W. P. Carey Inc. (WPC) Earnings Call Transcript & Summary

Hello, all, and welcome to this morning's call covering our fourth-quarter 2020 earnings results. Prior to getting started, please note that certain remarks shared today are not historical in nature and might be classified as forward-looking statements. The factors capable of making actual outcomes diverge materially from what W. P. Carey anticipates are outlined in the filings we make with the SEC. A web-based replay of today's conference call will be posted within the investor relations area of wpcarey.com, our site, and it will stay archived there for roughly 1 year; that same location also holds copies of our investor presentations alongside other relevant documents. Having said that, I will now pass things along to Jason Fox, our Chief Executive Officer.

Thank you, Peter, and good morning to all of you. In the nearly 50 years that W. P. Carey has been around, 2020 stood out as a year like no other. Through all the economic turmoil caused by the most severe worldwide pandemic in more than 100 years, our portfolio demonstrated remarkable resilience. Market activity paused around the middle of the year, but since then it has kept picking up speed. Looking toward 2021, our attention is squarely on growing the amount we invest, backed by significant liquidity, a track record of capital access, and a strong short-term pipeline. During this call, I'll give a quick review of 2020, covering our recent investments, the current state of the transaction market, and how we're extending the deal momentum from the fourth quarter. Then I'll turn things over to Toni Sanzone, our CFO, who will go over our results, the key elements of our portfolio and balance sheet, and our 2021 guidance. Joining Toni and me today are our President, John Park, and our Head of Asset Management, Brooks Gordon, and they'll be available for questions later on. Because of the huge effect the pandemic has had on all of our daily lives, I want to begin by recognizing our employees and expressing how proud I am of how the whole team has adjusted and keeps delivering at the highest level. I also want to bring up a recent ESG achievement that makes us very proud; this January, W. P. Carey was honored to be among only a handful of REITs added to the 2021 Bloomberg Gender-Equality Index, which honors companies demonstrating leadership in promoting women in the workplace and a dedication to transparency in gender reporting. To review 2020, I'll begin with our balance sheet position and capital markets moves, which underpin our capacity to grow investment volume in 2021. Renewing our credit facility was one of the first major actions we took in 2020. Because demand for our credit was strong among banks, we were able to enlarge it and secure better pricing, duration, and other terms. Keeping plenty of liquidity on hand means we can raise capital when market conditions are attractive instead of when we have no choice. When equity markets dropped sharply from late February through late March and volatility hit extreme levels, we stayed very well positioned, with a $1.8 billion revolving credit facility that was nearly untouched, very few mortgages coming due in the near term, and no bonds maturing before 2023. After equity markets settled down and recovered much of what they had lost, we seized the chance to strengthen our balance sheet further through a forward equity offering in June, securing our ability to match fund acquisitions accretively with attractively priced equity; in October, we wrapped up a successful senior unsecured notes offering. Because demand was strong, we were able to upsize that deal considerably and issue U.S. bonds at our tightest spread ever to the benchmark 10-year Treasury rate, which at that point was also the lowest coupon rate ever recorded for a 10-year net lease bond. A strong balance sheet paired with outstanding portfolio results. From the moment the pandemic hit, we began disclosing rent collection figures each month, and those numbers stayed consistently within the high 90% range throughout the latter half of 2020, placing us among the top performers in the net lease space and across REITs more broadly. That outcome stems directly from how we approach net lease investing — deep credit analysis centered on mission-critical assets leased to sizable tenants in industries that hold up during downturns — and it also speaks to the safeguards written into our leases along with the strong work of our asset management group. When the pandemic first struck, deal markets decelerated sharply across both the U.S. and Europe. We additionally halted external acquisitions while concentrating on keeping financial flexibility intact. Before long, market activity came back, and by Q3 our pipeline had recovered to where it stood before the pandemic, and we finished the year with fresh momentum, completing slightly more than 50% of our 2020 external acquisitions in Q4. Now shifting to a closer look at our Q4 investment activity; during the quarter we closed investments amounting to $310 million, at a weighted average cap rate of 6.4% and a weighted average lease term of 21 years. With this activity, our total investment volume for 2020 reached $826 million at a weighted average cap rate of 6.5% and a weighted average lease term of 20 years, which helped sustain a portfolio-wide weighted average lease term of 10.6 years. Most of what we acquired in 2020 consisted of sale leasebacks, which typically let us secure stronger contractual lease terms than what secondary market transactions offer. To put the 6.5% average cap rate on our 2020 investments in perspective, it's worth factoring in the appealing embedded growth we captured across the vast majority of our deals. Roughly 75% of our 2020 deal volume carried fixed rent escalations averaging 2.4% per year on a weighted basis, while the other 25% had increases linked to inflation. Let me walk through two of our Q4 transactions more closely, both in sectors that held up well through the pandemic. In early November, we announced the approximately $100 million sale leaseback of a 27 property supermarket portfolio in northern Spain and the Balearic Islands with Eroski, among Spain's biggest supermarket operators and a tenant W. P. Carey already had. The portfolio sits mostly in densely populated residential areas with few nearby competitors. Stringent planning rules and licensing mandates erect major obstacles for newcomers, which boosts the intrinsic worth of these established locations. The portfolio is triple net leased through three 20-year master leases with escalations linked to Spanish CPI. As we aim to speed up our external growth, this deal illustrates our capacity to deploy meaningful capital into categories such as essential retail, particularly in Europe, where competition is thinner. On the ESG side, I'm happy to report that this deal gave us a chance to grow our investment in a tenant that's dedicated to sustainability via numerous programs, such as reducing the environmental footprint of its logistics and transportation work; when combined with the warehouse and retail properties already in our portfolio that are net leased to Eroski, it now makes up 1.6% of total ADR, which puts it on our top 10 tenant lists. Consequently, Advance Auto Parts, one of our biggest investment-grade tenants, is now positioned just outside the top 10. The second transaction I want to mention is another instance of a follow-on investment with an existing tenant done off-market. In December, we finished a $23 million investment in a Utah distribution facility net leased to Orgill, the largest independent hardware distributor globally. This modern facility functions as a crucial distribution center with a strategic location along Interstate 15. We additionally agreed to invest roughly $20 million more for a 430,000 sq ft expansion, with completion slated for 2022. The facility is triple net leased with fixed increases over a 20-year term that resets once the expansion is finished.

