the commercial paper program is a tool for managing short-term borrowing needs more cost-effectively than the revolver and does not change their investment calculus or weighted average cost of capital.

Upal Rana of KeyBanc Capital Markets asked about the bad debt assumption in guidance and the strategy for dispositions in the coming year.

Answer

CFO Peter Coughenour clarified that 2025 guidance includes a 50 basis point assumption for credit loss, which covers a worst-case Big Lots scenario. CEO Joey Agree added that dispositions are not a necessary source of capital this year and will be focused on non-core assets or opportunistic sales.

Upal Rana of KeyBanc Capital Markets inquired about the amount of bad debt included in 2025 guidance versus what was realized in 2024, and the strategy behind the 2025 disposition guidance.

Answer

CFO Peter Coughenour clarified that 2025 guidance includes 50 basis points of credit loss, which covers a worst-case scenario for Big Lots and other potential issues, compared to ~35 basis points realized in 2024. CEO Joey Agree added that dispositions are not a necessary source of capital this year and will be focused on non-core assets or opportunistic sales.

Upal Rana from KeyBanc Capital Markets inquired about the company's view on its auto manufacturing exposure, which constitutes 10% of rent, in light of potential tariffs. He also asked about increasing private capital interest in office assets and the expected pace of future dispositions following the major multi-tenant sale.

Answer

CEO, President & Director Michael Weil expressed confidence in the auto manufacturing assets, noting they are critical facilities for US manufacturers and that key tenant McLaren is financially stronger than ever. He confirmed seeing increased buyer interest for their single-tenant office assets. Weil stated the current disposition pipeline is approximately $200 million for 2025, with proceeds potentially funding both debt reduction and share buybacks.

Upal Rana from KeyBanc Capital Markets asked about the company's view on its auto manufacturing exposure, which is 10% of straight-line rent, in light of recent tariff announcements. He also inquired about rising private capital interest in office assets and the expected pace of future dispositions following the multi-tenant portfolio sale.

Answer

CEO Michael Weil responded that the company is comfortable with its auto manufacturing assets, describing them as critical facilities for US manufacturers and highlighting the improved financial strength of its tenant McLaren. He confirmed seeing increased buyer interest for their office assets, driven by strong tenants and lease terms. Regarding future dispositions, Weil stated the active pipeline is approximately $200 million and that proceeds from non-core asset sales provide a valuable funding source for both stock buybacks and deleveraging.

Upal Rana from KeyBanc Capital Markets questioned the company's exposure to the auto manufacturing sector, which constitutes 10% of straight-line rent, in light of recent tariff announcements. He also asked about rising private capital interest in office assets and the expected pace of future dispositions.

Answer

CEO Michael Weil addressed the auto sector exposure by highlighting the critical nature of the assets and the financial strength of key tenants like McLaren, which was recently recapitalized. He confirmed seeing increased private capital interest in their office assets, which he attributed to strong tenancy and lease terms. Weil stated the current disposition pipeline for 2025 is approximately $200 million, with proceeds being a funding source for both debt reduction and share buybacks.

Upal Rana from KeyBanc Capital Markets asked about the company's view on its auto manufacturing tenant exposure, whether private capital interest in office assets is increasing, and the expected pace and volume of future dispositions.

Answer

CEO Michael Weil addressed the auto manufacturing exposure by highlighting the critical nature of the assets and the strong financial health of key tenants like McLaren, which recently strengthened its balance sheet. He confirmed seeing increased interest from private capital for their office assets, which he attributed to the quality of the tenants and lease terms. Weil stated that the current disposition pipeline for 2025 is approximately $200 million, with proceeds funding both share buybacks and debt reduction.

Upal Rana asked about the capital allocation hierarchy between buybacks, debt reduction, and acquisitions; the timeline for a potential credit rating upgrade; and the future disposition strategy beyond the current sales.

Answer

CEO Edward Weil prioritized leverage reduction and opportunistic share buybacks, stating the current market is not attractive for acquisitions. He noted that achieving an investment-grade rating is a key mid-term goal tied to deleveraging but declined to give a specific timeline. Future dispositions will focus on retail and select office assets to optimize the portfolio for long-term growth in industrial and single-tenant retail.

Upal Rana inquired about the pricing of the RCG portfolio sale, GNL's confidence in the buyer's ability to close, and whether the dividend might be cut again following future dispositions.

Answer

Chief Financial Officer Christopher Masterson explained that the price was satisfactory, emphasizing that the buyer's ability to execute on a large, complex deal was a key factor. He expressed high confidence in closing, citing a $25 million nonrefundable deposit. Masterson described the dividend reduction as a prudent and appropriate reset given the sale of nearly $3 billion in assets, which creates about $80 million in recurring free cash flow and aligns with the company's new scale and focus.

