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

Hello, everyone, and good morning. We appreciate you being with us today for the earnings call covering the fourth quarter of 2021. Prior to getting started, please note that certain remarks on this call are not historical facts and could be considered forward-looking statements. In our SEC filings, you can find the factors that might lead actual results to differ materially from what W. P. Carey expects. A web replay of this conference call will be accessible in the Investor Relations portion of our site, wpcarey.com, where it will remain archived for about 1 year, and where copies of our investor presentations and other related materials are also available. With that said, I'll now turn things over to Jason Fox, our Chief Executive Officer.

Thank you, Peter, and good morning to all of you. During 2021, our AFFO grew a bit more than 6% per share, and we also delivered an appealing dividend yield to shareholders that averaged above 5%. Even more significant, we showed we can substantially boost growth generated externally, completing an unprecedented number of transactions and setting a quicker tempo for investments—a tempo we anticipate sustaining in 2022, as reflected in our guidance. Across a great many years, we have built a portfolio that stands apart among net lease REITs in its capacity to gain from inflation. And during 2021, we moved into a stretch of elevated inflation. Although rent increases tied to CPI did not add dramatically during the year, because of the delayed impact on rents, we anticipate that it will supply a substantial tailwind in 2022. This morning, my remarks will center on those growth drivers and on how our business should keep moving along a favorable path in 2022, even as inflation and interest rates are both expected to climb. Following that, I will hand the call to Toni Sanzone, our CFO, who will walk through the essential specifics of our earnings, portfolio, leverage and guidance. Joining us this morning are John Park, our President, and Brooks Gordon, our Head of Asset Management, who are here to respond to questions. Beginning with growth achieved through acquisitions, we finished the year with a robust fourth quarter, closing $532 million of investments at a weighted average going-in cap rate of 6%, mainly in U.S. and European industrial assets, along with European retail properties, which were mostly central retail. That lifted total investment volume for the year to a record $1.72 billion at a weighted average going-in cap rate of 5.9%. As I have mentioned on earlier calls, alongside going-in cap rates, we pay attention to internal rates of return and average yields, since those account for rent growth across the lease term and thus better capture the spread, or contribution to earnings accretion, that an investment produces over time. Our 2021 investments featuring fixed rent increases, for instance, carried an average yield roughly 150 basis points above their going-in cap rates—and that figure could be even greater for leases linked to inflation. We think our portfolio produces an average annual yield that is considerably more appealing than what most other net lease REITs offer, since those generally put money into assets with lower rent growth or none at all. Our diversified strategy opens up an enormous addressable market spanning two continents. Warehouse and industrial properties kept presenting the strongest opportunities for us in 2021, accounting for roughly two-thirds of our investment volume. Consequently, warehouse and industrial properties made up 50% of our portfolio at year end, rising from 47% a year earlier. Our office exposure kept shrinking in 2021, largely because we concentrated on warehouse and industrial investments, reducing our office ABR from 22.5% a year ago to below 20% at the close of 2021, and we expect it to shrink further as we keep underweighting office in our acquisitions. Looking at where our money went geographically in 2021, it was divided between the U.S. and Europe, roughly matching the makeup of our total portfolio. We closed out the year with 63% of ABR coming from U.S. assets and 35% from European assets, mostly in Northern and Western Europe. We can direct capital to whichever region offers the best risk-adjusted returns, but over the long run we typically anticipate keeping a comparable geographic balance, particularly considering how large our portfolio is. Our access to capital underpins our investment activity; during 2021, we brought in a record level of long-term and permanent capital at appealing prices, which funded our investments and let us refinance into cheaper debt. Starting in 2014, we began issuing regularly in the debt capital markets, and have now raised $6.4 billion altogether across 13 bond issuances, with $1.4 billion of that coming in 2021. Across that 8-year stretch, our spreads have tightened considerably, which speaks both to our standing as an established issuer and to the ongoing improvement of our credit profile. The U.S. dollar and euro-denominated bonds we brought to market in the first quarter of 2021 carried, at that moment, our tightest spreads and lowest coupons ever, with the proceeds mostly going toward prepaying a mix of secured and unsecured debt; beyond lowering refinancing risk, these offerings stretched out our weighted average debt maturity and pushed our unsecured debt strategy further ahead; they also gave us the chance to capitalize on favorable market conditions by locking in long-term rates that brought down our overall cost of debt. In October, we closed our first green bond issuance, which was also notable as the first U.S. dollar green bond ever issued by a net lease REIT; besides showcasing our commitment to ESG, we secured one of the tightest spreads a net lease REIT has ever achieved on a 10-year bond offering. Going forward, we feel confident about our continued ability to access attractively priced debt capital. In April of 2021, Moody's moved us to positive outlook, which mirrors the direction of our business and the strength of our balance sheet, and we think we're well positioned for S&P to return us to positive outlook; we issued roughly $1 billion of equity capital in 2021 by settling equity forward agreements and through our ATM program. Right now, we have approximately $300 million of equity available for settlement under forward sale agreements, originally issued at about $80 per share; and thus far in 2022, we've issued $47 million under our ATM program at a weighted average price exceeding $81 per share, securing additional well-priced equity capital before the recent market volatility. That leaves us with plenty of dry powder to execute on our current pipeline, raise capital at an appealing cost, and the flexibility to keep tapping capital markets opportunistically. Now, looking at what's happening in the market and our pipeline: deal activity stayed quite brisk all through 2021, coming back from the pandemic-driven pullback that weighed on a big chunk of 2020, and industrial kept its spot as the top choice for buyers in both the U.S. and Europe. Money coming in, particularly from private equity funds, keeps pushing cap rates down, though the speed of that decline seemed to ease up a bit in Q4, since more people now expect rates to climb, particularly in the U.S. As rates begin moving higher, our expectation is that cap rates will first flatten out, even if that takes a lag of one or two quarters. One major strength of our European platform is that it lets us capitalize on any gap in either cap rates or interest rates between the U.S. and Europe, whether in how we deploy capital or how we raise debt. And we're keeping a close eye on central bank policy moves and what they might mean for each. Our deep track record with cross-border and complicated transactions is another edge we hold. And because of how large our portfolio is, we keep generating a substantial amount of investments as follow-on deals tied to existing tenant or sponsor relationships, which accounted for more than half of our investments in Q4 and roughly one-third across 2021 as a whole.