In the fourth quarter, roughly two-thirds of what we invested went into warehouse and industrial assets, and across all of 2020 those property types accounted for three-quarters of our investment volume. As a result, those categories moved up slightly, and together they made up 47% of total ADR when the year closed. We also took advantage during the fourth quarter of a highly distinctive and appealing chance to grow our stake in the privately held equity of Lineage Logistics, which ranks as the biggest temperature-controlled industrial REIT anywhere in the world. Cold storage is an industry we have put money into for more than 20 years, and we identified its potential long ago to reshape how perishable food gets distributed. Through a number of sale leasebacks with Lineage, we first bought into its equity back in 2011 inside CPA:17, with an original cost basis of $28 million, and today that position is marked at $195 million, using Lineage's latest equity raise as the reference. We continue to be long-term holders of net leased cold storage assets, but because Lineage wanted to repurchase certain properties, we were able to seize the moment and essentially complete an asset swap with them in the fourth quarter, trading two cold storage facilities for an added equity stake in the company of approximately $95 million. That pushed the overall value of our equity investment in Lineage, counting the mark on our original position, to roughly $300 million, and the bulk of that was put in place at a much lower basis. On top of that, Lineage has just made its first dividend payment, and Tony will cover that when he walks through our 2021 guidance. With Lineage expanding so quickly and given how its publicly traded REIT peers trade, we anticipate our investment will keep rising in value, which would generate further value for W. P. Carey shareholders, value that could be captured if Lineage lists publicly within the next few years. Now to the market environment and pipeline. Following a sharp mid-year slowdown, U.S. transaction volume picked up speed in the latter half of 2020, with investors stepping off the sidelines thanks to vaccine progress and an attractive interest rate environment. Cap rate compression carried on, most notably for industrial and essential retail properties, propelled by a flight to quality and interest rates at historic lows. In Europe, the early hope for pent-up sale leaseback demand in the back half of the year never came to pass, partly because government programs offered alternatives. The start of 2021 has felt different, though. Companies are showing more appetite for sale leasebacks, and that's true in the U.S. as well. Capital in Europe is plentiful and chasing deals too, particularly in food retail and industrial, and we stay competitive there, as our recent closings and expanding pipeline demonstrate. Going forward, we anticipate activity in both regions will speed up in 2021, underpinned by low interest rates and greater economic activity stemming from government stimulus, plus optimism that the vaccine rollout will drive an economic recovery. Cap rates will probably stay at low levels across both areas, though inflation worries and, eventually, higher rates could put some pressure on them. In the U.S., the chance that 1031 tax-free exchanges get repealed has drawn plenty of attention and might shape how active the market overall turns out to be, yet it isn't a vital component of what we do, and we don't anticipate any effect on our deal flow. As I said, the deal momentum from the fourth quarter has carried over into 2021. So far this year, we've closed investments worth $203 million in total, made up of three acquisitions plus two capital investment projects that are now finished. We have another $102 million in capital projects currently slated to wrap up during this year, and our near-term pipeline is quite busy, holding more than $300 million in investments at an advanced stage, among them deals with a purchase agreement already signed. Since it's still February, we feel confident about our capacity to grow our investment volume substantially compared with recent years. With that, I'll turn the call over to Toni.