Upal Rana from KeyBanc Capital Markets questioned GNL's strategy for increasing its weighted average lease term (WALT), the rationale for maintaining a wide AFFO guidance range late in the year, and what portion of 2025 debt maturities are covered by the current disposition pipeline.

Answer

CEO Michael Weil stated that WALT is being managed through organic leasing and renewals, with deleveraging taking priority over acquisitions. He explained the wide AFFO guidance provides flexibility to accelerate dispositions. Regarding 2025 maturities, he expressed confidence in their refinancing ability and noted the balance has already been reduced, but declined to link specific pipeline assets to future debt paydown.

Upal Rana from KeyBanc Capital Markets asked how potential Fed rate cuts might change the investment strategy between the U.S. and Europe, and requested details on the outlook for vacant asset dispositions.

Answer

CEO Sumit Roy suggested that falling U.S. interest rates could lower the company's public cost of equity, making more domestic deals accretive and potentially shifting the investment focus back to the U.S. He also reiterated that total disposition volume for the year is expected to be similar to the prior year's level.

Upal Rana from KeyBanc Capital Markets asked if the company is seeing opportunities for large-scale portfolio transactions and requested an update on the Zips car wash lease resolution.

Answer

CEO Sumit Roy confirmed they are having discussions about larger deals but noted the current $4 billion guidance is based on regular flow business. Regarding Zips, he clarified that 100% of assets were affirmed, with a rent reduction to 94.3% of the prior level negotiated in exchange for a longer lease term and higher annual escalators.

Upal Rana of KeyBanc Capital Markets inquired about the drivers of cap rate compression in Q4 and what factors would enable the company to achieve the high end of its 2025 AFFO guidance.

Answer

CEO Sumit Roy attributed Q4 cap rate compression to improved market sentiment and a more favorable cost of capital, which increased transaction activity. CFO Jonathan Pong and CEO Sumit Roy explained that reaching the high end of guidance would depend on lower-than-guided credit losses, a stable interest rate environment to support acquisition volume, and efficient dispositions of vacant assets.

Upal Rana of KeyBanc Capital Markets asked how transaction market participants are reacting to recent interest rate volatility. He also questioned the timing of the private capital fund launch, asking 'why now' in the current economic environment.

Answer

CEO Sumit Roy acknowledged the market volatility driven by exogenous factors and inflation expectations, which impacts the long end of the curve and the company's cost of capital. On the timing of the fund, Roy explained it is a strategic, long-term initiative to build a complementary capital source for the future. He compared it to Prologis's successful 20-year journey, stating the goal is to start now from a position of strength to prepare for potential capital constraints a decade from now.

Upal Rana of KeyBanc Capital Markets asked for the move-in timeline for new tenants at Studio Plaza and questioned the reasons for the redevelopment cost increase at the Landmark Residences (formerly Barrington Plaza) and its expected yield.

Answer

VP of IR Stuart McElhinney confirmed more tenants are expected to move into Studio Plaza this year. CEO Jordan Kaplan explained the Landmark Residences cost estimate increased from over $300M to approximately $400M because they now have signed contracts, providing more cost certainty. He affirmed the project's yield remains in 'good shape'.

Upal Rana asked about the office market recovery in Los Angeles following recent fires and whether there have been noticeable shifts in tenant demand. He also questioned the rationale behind consolidating a previously unconsolidated joint venture.

Answer

President and CEO Jordan Kaplan said that while a post-fire capital influx should boost office demand, he has only seen anecdotal evidence so far. Regarding the JV, Kaplan explained the consolidation was not a strategic choice but a requirement under accounting rules triggered by a new, extended agreement with their partners. CFO Peter Seymour noted this had a minor negative impact on interest expense.

Upal Rana of KeyBanc Capital Markets asked about the status of negotiations for a $335 million loan maturing in March. He also inquired about the renewal prospects for the 40,000 square feet expiring at the 10900 Wilshire acquisition and if conversations were held with those tenants prior to purchase.

Answer

President and CEO Jordan Kaplan declined to discuss details of financing negotiations that are in process, stating the company announces deals only after they are closed. Regarding 10900 Wilshire, he noted they are familiar with the tenants but would not comment on individual lease discussions, reiterating that they are still deciding on the strategic path for the asset.

An analyst on behalf of Upal Rana of KeyBanc Capital Markets asked for color on the drivers of the multifamily portfolio's strong performance. She also inquired about the potential for any future office-to-residential conversions.