For global M&A activity, 2021 was yet another record-setting year, and that gave us a favorable environment for sale leaseback supply, which accounted for slightly more than 50% of the deals we closed during the year. With the volume of capital private equity funds are sitting on that still needs to be deployed, we anticipate M&A activity — and with it the flow of sale-leaseback chances — will stay robust in 2022. I'm happy to report that the transaction momentum from 2021 has carried over into 2022. On a year-to-date basis through yesterday, we finished $166 million in investments, and our active pipeline remains busy, right now amounting to more than $300 million in identified deals that we feel highly confident about closing in the coming months, plus the pipeline of deals that sit further out. On top of that, we have $275 million in capital projects or other commitments slated to wrap up during this year. Altogether, that provides solid visibility into more than $700 million in deal volume already, which, together with a pipeline that keeps growing, leaves us confident in the $1.5 billion to $2 billion range embedded in our present guidance. Beyond the robust growth coming from external sources, we moved into a stretch of stronger internally generated growth during 2021, which matters a great deal considering how investment spreads have compressed over the past several years. Within the net lease REIT space, we've assembled what we regard as the strongest net lease portfolio positioned for inflation, with more than 99% of ABR derived from leases featuring built-in rent growth and 59% carrying rent increases linked to inflation. Even though CPI-linked rent growth didn't contribute much in 2021 because of the lagged impact on rents, we anticipate it will deliver a meaningful tailwind in 2022, both as additional leases hit their scheduled rent increases and because inflation has risen beyond what was initially expected. Consequently, we project our contractual same-store rent growth will climb to somewhere between 2.5% and 3% this year, with most of that gain coming in the first quarter. Naturally, should inflation keep climbing or persist longer than what's presently forecast, we'd anticipate seeing further upside. To wrap up, we think our positioning is exceptionally strong; and looking toward 2022, we identify two primary drivers. First, we believe we can sustain the brisk pace of deal activity we set in 2021, as reflected in our initial guidance, and we're already off to a good start. Although we anticipate that rising interest rates will lead cap rates to level off and eventually head higher following many years of cap rate compression, we likewise expect overall market transaction activity to hold up well. Our strategy affords us considerable flexibility in the kinds of deals we can chase, such as sale leasebacks, build-to-suits, expansions and renovations spanning multiple property types across more than two continents, all of which supply our deal pipeline. And we'll keep investing in property types with outstanding long-term fundamentals and leases crafted to produce strong annual rent growth and average yields considerably above going-in cap rates. Next, following a long stretch when agreements featuring set rental escalations grew faster than those tied to inflation, we've now reached a phase in which rising inflation turns into a supportive force for our same-store growth — a trait that sets our portfolio apart from nearly all other net lease rates. Consequently, we anticipate continuing to deliver highly steady, increasing cash flow alongside an attractive dividend yield for our investors, all while further enhancing the caliber of our earnings; and having said that, I'll hand the call to Toni.