Thanks, Jason, and good morning to all of you. During the fourth quarter, our AFFO came in at $1.20 per diluted share, primarily fueled by ongoing robustness in rent collections along with reduced property expenses relative to the third quarter. Across all of 2020, AFFO totaled $4.74 per diluted share. COVID-19's effect on AFFO was confined to roughly $0.20 per share for the year, largely caused by rent that went uncollected or was deferred and higher property expenses, plus diminished income from other non-core assets held in the portfolio. From the moment the pandemic began, our rent collection results have remained consistently among the strongest within the REIT sector, reaching 99% for rent owed in the fourth quarter and 98% for January. Throughout the final nine months of 2020, once the pandemic took hold, we gathered roughly 98% of contractual rents owed. Nearly all uncollected and deferred rents have been kept out of AFFO and consist mostly of two pieces. First, through a broader lease restructure that we described on earlier calls, we postponed six months of rent for one tenant in return for a longer lease term and better rent escalations, and that tenant has since restarted scheduled rent payments, including the deferred amount. Second, as anticipated, the majority of our remaining uncollected rents come from tenants in the restaurant, fitness, and theaters category, which accounted for merely 1.3% of the portfolio's ABR at year-end. Comprehensive same-store rent growth, calculated using pro-rata rental income included in AFFO, climbed from -1.7% in the third quarter to positive 0.1% in the fourth quarter. Some tenants, among them the one I referenced earlier, restarted scheduled rent payments during the fourth quarter, which, together with recoveries of back rent, produced the gain in this metric. Eventually, once COVID's effects are behind us, we would anticipate comprehensive same-store rent growth turning considerably more positive; during the fourth quarter, contractual same-store rent growth, which captures the average rent increase embedded in our leases, reached 1.5% year-over-year, matching the third quarter. At year-end, leases tied to inflation made up 62% of ABR while leases featuring fixed rent increases accounted for 33%. Consequently, should inflation accelerate from here, we will be strongly positioned to capture additional same-store rent growth. Now to our asset management efforts. In the fourth quarter, we finished four renewals or extensions spanning only 0.6% of ABR, through which we recaptured 64% of the prior rent and gained 4.8 years of incremental weighted average lease term. This activity included the short-term lease extension on an office property, producing a rent rolldown amounting to under 0.2% of ABR. Under the other category, we extended the lease on a technical training facility, recapturing 100% of the rent along with eight years of incremental lease term. If you look at renewals and extensions across the last eight quarters — that's 11.7% of ABR — what we got back was more than 95% of the rent that had been there before, plus 7.2 years of added lease term, and all it took was $1.41 per square foot in tenant improvements and leasing commissions. On the disposition side, the fourth quarter kept us busy: we sold off 14 properties, bringing in $202 million altogether, at a weighted average cap rate of roughly 6% for the occupied ones. That pushed full-year dispositions to $381 million, made up of $266 million from net lease sales and $115 million from an operating hotel in Miami that we sold, which closed at the beginning of 2020. Part of what happened in the fourth quarter was the opportunistic sale of two cold storage facilities to Lineage Logistics, which Jason talked about. What we got in return was more equity in Lineage, valued at about $95 million. The Lineage assets show up in our disposition proceeds, but that extra equity investment in Lineage didn't count toward our investment volume for the year. Thanks to what we did on the investment and asset management side, we closed out the year with 1,243 properties spanning roughly 144 million square feet, net leased to 350 tenants, and occupancy stayed strong at 98.5%. Our portfolio remains nicely diversified across property type, tenant industry, and geography, with 61% of ABR from U.S. properties and 37% from Europe, mostly Northern and Western Europe. Our top 10 concentration stayed among the lowest in the net lease peer group, at 22%. Turning to capital markets and the balance sheet: through 2020 we kept successfully tapping the capital markets, bringing in more than $850 million of well-priced long-term and permanent capital. Early in the fourth quarter we issued $500 million of 10-year U.S. bonds with a 2.4% coupon. In the second and third quarters, we issued $200 million of equity through the equity forward agreements we set up in June. Under those equity forward agreements, we can still issue another 2.5 million shares for about $163 million in proceeds, and we expect to put that remaining money to work soon to fund investment activity. We keep benefiting from being able to swap higher cost mortgage debt for lower cost unsecured debt. In the fourth quarter, we paid off $90 million of mortgages at a weighted average interest rate of 5.4%, which brought total mortgage repayments for 2020 to $294 million at a weighted average interest rate of 5.1%, and freed up another $50 million of ABR. At the close of 2020, our weighted average interest rate stood at 2.9%, down from 3.2% at the end of 2019, which drove a 10% or $23 million drop in interest expense compared with the prior year. Secured debt as a share of gross assets was 7% at year-end, versus 10% at the end of 2019. We keep hunting for chances to swap out pricier debt—mortgages and bonds alike—for cheaper unsecured borrowing, and that brings several advantages: it lowers refinancing exposure, pushes out our weighted average maturity, and lets us lock in rates that are historically low, which should produce substantial interest savings down the road. On our main leverage measures, we closed out 2020 with debt to gross assets at 42%, still comfortably inside our mid to low 40s target band. Net debt to EBITDA came in at 6.2 times. If we count the shares still to be issued under our equity forward agreements, net debt to EBITDA lands near the upper boundary of our target range, at six times. We finished the fourth quarter with only $82 million pulled on our $1.8 billion revolving credit facility, and together with cash on hand and the proceeds still available under equity forward agreements, that gives us $2.1 billion in total liquidity. So we've gone into 2021 in a very strong position, with plenty of liquidity to carry out our investment pipeline and considerable leeway over when we tap the capital markets. Now to the 2021 guidance we put out this morning; across the full year, we anticipate total AFFO between $4.79 and $4.93 per share, which includes real estate AFFO between $4.66 and $4.80 per share.

