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

Hello, and welcome to this call hosted by W. P. Carey to discuss this morning's announcement. My name is Kevin, and I'll be your operator today. [Operator Instructions] Please note that today's event is being recorded. After today's prepared remarks, we will be taking questions via the phone line. Instructions on how to do so will be given at the appropriate time. It's now my pleasure to turn the program over to Peter Sands, Head of Investor Relations. Mr. Sands, please go ahead.

Thank you for joining us. Before we begin, I want to remind everyone that some of the statements made on this call are not historic facts and may be deemed forward-looking statements. Factors that may cause actual results to differ materially from W. P. Carey's expectations are provided in our SEC filings. The consummation of the spin-off and the Office Sale Program are both subject to various conditions and assumptions and may not occur on the anticipated timing or at all, and any changes to either could impact statements made on this call. Please note the discussion on the anticipated impacts to W. P. Carey's balance sheet and earnings, assume that the spin-off and sales of office assets contemplated by the Office Sale Program occur on the anticipated timeline. An online replay of this conference call will be made available in the Investor Relations section of our website at wpcarey.com, or it will be archived for approximately one year and where you can also find an investor presentation regarding our strategic plan to exit office. And with that, I will hand the call over to our Chief Executive Officer, Jason Fox.

Thank you for joining us on this call to discuss our strategic plan to exit our remaining office assets. While we've meaningfully reduced our office exposure in recent years, the plan we've announced vastly accelerates our exit from office and clarifies our path going forward. We believe exiting our remaining office assets will enhance the overall quality of our portfolio with warehouse and industrial assets expected to generate over 60% of our remaining ABR. Accordingly, the quality and stability of our earnings and cash flows will be improved through better end-of-lease outcomes, including higher re-leasing spreads and lower CapEx requirements. It will also incrementally benefit W.P. Carey's credit profile without meaningfully impacting our leverage metrics. Ultimately, we believe that we'll be better positioned for earnings growth with a higher valuation multiple and an improved cost of capital. Going to touch upon several topics on this call, including an overview of the exit plan itself, the business strategy for the office REIT being spun off and the key benefits to W. P. Carey. I'm joined by our CFO, Toni Sanzone, who will cover the expected impacts to W. P. Carey's balance sheet, earnings and dividend as well as some high-level details about the portfolio and balance sheet of the office REIT being spun-off. John Park, our President; and Brooks Gordon, our Head of Asset Management, are also on the line and available to take questions. We have a good amount of cover. So let's bring in, starting with an overview of our strategic plan and how it provides W. P. Carey with a clear path to exiting office. The majority of our office assets will be spun off into a publicly traded REIT called Net Lease Office Properties, which is expected to trade under the ticker NLOP and we will refer to as either SpinCo or NLOP on this call. The assets being contributed to SpinCo represent roughly 10% of our current ABR and considerably less on an enterprise value basis. As a separate company, NLOP will pursue its own business strategy, focused on realizing value for its shareholders through the strategic asset management and disposition of its assets. We believe a measured and thoughtful sell-down of assets over the next few years will maximize the value realized for shareholders. In conjunction with the spin-off, NLOP will encumber the majority of its assets with financing provided by JPMorgan, the net proceeds of which will be distributed back to W. P. Carey. We expect NLOP to pay distributions to its shareholders from its operating cash flows and disposition proceeds after first repaying the financing associated with the spin-off. W. P. Carey will act as NLOP's external advisor, a decision that was based on our asset management team's in-depth knowledge of the assets, the desire to maintain efficiency and a timeline for executing its business plan. Upon completion of the spin-off, W. P. Carey stockholders will own shares of both W. P. Carey and NLOP via a pro rata special distribution, which is expected to be taxable for U.S. federal income tax purposes. Spin-off does not require approval by W. P. Carey shareholders and we anticipate that will occur on or around November 1, subject to certain closing conditions. The second component of the exit plan is an Office Sale Program, certain office assets will be retained on W. P. Carey's balance sheet and disposed off in the near term. They're mostly international assets and selling them directly from our balance sheet is the most tax-efficient approach. Assets being sold under the Office Sale Program represent about 5% of our total ABR, within that I'm pleased to say that we've already sold or in the advanced stages of selling assets representing over half on an ABR basis. In July, we closed on the sale of our second largest office asset, which served as the headquarters for the largest provider of digital pay television in Spain. More recently, we signed an agreement to sell our largest office asset which has a government tenant and a significant remaining lease term and alone represents over 40% of the ABR within the Office Sale Program. We expect to complete its sale in January of 2024, subject to certain final approvals. The rest of the assets in the Office Sale Program are targeted for sale by the end of this year, positioning us for higher growth off a more stable earnings base in 2024. I'd like to turn now to the key benefits of the office exit plan for W. P. Carey and why we believe it will create long-term value for our shareholders and better position us for earnings growth through an improved cost of capital. I want to note, however, that today's announcement is not a shift in W.P. Carey's business strategy, but rather an extension of our current approach, reducing our office exposure, something we started well before the pandemic and its impact on the office sector. Over that time, we focused on acquiring other property types, primarily warehouse and industrial, while also disposing of select office assets. This has taken our office exposure down from over 30% of ABR in 2015 to 16% currently. And as I said, the plan we've announced today greatly accelerates that trajectory. Going forward, our business strategy will remain focused on maximizing growth both externally through accretive investments with attractive returns and internally through our sector-leading contractual same-store rent growth. We will continue to follow a diversified approach to enhance the value and quality of our portfolio through proactive asset management, maintaining a strong and flexible investment-grade balance sheet with access to multiple forms of capital will also remain a central part of our strategy. In this context, we believe the benefits of exiting office for W. P. Carey and our shareholders are very clear. It will result in a higher quality portfolio that commands a premium valuation to one that includes office. The rents we generate from warehouse and industrial properties, for example, will meaningfully increase to 62% of our total ABR. Exiting office enhances the criticality of our portfolio and the quality of our cash flows through better end-of-lease outcomes, including higher overall re-leasing spreads, reduced downtimes and carrying costs and lower CapEx requirements. Churn of our portfolio metrics will also improve by exiting office, including our weighted average lease term, while other key metrics will remain in line with our current levels, including a low top 10 tenant concentration, high occupancy in a well-diversified tenant industry and geographic mix. Finally, we believe our exit from office will be a catalyst for the re-rating of our cost of capital, enabling W.P. Carey to further extend its leadership among the highest quality diversified net lease REITs. We expect our actions to broaden our appeal to both debt and equity investors, resulting in a lower cost of capital, wider investment spreads and an enhanced earnings growth profile. I'm going to hand the call over to Toni now to talk about the expected initial impacts of the spin-off on our balance sheet and how to think about the expected impacts of each of the spin-off and the Office Sale Program on our earnings.