Thanks, Jason, and good morning to all of you. Earlier today, we announced total AFFO of $5.03 per share for the year, along with real estate AFFO of $4.89 per share, which means both metrics rose by more than 6% versus the previous year. In Q4, total AFFO came to $1.30 per share and real estate AFFO was $1.27 per share, marking gains of 8.3% and 9.5%, respectively, over the same quarter last year. Our Q4 performance was largely fueled by a record level of investment activity for the year, robust same-store growth, and meaningful savings on interest expense thanks to debt refinancings. Taking into account stronger rent collections exceeding 99.8% during the quarter and expenses that came in below expectations, full-year AFFO landed above the midpoint of our guidance, with lease termination and other income surpassing forecasts, pushing us $0.01 past the upper limit of the range. Net income for Q4 included lease termination and other income totaling roughly $46 million, with $7.8 million of that recognized in AFFO. The bulk of this stemmed from a $41 million lease termination payment received at the close of Q4 from a tenant whose annual base rent was $3.2 million. This was an atypical, time-sensitive deal that came together rapidly because the tenant wanted to shutter that division before the year ended. The financial terms were highly advantageous to us, amounting to considerably more than what the tenant still owed on the lease, and the property now sits empty and is slated for sale in 2022. Comprehensive same-store rent growth, calculated using pro rata rental income included in AFFO, reached 2% in Q4. As we expected, this figure moved upward on average during 2021 relative to 2020 once the rent effects of COVID were settled. Because our portfolio has held up so well through the pandemic—particularly when compared with many competitors—we anticipate that COVID-related deferrals and recoveries will be negligible moving forward. That said, the biggest factor behind same-store growth should be contractual rent escalators, which deliver a more lasting and compounding effect on base rents as inflation persists. In Q4, contractual same-store rent growth was 1.8% year-over-year, a 20 basis point improvement over Q3. And as Jason noted, we anticipate that figure will rise to somewhere between 2.5% and 3% during 2022, beginning in Q1 when another 40% of CPI-linked leases are set to undergo rent increases. Now shifting to expenses: G&A came in a bit below expectations, at $20 million for the quarter and $82 million for the full year. Property expenses that tenants do not reimburse amounted to $11.5 million in the quarter and roughly $48 million for the year, which was somewhat high at about 4% of cash rent versus approximately 3.5% in prior years. As we keep progressing with re-leasing and selling off vacant assets, we anticipate these costs will come down from where they stand now. AFFO was affected by tax expenses — those are our cash taxes — of roughly $8 million in the quarter, which came in a bit below what we had anticipated, and for the entire year they added up to $35 million. Taxes can fluctuate between quarters, but the amount for full year 2021 is a sensible annual run-rate. Before I get to guidance, I wanted to point out a presentation change on our income statement that has no net effect on total revenues, AFFO, or net income. Starting with this quarter, we've introduced a line item inside real estate revenue that displays what we receive from direct financing leases and loans receivable apart from lease revenue; that line item is largely made up of income from leases that don't qualify as operating leases under accounting standards. Even with how the accounting presents it, we regard the income from those leases exactly the same as our lease revenues, and we note that it has been and continues to be part of our ABR. Now to the guidance we put out this morning. For 2022, our expectation is AFFO of $5.18 to $5.30 per share, which includes real estate AFFO of $5.03 to $5.15 per share, implying AFFO growth of just over 4% at the midpoint; that's predicated on expected investment volume of $1.5 billion to $2 billion. And as Jason mentioned, we already have solid visibility into more than $700 million of investments. On the timing of investment volume, our assumption is a fairly even pace of investment across the first half, with second-half investments