The assumptions behind our guidance include investment volume running from $1 billion to $1.5 billion, and that range covers capital investment projects we expect to complete during the year. On the timing of those 2021 investments, as Jason mentioned, we have already closed $203 million of investments this year, capital investment projects among them; an additional $102 million of capital projects is currently expected to close during 2021, and we look for that list to grow as the year progresses. Projected completion dates for the projects already in motion are laid out in our supplemental. The guidance also incorporates the idea that additional investments not yet in our pipeline lean more toward the second half of the year. Across the full year, we expect disposition activity to come in somewhere between $250 million and $350 million; we expect the portfolio to remain resilient as we continue working through the disruption caused by the pandemic. Our current guidance assumes rent disruption continues at approximately the level we have observed, although it may move somewhat higher or lower, depending on how severe and how lengthy lockdowns turn out to be. Included in our 2021 AFFO guidance is $9.5 million of cash dividends from other real estate investments. That amount includes the dividend received in January related to our equity investment in Lineage Logistics, which we expect will be the only distribution from Lineage in 2021; it also includes dividends we expect on our preferred stock in Watermark Lodging Trust, the entity that remained from the lodging funds we previously managed. We expect investment management fees and earnings to continue representing about 3% of total AFFO in 2021. Moving to expenses, we expect total G&A to come in between 79 and $83 million, with the increase largely attributable to the elimination of reimbursements we formerly received under the management and transition services agreements with Watermark Lodging Trust. As I mentioned earlier, we continue seeking ways to further strengthen our balance sheet, including accessing the capital markets when opportunities arise and identifying debt prepayments where they make sense. Nothing in our current guidance range includes any additional debt prepayment activity beyond repaying mortgages at maturity. In closing, while we are pleased with the consistently strong rent collections we have achieved since the pandemic started, external growth remains our priority; as market activity accelerates in both the U.S. and Europe, the strength of our near-term pipeline, combined with substantial liquidity, proven access to capital, and an attractive cost of capital, gives us confidence that we can deliver significantly higher investment volume in 2021, and $79 million of that activity is already underway. With that, I'll hand the call back to the operator for questions.