Thank you, Jason. From a balance sheet perspective, after the spin-off, we expect to continue operating within our current leverage target of mid- to high 5x on net debt-to-EBITDA and low to mid-40s on debt-to-gross assets. Recognizing that the specific timing of asset sales could influence where we end up within those ranges at the end of a given quarter. Upon the consummation of the spin-off, we estimate that we will receive net proceeds from the NLOP financing of approximately $350 million after required capital reserves and transaction costs. In conjunction with the spin-off, we plan to settle all of our outstanding equity forwards, generating approximately $385 million in net proceeds. We expect our secured debt to gross assets ratio to remain in line with pre-spin levels and our covenants to remain well below their threshold. We also believe our separation from office is a credit positive. We expect the rating agencies to share that view and to maintain our ratings at Baa1 and BBB+, and we will continue to have one of the largest balance sheets among the publicly traded REITs in the RMZ index. Moving now to the anticipated impact on our earnings, starting with the expected initial run rate impact on our total AFFO followed by the specific impact we expect on our per share AFFO guidance range for 2023. There are a handful of moving pieces to get to the run rate impacts on our AFFO, so it's helpful to divide them into 3 buckets. First, the impacts on asset level revenues and expenses. Second, the impact of the cash W.P. Carey is expected to receive, both from the NLOP distribution and settling our outstanding equity forwards. And third, the fees and reimbursements we expect to receive for managing NLOP. Starting with the expected impact on asset level revenue and expenses. Upon completion of the spin-off, currently expected on or around November 1, SpinCo's office assets would, of course, immediately stop contributing to W. P. Carey's earnings. NLOP's office assets currently generate ABR totaling $141 million, and the portfolio has approximately $170 million of mortgage debt at a weighted average interest rate of 4.8%. Given the primarily triple net nature of the assets, they have minimal property expenses and taxes associated with them, totaling around $6 million for property expense and approximately $1 million for income taxes on an annual basis. In addition, given the composition of our portfolio after exiting office, we expect to reduce other lease-related income by about $8 million annually compared to pre-spin 2023. Assets under the Office Sale Program will stop contributing to W. P. Carey's earnings over the next few months as they're sold. It's helpful to think of this portfolio in 2 parts: our largest office asset, which is leased to the Spanish government and everything else. The Spanish government portfolio generates $32 million of ABR, has no mortgage debt and property expenses and taxes totaling just under $3 million and $1.5 million, respectively, on an annual basis. As Jason noted, we currently have a signed agreement for the sale of this portfolio and expect it to be sold by January 2024, subject to certain final approvals. Aside from this portfolio, all the other assets in the Office Sale Program generate ABR totaling around $45 million and have mortgage debt of $140 million at a weighted average interest rate of 4.8%. And we estimate property expenses and income taxes for this portion of the portfolio to be just under $3 million for each or $6 million in total on an annual basis. The second bucket of impact to our AFFO relates to the cash W.P. Carey anticipates receiving both from the distribution by SpinCo and from settling our equity forwards. As I mentioned, we expect to receive an approximately $350 million distribution from NLOP in conjunction with its spin-off and to settle all the shares outstanding under our unsettled equity forwards, generating aggregate proceeds of roughly $385 million and adding 4.7 million shares to our diluted share count at the time of the spin. Ultimately, the specific impact on our earnings from these cash inflows will be determined by how and when we deploy the capital. From a balance sheet perspective, we gained considerable flexibility from these cash inflows with options that include providing capital to fund our external