weighted more heavily toward the fourth quarter; that factors in the expected timing for completion of capital projects, which you'll find in our supplemental. Disposition activity for the year should come to $250 million to $350 million, including some sales of vacant assets. Our AFFO guidance assumes lease termination and other income of $15 million to $20 million for the year. Right now we have visibility into a range of tenant negotiations that could lead to a significant portion of those payments being recognized in the first half of the year. G&A expense should be $86 million to $89 million in 2022, with a somewhat higher proportion in the first quarter, as is usual given the timing of payroll-related taxes. In 2022, cash dividends received, which sit in the non-operating income line item on our income statement, should come to approximately $5.2 million, all of it in the first quarter. That consists of the annual dividend on our investment in Lineage Logistics, plus the final dividend on our preferred equity and Watermark Lodging Trust, the surviving entity from our previously managed lodging funds. In January of this year, our preferred equity investment in Watermark, which was yielding 5%, was redeemed at par for $65 million. We're glad to have redeemed that investment at full value, and we will redeploy this capital accretively into our real estate portfolio. Even though we still own common shares in Watermark, our guidance doesn't factor in any common dividend being paid in 2022. Now turning to what we did in the capital markets and our balance sheet. As Jason mentioned, we stayed busy in the capital markets during 2021, bringing in debt and equity capital at attractive pricing. The $1.4 billion in bonds we issued carried a weighted average interest rate of roughly 1.7%, and that let us bring down our total cost of debt even more by refinancing, paying off $1.3 billion of secured and unsecured debt over the course of the year that had carried a weighted average interest rate of 3.5%. That steady reduction in our cost of debt has produced significant interest savings; for Q4, interest expense came in at $47.2 million, down $5.6 million from the same quarter last year; beyond bringing down our overall cost of debt, the debt we issued in 2021 also pushed our weighted average debt maturity out to 5.5 years, compared with 4.8 years at the close of 2020, and brought our secured debt to gross assets ratio down to only 2.2%, versus 7.2% 12 months earlier. Our balance sheet is still in great shape, with debt maturities nicely laddered, including only $70 million of mortgages coming due in 2022, which carry a weighted average interest rate of 3.8%, and our next bond doesn't mature until 2024. Our guidance assumes we keep paying off debt as it matures, and we've built no additional prepayment activity into our projections; we closed out the year with leverage comfortably inside our target ranges. Debt-to-gross assets stood at 40.1%, still at the low end of our target range in the mid to low 40s. Net debt to EBITDA came in at 5.7x, comfortably within our target range of mid to high 5x and lower than the 6.2x we had at the end of 2020. Our cash interest coverage ratio ranks among the best in the net lease peer group at 6.0x for the year, up significantly from 5.2x 12 months ago, which reflects both the lower cost of our debt and our earnings growth. In Q4, we issued equity by settling equity forward agreements totaling $240 million and brought in another $37 million through ATM issuance. And we've issued another $47 million under our ATM program thus far in 2022, before the recent volatility in the equity market. From a liquidity standpoint we're in a strong position, with $1.85 billion of total liquidity at year-end, including $300 million still left to settle on outstanding forward equity agreements, which gives us plenty of liquidity to execute on our deal pipeline and keeps significant flexibility around when we tap the capital markets; to wrap up, we're happy with how 2021 went, including record investment volume thanks to strong execution throughout our business, and we're looking forward to carrying that positive trajectory into 2022, backed by sustained investment activity, a tailwind from same-store growth, and the strength of our balance sheet. Having said all that, I'll now turn things over to the operator so we can take your questions.