Hello, and good morning to all of you. It seems that occupancy went down slightly during the quarter. Could you explain what caused that, and also share what you expect for occupancy in 2021?

Brooks, would you like to handle that question?

Absolutely. Brooks. Yes, occupancy came down a little bit. What's behind that is mainly a pair of retail spots plus one warehouse whose leases ended; as far as what we anticipate, given where vacancy stands right now, we'd figure that gets divided about evenly between selling those properties and signing new tenants. We'd anticipate the vacancy rate staying extremely low, somewhere in that 1%-2% area. That ought to hold fairly steady.

All right, thank you. My next question concerns Chris's recent elevation to Head of European Investments. That sounds as though it might be a position that didn't exist before. I'm just wondering whether you're noticing more chances to invest in Europe, and whether, with the new person in charge, a larger share of your capital could go toward that region down the line.

Yeah. Chris has worked alongside us for roughly 10 years at this point, I believe. He's been in charge of deals in that market for a good while. The title is something new we handed him during this year. He'll continue reporting to Gino on the other side of the Atlantic. As for what you asked, yes, activity in Europe is indeed picking up. I'd say 2020 was somewhat sluggish. Our first deal of the year was in Europe, and our last was the Eroski transaction we mentioned before. Very little happened in between. Things have begun to accelerate somewhat more in Europe. Once again, this is among the advantages of spreading ourselves across various asset classes and industries, and also geographies, since that lets us deliver additional growth through transactions in multiple regions. We're hoping that trend keeps strengthening.

Okay, great. Thanks, Jason.

Welcome.

Hey, good morning.

Morning, Greg.

Jason, clearly, as you brought up during your opening comments, there's a growing concern among investors about inflation risk. When it comes to net lease, my understanding is that W. P. Carey holds among the largest — if not the largest — positions in leases featuring uncapped rent escalations tied to CPI. Looking at roughly the past 12 months of acquisitions, it appears you haven't been including those uncapped escalations in leases, though that could simply be a matter of how you describe the escalations. Is there a particular reason you've concentrated on roughly 75% fixed escalations over the past year? Is that simply the norm? Could you also walk through how CPI-based versus uncapped CPI rent escalations function?