growth, meaningfully de-risking our equity requirements for 2024 or prepaying certain upcoming debt maturities. The third bucket of impacts on our AFFO relates to the fees and reimbursements we will receive for managing NLOP after the spin-off. Comprising an asset management fee that will start at an initial annual rate of $7.5 million, although it will immediately decline as NLOP's assets are sold and a $4 million annual G&A reimbursement that will remain flat over time. Pausing there, while there are several parts to it, the points I just covered isolate the key impact of the spin-off and Office Sale Program on our revenues and expenses, and therefore, provide the building blocks to estimate the initial run rate impacts on our AFFO. Turning now to the anticipated impacts on our 2023 AFFO guidance range specifically, which we expect to be relatively limited given where we are in the year. Currently, we estimate a reduction of between $0.12 and $0.14 per diluted share to our 2023 AFFO guidance depending on the exact timing of asset sales under the Office Sale Program, which would translate to a revised anticipated 2023 AFFO range between $5.18 and $5.26 per share to reflect the spin-off and asset sales under the Office Sale Program in 2023. Please note, however, that the $0.12 to $0.14 estimate is driven by the assumed timing of the spin-off and the back-end weighting of the on-balance sheet office sales and is not a run rate concept so it cannot be annualized or used as a guide to the impacts on 2024 AFFO. We will provide any updates to the regular assumptions embedded in our 2023 AFFO guidance with our next earnings announcement in early November, as we typically do, when we will have greater visibility into year-end, and we will separately provide guidance on 2024 when we report our fourth quarter earnings in February. Lastly, on guidance, our 2023 AFFO guidance continues to assume ordinary course disposition activity for 2023 totaling between $300 million and $400 million, although we are currently trending towards the lower end of that range. Dispositions under the Office Sale Program would be on top of that, of course, potentially adding around $800 million of dispositions between now and the end of January based on the plan we've laid out today. This, in addition to the proceeds we expect to receive from the NLOP distribution and settlement of our equity forwards, provides us with an exceptionally strong liquidity position to help manage our upcoming debt maturities and continue investing in 2023 and 2024. Moving now to our dividend. After spinning off NLOP, we intend to reset our dividend, reflecting both the reductions to our AFFO that I just discussed and a lower targeted AFFO payout ratio, which we expect to be in the low to mid-70% range. This will enable us to retain higher cash flow going forward, which can be accretively reinvested to further drive AFFO growth. In terms of timing, please note that this change to our dividend will not take effect until after we complete NLOP's spin-off and therefore, does not affect our third quarter dividend, which we announced last week and will be paid on October 16. Before I turn it back to Jason for closing remarks, I want to provide a few additional details on SpinCo's portfolio and balance sheet. NLOP will own a portfolio of 59 high-quality single-tenant net lease office properties, the vast majority of which will be located in the U.S., except for 5 assets in Europe. It will be well diversified by tenant industry and favorably weighted to investment-grade tenants with well-staggered lease maturities. In addition to approximately $170 million of existing mortgage debt, NLOP is expected to have $455 million of third-party debt comprising a $335 million secured loan on 40 office assets and a $120 million mezzanine loan. The combined financing has a loan-to-value ratio of 43% based on recent appraisals on 40 office assets, representing a valuation of approximately $163 per square foot. This excludes the remaining 19 assets covering 2.1 million square feet, which were not appraised. Additional information on the office assets that will form NLOP can be found on its Form-10 registration statement available on the SEC's EDGAR website as well as in our investor presentation. And with that, I will turn the call back to Jason for some closing remarks.