Hello there, and good morning. Jason, when we look back at last year, your initial guidance for 2021 investment volume was set at $1 billion to $1.5 billion. What I'd like to understand is where the confidence comes from for guiding toward that bigger investment volume? Do you have any larger transactions in your pipeline right now?

Yes. Good morning, Sheila. The year has gotten off to a solid start for us. As we mentioned earlier, roughly $166 million has been closed year-to-date so far. A substantial pipeline of capital investment projects along with other commitments is set to wrap up during this year as well, totaling approximately $275 million. Combining those two figures, we've essentially secured $450 million in investment volume. On top of that, we also have a solid pipeline. At present, what I'd describe as more than $300 million worth of deals sit in what I'd call advanced stages. A large portion of those ought to close in Q1. Naturally, nothing is final until the ink is dry, but our expectations there are high. And past that, the pipeline keeps expanding. So we believe we're very well positioned for yet another record year of deal volume. We hold a great deal of confidence in our capacity to transact and in our standing within the market. And so we feel good about where we stand in relation to that $1.5 million the $2 billion range we just announced.

All right, that's helpful. Could you give us an update on where the CPA:18 matter currently stands? I realize specifics are hard to address, but the initial announcement came back in August. And should W. P. Carey turn out not to be the winner, roughly how large would the back-end fees be that we ought to factor in?

As far as the process goes, honestly, at this moment, my sense is that nothing fresh has come up beyond the filings made during the past couple of months; and clearly, should anything shift, everyone will be informed. Toni, I'm not sure whether you have figures regarding potential back-end fees. My guess is they would run into the tens of millions of dollars. Hundreds isn't where it lands. So, Toni, I don't know whether you can offer Shiela any more precise numbers?

Yeah, my sense is that's about the ceiling for us, since it really hinges on the particular deal.

Sure.

All right, thanks.

No problem.

Thanks. Jason, you said your leases tied to CPI would produce rent bumps of 2.5% to 3% starting sooner in this year. But your AFFO guidance sits at just 4%, even though you're projecting yet another record level of investment volume — why so modest a range, considering the organic growth you have available?

Yeah, that's correct. During 2022, contractual rent growth should land somewhere between 2.5% and 3%. There may be a bit of additional upside too, since CPI readings in the U.S., Europe, and the UK possibly arrived somewhat above what had been forecast. And yes, I believe we again have solid deal volume, somewhere from $1.5 billion to $2 billion. I'd note that we anticipate somewhat tighter spreads in 2022 as borrowing costs rise, and our cap rate assumption is roughly in line with last year's levels, perhaps a touch tighter. So if we capture stronger spreads, or perhaps cheaper debt, as the year unfolds, I believe that would definitely support our AFFO growth. In the same way, when it comes to deal volume, should it come in higher, or should we finish more transactions during the first half, timing matters. That, I think, could lift it too. Still, as things stand, that's roughly how we're modeling the year. I think it's worth pointing out as well that in this year we have somewhat elevated remaining lease obligations, or goals, for 2022 that won't get renewed. A portion of these, I believe, are short-term roll downs, since that's where we tenant those properties. Some, I think, are excellent redevelopment chances, and a few will end up as vacant sales, yet getting those through the pipeline will require some time; so we're early in the year. I think we should wait and observe how matters develop, and we're attempting to stay prudent regarding cap rate expectations and certain other assumptions; still, we're hopeful that progress is good, and perhaps there's an update later in the year allowing us to raise guidance should things head the right way.