Answer

President and CEO Jordan Kaplan stated that the multifamily portfolio has always been a strong performer with a high long-term growth rate, so its continued strength is not surprising. Regarding conversions, he explained that the economics are very difficult in their strong office markets, requiring a rare mix of high residential rates and low office values. While it worked in Hawaii, he believes such opportunities will be rare in their core Los Angeles markets.

Upal Rana of KeyBanc Capital Markets inquired about the types of larger deals EPR is now considering and their potential cap rates, and also asked if falling fuel costs were having a noticeable impact on customer spending at their properties.

Answer

CEO Greg Silvers and CIO Greg Zimmerman responded that opportunities for larger deals exist across all their verticals, with acquisition cap rates comfortably in the eights. Regarding fuel costs, Greg Silvers noted that while any increase in consumers' discretionary income is positive, the company has not observed a direct correlation in spending, emphasizing that consumers continue to prioritize experiences.

Upal Rana asked about the drivers behind the strong second-half 2024 box office performance and how the 2025 investment capital would be allocated across different transaction types.

Answer

CEO Gregory Silvers attributed the box office strength to a normalized quantity of film titles, which encourages a consumer habit of movie-going—a trend he expects to continue. Regarding capital allocation, Silvers described it as an 'art, not a science' that often ends up near 50/50 between development and acquisitions. CIO Gregory Zimmerman added the important clarification that most of EPR's mortgage investments are structured with a path to ownership, rather than being short-term loans.

Upal Rana from KeyBanc Capital Markets questioned the potential for collecting business interruption insurance on the St. Pete assets and asked for more detail on the 'non-commoditized fitness and wellness assets' mentioned in the prepared remarks.

Answer

CEO Gregory Silvers explained that while business interruption insurance exists, the lender controls the proceeds, and the company has decided reinvesting capital is not prudent. He clarified that 'non-commoditized fitness' refers to curated experiences like hot springs and climbing gyms, which attract premium pricing. CIO Gregory Zimmerman added spa hotels to this category.

Upal Rana from KeyBanc Capital Markets requested an update on leasing activity and the current tenant pipeline for the 360 Park Avenue South project.

Answer

Douglas Linde, President & Director, announced a newly executed lease brought the project to 33% leased, with another lease in progress expected to bring it near 40%. Hilary Spann, EVP of the New York Region, added that while the Midtown South pipeline is thinner than Midtown proper, they are seeing consistent activity, including a micro-trend of interest from AI-related businesses.

Upal Rana asked about the potential impact from Biogen's announced layoffs, given its status as a top tenant and its upcoming lease expiration, and any broader read-through for the life science sector.

Answer

President Douglas Linde clarified that BXP's exposure is limited to a single lab building with a lease expiring in mid-2028. He expressed strong confidence in the Kendall Square submarket, calling it the premier global location for lab space. He stated BXP is prepared for any outcome with Biogen and that the situation does not change their positive long-term view of the asset or market.

Upal Rana requested color on the sublease market across BXP's portfolio, beyond San Francisco, and asked for the percentage of tenants currently subleasing their space.

Answer

President Douglas Linde clarified that the sublease issue is most significant on the West Coast, particularly in San Francisco and Seattle, and is not a major problem in New York City. He estimated that 2-3 million square feet of space is sublet across the portfolio, but noted much of this relates to older, known situations, and BXP is not actively competing with its own tenants for new leases.

Upal Rana asked if the accelerating investment activity and lower expected cap rates would lead to changes in lease economics like escalators or term. He also inquired about buyer appetite for Walgreens assets and if demand for pharmacies has shifted recently.

Answer

CEO Mark Manheimer responded that they will continue to focus on attractive lease terms and rent escalators to drive internal growth, consistent with their strategy over the past year. Regarding Walgreens, he noted that buyer uncertainty about its future balance sheet makes sales challenging, but NetStreet is well-positioned with low exposure and low-rent assets that have attracted interest from other retailers.

Upal Rana inquired if the expected moderation in acquisition cap rates would affect lease economics, such as rent escalators and lease terms. He also asked for an update on buyer appetite for Walgreens properties.

Answer

President & CEO Mark Manheimer assured that new investments will continue to have attractive, long lease terms and rent escalators, consistent with the focus on internal growth. Regarding Walgreens, he noted that buyer uncertainty persists pending clarity on its future balance sheet, but he believes Netstreit's assets are well-protected by low rents and strong locations, which attract interest from other potential users.

Upal Rana asked if lease economics, such as escalators and term length, are expected to change as acquisition cap rates trend lower. He also inquired about the current buyer appetite for Walgreens assets.