Thanks, Toni. In closing, I'd like to briefly reiterate the key benefits we expect from exiting office and how it will position us for future growth. First and foremost, we believe it will enhance the quality and stability of our earnings and cash flows through better end-of-lease outcomes, including higher overall re-leasing spreads. We will retain a portfolio of focus on asset types that have stronger fundamentals and greater appeal to investors. In fact, we believe it will be among the highest quality portfolios in our net lease peer group, comprised of assets in the most attractive property types on leases with the most favorable rent-escalation structures and with one of the longest weighted average lease terms. We'll also strengthen our credit profile with greater stability and less downside risk to our cash flows and improve or maintain our most important portfolio metrics. We expect it to be leverage neutral, supporting our BBB+ rating while also creating additional near-term liquidity through asset sale proceeds. Importantly, we believe it will be a catalyst for lowering our cost of capital and widening our investment spreads. Ultimately, in conjunction with our sector-leading same-store rent growth, the strength of our competitive position in the sale leaseback market and the various forms of capital available to us, including from internal sources, we believe the strategic plan we've laid out better positions us for long-term value creation for our shareholders. And with that, I'll hand the call back to the operator for questions.

[Operator Instructions] Our first question is coming from R.J. Milligan from Raymond James.

Toni, I know you gave the building blocks of impacts to AFFO. And I was wondering if you could give a little bit more color. I understand the second one is dependent on what you do with the cash proceeds, whether you reinvest it or pay down debt, but can you talk about the AFFO per share impacts of the first bucket losing the asset-level revenues? And then the third, which was the income from NLOP.

Yes. I think as you highlighted, we gave kind of the building blocks in total dollars. And I think we did not give the per share impact predominantly because it does depend on how we redeploy the capital. So again, whether we're doing debt or equity and this -- we did mention that this does derisk our equity requirements for next year. So those are actually assumptions that we're not getting into at this point. It's something we'll give a little more color on when we get into 2024 guidance. But I think what you have should be sufficient on a dollar basis to really get there and just to recap the spin, we provided the ABR, the expenses, which we expect to take effect November 1 and the balance sheet sales largely through year-end and into the -- January.

Got it. So no initial sort of run rate guidance at this point to sort of -- taking the building blocks that you gave us...

No, not at this point.

Got it. And so really the big assumption, though, for -- sorry, I was just going to say the big assumption is what -- how we deploy the cash proceeds. Is that the sort of the lever that's unknown?

That's really the only missing piece we haven't provided. I think we typically do, we'll get into our investment assumptions and our capital markets activity as we get closer to the end of the year and into next year. We were able to isolate that for 2023 on a per share basis. And as I mentioned in my remarks, it is important to remember we can't annualize that concept. I think just because of some of the timing there, there was probably a more outsized adjustment in the other lease-related income that runs through the $0.12 to $0.14 that we highlighted for 2023. And so that's probably one of the more significant components that you can't annualize there. But I think in large part, the ABR from the spin and the expenses on the spin from that component can be annualized.

That's helpful. One follow-up, and I'll get back in the queue. But can you provide what the initial AFFO is for NLOP, and what the leverage is?

Well, we have not given yet the distribution ratio, the spin ratio yet. So we don't have a per share AFFO for spin at this point. The pro-forma financials are included in the Form-10, so you can get a good view at how the adjustments would run through it, what the company would look like with Fed debt there. What was the second part of your question there?

Just what the leverage was, but I think you answered that question.

Yes, R.J. There's a lot of disclosure in the Form-10. You should be able to piece that together when you dig-in in particular, there's a lot of detail on the financing that we've secured a commitment for.

Your next question is coming from Eric Wolfe from Citi.

Nick Joseph here with Eric. Sorry, just going back to kind of the strategic rationale behind this. I think you previously talked about kind of confidence in the office portfolio, and I think you mentioned it on this last quarter as well. So why spin now? Why not just sell these assets over a multiyear period yourself? And then in terms of the assets that you're attaining versus spinning. Is there a difference in the ability to sell or your view of the ability to sell over the next few years?