All right. Could you give more detail on when that lag effect from the CPI increases hits, and how big it is? What I’m really asking is this: if you were writing 2023 contracts right now, what kind of increases would those be?

Toni, I’m not sure we’ve actually projected out that far. But do you want to take that one?

Absolutely, and I believe you're making a valid observation. The delay, as we've pointed out, has a significant effect when it comes to the way our CPI-based lease escalations flow through. Given the figures we observed this morning, or over the last several days, regarding inflation rates in both the U.S. and Europe, you should anticipate a notable increase during the latter half of the year, and that momentum would carry into the beginning of 2023. Since roughly the middle of this year, approximately 36% of our CPI-linked ABR has escalated, and it did so at only about a 3.2% rate. So once more, those aren't the headline numbers you're seeing now, sort of unfolding in the first quarter — we have an additional 40% of leases that we anticipate will increase. That will keep happening throughout the year, and as all of them undergo increases, it will of course hinge on where inflation heads. But we pointed to the 2.5% to 3% range in our comments, and I think that doesn't truly account for the possibility of going higher given what we've witnessed in the last day or 2. So we might see a trend upward toward the upper end of that range, or perhaps beyond it, and that is probably going to persist into the early part of '23.

All right, and the last thing I wanted to ask about is CPA:18. Could you go over again when that decision is expected to be made? Also, out of that $2.5 billion in AUM, how much of it are you looking to buy? And what cap rate would that probably come in at?

Sure. On the schedule — I'd say when the fund was launched, the general indication is 2022, though there's a great deal of latitude there. It isn't a fixed date or a cutoff. So the independent directors really have discretion over it. As for the portfolio, yes, it's roughly $2.5 billion in asset value, and I'd put about 20% of that as operating student housing assets, and there is some disclosure regarding this. Those sit under a lease agreement with a purchase option that, in my view, could reasonably be anticipated to be exercised alongside the change of control. That leaves, I'd say, approximately $2 billion of assets that would be involved in a transaction, or a long-term hold on our part, for that matter. On cap rate expectations, I don't believe there's much we can offer. There are likely some disclosures in the CPA:18 filings regarding NAVs and cash flows, but I don't think we'll be speculating about what — where that portfolio might trade.

That’s really helpful detail, thank you.

All right. Happy to help.

Yes. Thank you. Good morning. Jason, you brought up that 5.9% cap rate for 2021 and mentioned those had come down, though they appeared to level off during Q4. So where do you figure that puts you for 2022 when it comes to your investment volume?

Yes. I mean, that's a fair question. Rates have clearly been climbing, though we haven't yet witnessed cap rates move upward. Our sense is they're beginning to reach their floor. The speed of that compression has definitely eased off, I'd say; and our view is that they've either hit bottom or will soon, with a possible increase during the back half of the year, though typically there's a lag of a quarter or two before interest rate shifts show up. Yes, for 2021 we were in the high 5s. And I'd say that's a sensible assumption for 2022 given our pipeline and our best estimate of visibility into how rates will move across the year. It might come in slightly tighter should there be heavier weighting toward deals in the first half of the year. But I'd say that's likely a sensible figure to keep in mind.

All right. Then I wanted to ask about the deals you closed during the quarter — I realize the amounts are quite tiny — specifically those Outfront transactions. Did those involve billboards? I'm just wondering what your thinking is there, and whether this is a new thing for you or if you'd already owned some of these before?