Right. Sure. The 75% figure for fixed increases is somewhat above our historical level, and occasionally it's a matter of negotiation; we do prefer having a share of our leases supported by fixed increases. As I see it currently, perhaps around one-third of them carry fixed increases, while roughly two-thirds of our total ABR is tied to inflation. Of that two-thirds, I believe approximately 40, perhaps slightly more than 40%, is uncapped, while the remaining 20%-25% carries some form of cap and floor. Then, addressing your final question, the CPI base usually includes some form of cap and floor. In certain instances, it might even involve a multiple of CPI subject to a ceiling. Brooks, I'm not sure whether you have any information on how those caps and floors appear. They differ by region, naturally, but I'd say roughly 1%-2% for floors, and for caps, likely around 3%-4%, occasionally more. It's worth noting that the majority of our CPI leases are uncapped. If inflation occurs, I think you'd anticipate that we'd keep outperforming our peers on same store, and there could be meaningful upside, naturally. It's also a beneficial hedge embedded within what are otherwise long-duration cash flows.

I want to get one thing straight here. When it comes to the uncapped CPI, do floors exist in those too?

There can be floors in certain instances. With uncapped, as the term itself indicates, there's no ceiling on how high it can go. I should point out that in nearly every one of these CPIs—and I don't believe you're implying it would move this way—a floor of 0% is effectively built in across almost all of the CPI leases.

All right. Okay. Here's my next one. Toni, regarding the guidance — with how well Q4 went and the investment level we expect for 2021, the low end of that range caught us off guard a little; you came in above what I had modeled, which is terrific, but Q4 also had you ahead of me. I'm simply wondering which assumptions would realistically push you down to the floor of that range for 2021?

Yeah. Clearly, there's a purpose behind having that range. Timing around acquisition volume would be our largest swing factor. It absolutely has room to shift. Our fourth quarter tends to run heavier. As Jason mentioned, plenty is happening at the moment. Should any of that get pulled forward from late in the year, we'd land at the high end. If instead things slide toward the latter part of the year compared with what we see today, we'd end up under the midpoint. The other major element, I'd say, concerns collections in the current climate. Our portfolio still feels solid to us and is performing well. Within our guidance, the range basically reflects the collections we've observed, 98%-99%. Should anything come in under that figure, it would definitely matter and push us beneath the midpoint.

So it's essentially a more cautious outlook at the lower end of that range compared to what you're seeing right now.

Precisely.

All right. One last thing about the deals you've been making. Jason, I don't know whether you brought this up already, but you discussed a bit of the compression that's showing up. Has the team discussed what sort of cap rates we should expect on acquisitions during 2021?

Yes. Cap rates have definitely kept moving lower. Take industrial assets in particular, since that's where a lot of our fresh investment is aimed. At this point we've returned to, or likely moved nicely past, where things stood before COVID, possibly by as much as 50 to 100 basis points. That's the market as a whole, naturally. Relative to the fourth quarter, we're likely about even, as we've noted before. We evaluate transactions spanning a broad spectrum of cap rates, and we believe we're able to structure inventive deals down into the low fives and possibly below a 5% cap rate, contingent on the rent escalation provisions written into the lease. Those would involve better-quality logistics assets, perhaps similar to the Fresenius transaction or the Orgill transaction we finalized last year, both of them warehouse properties. There's still a solid pipeline for us of transactions with cap rates down in the 6s and even the 7s. Those tend to be our standard sale leasebacks, where we're able to capture additional yield by the way we originate these transactions and put them together. We also review many transactions inside the industrial category, though potentially beyond core logistics, for instance light manufacturing. We've completed a number of food production plants, which are extremely important, with non-discretionary goods being made there; we brought up cold storage, plus some R&D, every one of those property types where we've previously succeeded and where we believe additional yield can be generated. Earlier we noted that our weighted average cap rate for 2020 came to roughly 6.5%. For 2021, I'd imagine we land in that same vicinity, maybe drifting a touch lower based on current market conditions, though it also hinges on the blend of property types we end up buying. One more thing: cap rates aren't necessarily the full picture. In contrast to perhaps a number of our competitors, our leases carry significant contractual rent escalations. Because of those embedded bumps, the headline cap rates we report ought to deliver bigger spreads against our cost of capital, potentially.

OK, that's reasonable. Thanks, Jason. I appreciate the additional detail.

Sure. Happy to help.

Good morning.

Morning, John.