Answer

President & CEO Mark Manheimer stated that lease terms will remain attractive with a focus on internal growth, even with moderating cap rates. Regarding Walgreens, he noted that buyer uncertainty about its future balance sheet makes sales challenging. However, he emphasized NetStreet's strong position due to low rents and quality real estate, which attracts interest from other potential users.

Upal Rana inquired whether the expected trend of lower acquisition cap rates would affect lease economics, such as lease terms and rent escalators. He also asked for an update on buyer appetite and market sentiment for Walgreens properties.

Answer

CEO Mark Manheimer assured that lease terms would remain attractive, with a continued focus on improving internal growth via rent escalators. Regarding Walgreens, he noted that buyer uncertainty persists pending clarity on the tenant's post-transaction balance sheet. He believes sentiment will improve early next year and highlighted NetStreet's strong position due to low rents and quality real estate, which provides significant downside protection.

Upal Rana inquired about any feedback from tenants regarding tariffs and whether this could impact the credit watch list. He also asked if the first quarter's acquisitions included any new tenant relationships.

Answer

CEO Mark Manheimer stated that while tariffs create uncertainty, they have not led to any additions to the credit watch list, and he emphasized the portfolio's resilience to economic slowdowns. He also confirmed that he believed they added three new tenant relationships during the quarter.

Upal Rana of KeyBanc Capital Markets asked if any downtime is anticipated for the six Big Lots locations expected to be assumed and inquired about the types of investors buying Walgreens properties.

Answer

CEO Mark Manheimer stated that no downtime is expected for the Big Lots locations. He also explained that the buyers for the Walgreens assets have been exclusively 1031 buyers, and while the appetite is there, the sales process requires more 'handholding' to get them comfortable with the tenant's headline risk and the specific location's strength.

Upal Rana asked how the remaining Walgreens assets differ from those recently sold and requested an update on seller sentiment given recent interest rate movements.

Answer

CEO Mark Manheimer explained that the disposition strategy for Walgreens focuses on upgrading portfolio quality, such as selling assets with shorter lease terms to increase the overall weighted average lease term. He also noted that the recent rise in the 10-year Treasury has tempered seller expectations, making it slightly easier to find willing transaction partners compared to earlier periods of rate-cut speculation.

Upal Rana from Lucid Capital Markets inquired about the origins and timeline of the new Waldorf Astoria development project in St. Petersburg, potential disruptions to the existing property, and the projected path to achieving the full-year occupancy guidance.

Answer

CEO James Farrar explained that the St. Petersburg project was initiated two years ago to capitalize on market strength, with an expected four-year timeline including one year of presales and three years of construction. He assured that alternative parking arrangements are in place to minimize tenant disruption. Executive Anthony Maretic addressed occupancy, stating that 143,000 square feet of signed leases are set to commence, which, despite a temporary dip in Q2 from known vacates, will bring year-end occupancy within the guided 85% to 87% range.

Upal Rana inquired about the origins of the St. Petersburg development project, its construction timeline, potential disruptions to the existing property, and the expected pace of occupancy growth to meet year-end guidance.

Answer

CEO James Farrar explained that the St. Petersburg project was initiated two years ago to capitalize on the strong market, with a projected one-year presale period followed by three years of construction. He assured that alternative parking arrangements are being made to minimize disruption. Executive Anthony Maretic addressed occupancy, stating that 143,000 square feet of signed leases are set to commence, which, despite a temporary dip from a tenant downsize at Greenwood Boulevard, will bring year-end occupancy within the guided 85% to 87% range.

Upal Rana inquired about the rationale for selling the Superior Pointe property, the current state of the office transaction market, the new disclosure splitting Sunbelt and non-Sunbelt occupancy, and whether this signals future sales of non-Sunbelt assets. He also asked for an update on the GSA lease at Park Tower, which expires in 2026.

Answer

CEO James Farrar explained that Superior Pointe was sold because it is in a challenged submarket where the company did not want to invest further capital, opting to focus on higher-growth markets. He noted that liquidity is returning to the office capital markets, especially for top-tier and smaller assets. Farrar clarified that the Sunbelt portfolio was broken out to highlight where the company expects to create the most value and see significant rent and occupancy growth. Regarding the GSA lease, he stated that discussions are at a natural, early stage, and while the tenant heavily utilizes the space, the outcome is still uncertain.

Upal Rana inquired about the specifics of the WeWork lease renewal at Block 83, the key drivers behind the updated year-end occupancy guidance, and the current leasing demand trends, particularly from larger tenants.