Yes. Regarding the Outfront Media transaction, these are modest in size and consist of outdoor advertising billboards; our funding of them happens alongside an operating partner, and ultimately they should end up leased through long-term agreements backed by strong credit. There isn't much internal effort required on our end because of how the partnership is structured. At present it's on a small scale, though I believe the jury is still out, yet we see possible opportunity to pursue something more substantial there and would like to watch how it evolves as time goes on.

All right, thank you; and then perhaps just one final item for Toni, only to confirm I have this particular point correct, in light of a few of the shifts in the line items on the income statement. So, the $7.8 million of, I suppose, other income that you left in AFFO, you're indicating that on a forward-looking basis for 2022. Is that what lines up with the $15 million to $20 million of, like, lease term other that you'll have in AFFO for '22?

That is right; so the total in AFFO for the entire year '21 came to roughly $16 million, and that is compared with the $15 million to $20 million that we've included in our guidance expectations.

All right, understood. Thanks very much.

Hello, thanks. We did already touch on some commentary around cap rates, I realize. What I was hoping for was a bit more granularity regarding what you observed on that front during early '22. Are there any clear variations by property type, or is it mostly that you have visibility into activity in the UK — Europe, pardon me, of course — and then the U.S. as well?

Sure. My view is that no meaningful divergence exists in how these markets are trending. Across essentially every market, we watched cap rates tighten through 2021. That tightening, I believe, carried forward into the start of this year. That said, as I noted earlier, it seems to be flattening out. We continue to observe — how should I put it — cap rates in Europe remaining perhaps marginally lower, yet we still enjoy the advantage of cheaper debt costs there. That, I'd argue, translates into stronger spread potential possibly in the UK. That may be a single market where increases in rates have occurred at a faster pace compared with cap rates. So we monitor that closely, though simultaneously we continue to find certain opportunities in that region.

All right; and turning to the capital investments you have coming up, could you explain how you folks become at ease with extending credit for outdoor advertising? I'm simply interested in which metrics you examined, and whether the fundamentals or yields in that area differ from those of conventional net lease?

Yeah. My sense is they're somewhat stronger than what we have observed. Whatever we're doing there remains at a very early stage. As was mentioned earlier, it's pretty tiny. In this instance, the credit is Outfront media, a publicly traded business and among the leaders in the market. So in the end, here's how the transaction functions: some funding occurs while construction is underway, and afterward it turns into a lease eventually at a rental figure determined by formula, so as to deliver a certain amount of coverage — and as I mentioned, it's minor, making no impact whatsoever at present, and possibly later on across the coming couple of years, it might generate additional deal volume for us; that's roughly the concept.

All right, that’s clear. If I could squeeze in one more question. You significantly sped up outside expansion during ‘22, and you’ve indicated that will keep going through ‘22. Over a longer horizon, though, do you believe an 8% to 9% growth rate suits your company, or are there internal discussions about potentially matching more of the double-digit pace seen among some peers like or store? I’m just wondering whether those talks are happening at all.

Yeah, absolutely. I mean, we definitely expect to keep up this amount of deal activity. I believe we’re looking at fresh concepts and fresh methods for finding deals that we hope might create some upside beyond that; but broadly, if you consider 2021 as an example, we delivered roughly 11% to 12% combined AFFO growth and dividend yield. And our hope and expectation, I think, is to produce something greater than 10% on a continuing basis. And one factor that sets us apart from many peers, I think, is our ability to generate substantial growth via internal lease bumps, particularly during an inflationary stretch such as the one we’re in now. And in many respects, I think growth stemming from internal leases is likely of better quality. It’s more repeatable. There’s greater visibility into what you might see annually, driven by investment volume. Most peers, I’d say, depend mainly or nearly completely on outside deal volumes to deliver earnings growth, which is somewhat different from our approach; so we do consider headline deal volume figures and how they translate into earnings growth, but other elements matter too, I think, for people to pay attention to when evaluating investment in us.

Okay, great. Thank you.

You’re welcome.

Good morning.

Good morning, John.