Sure, it's a pretty modest slice of the portfolio, I realize that. But this quarter, leasing spreads came in negative, and really, through basically all of 2020, they were negative. Do you figure that was at all a result of pandemic dynamics, at least during the back half of the year? Or could there be something particular about certain near-term lease expirations that might have brought this about — and might perhaps keep doing so once we move into a leasing environment that's more normal?

Brooks, do you want to speak to that?

During Q4, those results are fairly isolated examples. Let me highlight a couple of items there. First, that represents an extremely tiny share of the total. As Toni said, roughly 0.6% of ABR. Most of it came from two transactions. The first involved an office property, which she referenced during her comments, where a vacancy had been anticipated, and essentially what we did was simply work out a holdover arrangement, roughly an 18-month holdover. That's quite isolated. I wouldn't call it representative of the portfolio as a whole. The second involved a 24 Hour Fitness location, where the lease was reworked through the bankruptcy process. Worth pointing out that this rent climbs back fairly rapidly to approximately 85% of what the earlier contract called for. Obviously, both of those represent roll-downs, there's no question. Quite minor relative to the total. I should also mention that looking at a trailing basis, we've brought back roughly 95% of expiring rent with minimal TIs, adding around eight years of term. Q4 definitely didn't deliver favorable results on those two leases. I don't view it as a sign of any wider pattern, nor is it truly tied to COVID.

So perhaps when we look ahead—clearly 2024 stands in a category all its own—but when you consider 2021 and 2022, could there be some COVID-linked effects on re-leasing, or would you say the expirations we're facing are relatively immune to COVID?

Yeah, I believe you're making a solid observation, which is that the expirations we have coming up soon are pretty minimal. For 2021, that figure sits below 2%. Across the following 3 years, it comes in under 10%; we aren't really anticipating much of a COVID-specific effect. No two deals are alike. Our view is that this near-term lease expiration picture looks largely like normal operations. Naturally, only time will reveal the answer, and no two deals are alike; and we're putting in a great deal of effort on every one of them. That said, at this moment, we aren't observing severe COVID-driven shifts in what our tenants are planning.

All right. My apologies if this was covered earlier in the prepared remarks, but could you give us a bit more detail about the impairments you recognized this quarter, on the balance sheet as well as those that went through the equity method investments?

Certainly. The impairments on the consolidated properties were all fairly minor. Let me just pull that number up here. We had a single property that filed for bankruptcy right after the quarter closed, so in early January, and we wrote that value down. That accounted for most of it. The remaining items were pretty small.

When it comes to equity investments, we hold a property together with CPA:18, and marking it resulted in an $8 million impairment charge. That stems largely from how equity investments get accounted for, as opposed to assets carried on the balance sheet. I'd say we were somewhat caught off guard under a model where undiscounted cash flows aren't examined, and there's still no effect on AFFO from it, though it did flow through this period to the tune of roughly $8 million.

Alright. One final question regarding acquisitions and the investment side. How ought we to view capital investment projects as a share of investment spending for this year? Might that figure rise when it comes to deliveries in 2020, or is it basically fixed in your view?

Yes. That's included in our supplemental. During January's first month, we wrapped up one deal involving a German property — American Axle, AAM. As I said previously, roughly $100 million worth of capital projects are slated for completion in 2021; there are certain build-to-suits within our pipeline. When construction finishes is not clear, and that moment is when we include them in our investment volume. Something may possibly be delivered in Q4 of this year, depending on those deals; we anticipate continuing to add expansions from our internal portfolio along with external build-to-suits to generate future growth. Historically, I believe it has been around 15%-20% of our yearly deal volume; given present dynamics, this year will likely be somewhat below that. Looking ahead, nothing suggests it shouldn't fall within that range.

All right, that answers my questions well, and I have nothing further. I appreciate it.

Excellent. Thank you. Appreciate it, John.

Yeah. Hey, good morning, guys.

Morning, Josh.

Just wanted to follow up.

Hey.

I'd like to ask a bit more about what Toni said regarding that payout you got from Lineage. Was that during 2020, or was it 2021? My recollection is that someone mentioned it's the sole instance you anticipate. I'm curious whether any part of the guidance addresses a further one.