Answer

CEO James Farrar explained the WeWork renewal was driven by an existing enterprise tenant who wished to extend their stay through 2026, resulting in a 26-month lease with a 6% rent increase and no tenant improvement costs. Farrar and CFO Anthony Maretic attributed the improved occupancy guidance to significant Q4 lease commencements in Phoenix, Raleigh, and Orlando, with a 42,000 sq ft lease at Ingenuity Drive being the largest contributor. Farrar also confirmed a favorable trend of larger tenants returning to the market and committing to longer-term leases for high-quality properties.

Upal Rana asked for specific drivers behind the market turnaround in Phoenix, current trends and leasing velocity for spec suites, and the rationale for fixing the interest rate on a recent loan extension given the potential for falling rates.

Answer

CEO James Farrar explained the Phoenix recovery is broad-based across most industries, with the exception of the tech sector. He also reported strong momentum in the spec suite program, with vacant inventory dropping from 82,000 to 48,000 square feet and plans to build more. Executive Anthony Maretic stated concisely that fixing the rate on the Central Fairwinds loan extension was a requirement from the lender.

Upal Rana questioned the lower cap rate on the new Fiat build-to-suit, the funding pace for the pipeline, and the rationale for increasing exposure to Dollar General.

Answer

CEO John Moragne attributed the 6.9% cap rate on the Fiat project to the tenant's investment-grade credit, asset quality, and prime Atlanta MSA location. He stated BNL expects to fund about $217 million of its pipeline in 2025. Regarding Dollar General, he explained the acquisitions were sourced via a direct developer relationship with attractive mid-7% cap rates and long 14-year lease terms.

Upal Rana questioned the relatively low 6.9% cap rate on the new Fiat build-to-suit, asked for the funding pace of the existing pipeline, and inquired about the rationale for increasing exposure to Dollar General.

Answer

CEO John Moragne attributed the Fiat deal's cap rate to the tenant's investment-grade credit rating and the asset's prime location in the Atlanta MSA. He outlined the funding schedule for the current pipeline and defended the Dollar General acquisitions by highlighting the direct developer relationship, long 14-year lease terms, and attractive mid-7% cap rates, noting BNL's overall exposure remains manageable.

Upal Rana asked for details on the Zips Car Wash bankruptcy, including the expected timing and potential outcomes, and whether BNL would consider selling the properties. He also questioned if the lighter investment activity in Q4 was timing-related.

Answer

CEO John Moragne explained that while Zips initially sought to reject 7 of 10 sites, BNL is pushing back based on its master lease structure and expects a more favorable outcome. He noted Zips aims to exit bankruptcy by March or April. Moragne confirmed significant inbound interest from parties looking to buy or lease the sites, providing a strong backstop. He attributed the light Q4 investment activity to a disciplined approach in a competitive market and timing, with one deal from the summer closing in the new year.

Asked about the Zips Car Wash bankruptcy process and potential outcomes, and the reason for lower investment volume in Q4 2024.

Answer

The Zips bankruptcy outcome is uncertain but they are confident due to their master lease structure and expect a resolution by spring. They have received inbound interest to sell or re-lease the properties. The lower Q4 investment volume was due to a competitive market and a disciplined approach, not just timing.

Upal Rana asked for details on the Zips Car Wash bankruptcy, including the expected timing, potential outcomes, and the possibility of selling the affected assets. He also questioned if the lighter investment activity in Q4 2024 was due to timing or other factors.

Answer

CEO John Moragne explained that while bankruptcy outcomes are uncertain, BNL feels confident due to its master lease structure and significant inbound interest from parties looking to buy or re-lease the Zips sites. He noted the Q4 investment slowdown was a result of a disciplined approach in a competitive market, rather than a lack of opportunities, and that some of it was timing-related.

Upal Rana asked about the level of buyer appetite for the remaining healthcare assets slated for disposition. He also questioned the competitiveness of the current transaction market and whether BNL sees any signs of seller exhaustion that could create new acquisition opportunities.

Answer

CEO John Moragne confirmed there is interest from local and regional buyers for the healthcare assets but emphasized BNL will be patient to maximize value. He described the mid-market industrial space as 'incredibly competitive' with no signs of seller capitulation yet, despite rate uncertainty. Moragne added that BNL has ample capacity to be opportunistic if market conditions change.

Upal Rana of KeyBanc Capital Markets questioned the buyer appetite for the remaining clinical healthcare assets and asked about competition in the transaction market, including any signs of seller exhaustion.

Answer

CEO John Moragne responded that buyer interest for the remaining healthcare assets exists among local and regional players, but BNL will be patient to maximize value. He noted that the mid-market industrial space remains highly competitive with no significant seller exhaustion yet, though BNL is prepared to be opportunistic if the market shifts.