Yes, look, we've talked about decreasing our office now for some time. And I think at this point, maybe a single portfolio buyer for all the office assets would be our first choice, but in the current office environment, there's a very limited buyer pool for a portfolio of this size and diversity. So it's not realistic scenario. You mentioned could we sell down assets one by one off our balance sheet and I think that would likely take a number of years and probably be impactful to our growth and cost of capital. So really, the decision to spin-off assets into NLOP was driven by our desire to control and expiate the timing, essentially rip off the Band-Aid here and to optimize value of the office assets that we do sell in NLOP. So I think importantly, the spin does provide this immediate separation at the majority of our office portfolio. You asked about the Office Sale Program and why we've included some of the office assets in that. And really for 2 reasons. I think number one, the sale processes are well underway for the majority of those assets. I think we expect them to be sold in the near term, likely by the end of January. Toni mentioned that our second largest office asset has been sold, our largest is under agreement to be sold. I think the remaining, as I've mentioned, we'll target, hopefully, by the end of this year. So that's a big part of the driver is that they're well underway. I think the second component is that there are meaningful tax efficiencies that we can realize by selling off our balance sheet rather than spinning and then eventually selling and these are predominantly international assets. But the goal here is to separate from office assets completely. I think the spin -- the combination of the spin in this office sale program, we'll do that in a pretty expedited fashion.

That's helpful. And sorry if I missed it, but what's the total cost associated with the spin?

Toni, do you want to walk through that?

The transaction expense -- yes, I think the total transaction expenses are about $57 million, and I'd say more than half of that is related to the financing.

Your next question is coming from Jim Kammert from Evercore ISI.

Just clarifying if you could, what is the rationale for settling the proceeds on the forward currently? Are you indicating anything about sort of the acquisition pipeline? Or are you just going to pay off debt?

I think it's actually a little simpler than that -- yes, I can cover that. I think the answer there is really much more simple and just really more technical in nature. I think for us, we evaluated kind of the options and we're always looking to deploy that capital accretively, as you know. But I think just with the spin in line of sight here. For technical reasons, it was just simpler to settle it pre-spin as opposed to post-spin. So I think we still have a considerable amount of flexibility in terms of how we deploy that capital, and we'll continue to kind of monitor our cash needs and how that gets deployed. But it was really more driven by the technicality of it.

Okay. And then quickly, I presume, given the implied cap rate on the retained assets, which is a very helpful disclosure, work through to [ 10% ], trying to figure it out for the NLOP. But is it safe to assume that there's no cap gains require -- you're selling these basically, probably a loss to book basis overall. So it won't be a cap gain distribution requirement by W. P. Carey associated with the 2 transactions.

Toni, do you want to take that?

Yes. I think that there's a mix of assets here. I think the distribution itself for NLOP assets is expected to be a taxable transaction. It will be something that is evaluated along with the rest of our taxable income for the year, but it is expected to be a taxable transaction. Each of the individual assets that we're selling on balance sheet have unique characteristics as far as tax gains or losses, and will certainly depend on where we sell them. But that has all been factored into our projections here.

[Operator Instructions] Our next question is a follow-up from R.J. Milligan from Raymond James.

A couple of follow-ups. So it looks like the proceeds from the Office Sale Program sort of implies an [ 8.3% ] cap rate. Is that in the right range?

Brooks, any comment on that?

Sure. I think that's directionally right. I think it depends on the specific execution of each deal, but we do expect kind of high single-digits blended average cap rate for the Office Sale Program.

And then, Jason, you mentioned that you believe that the transaction will be a credit positive and viewed that way. I'm just curious in your discussions with the rating agencies, if the office exposure maybe prompted this transaction or if there were any concerns about a potential credit downgrade just given the outsized office exposure?

No. I think this is status quo -- I think your question is the status quo, if we didn't do something like this was -- our rating at risk. And we didn't -- we have no indication from either rating agency that, that would be the case. And yes, I think that our expectation is, on a go-forward basis, this is a credit positive. I don't think it's going to lead to an upgrade necessarily. But I think if you look at the metrics and certainly the portfolio composition without office assets. I think that they'll look at this as a credit positive.

And my final question, just to follow up on Jim's question about tax implications. Are there any tax implications to W. P. Carey on this transaction?

Toni, is that something you can cover?

Yes. I think we've sort of highlighted all of the impacts from an AFFO standpoint in terms of taxable income. Again, we're -- we are looking to reset our dividend post-spin and we evaluate kind of the level of taxable income in line with that. But I think there's really no internal, other than the transaction costs that like I mentioned before. So embedded in there, there are some transfer tax, et cetera, that would be embedded there, but no other real tax implications outside of the taxable income that we're discussing.

Your next question today is coming from Eric Borden from BMO Capital Markets.

I just wanted to go back to the strategic rationale and kind of the thought process behind separating the 2 assets and moving the office into the SpinCo just given that things seem to be going fine. And same-store NOI or same-store ABR is expected to be 3% in 2024, which is much better than your peer set.

So the question is why are we separating from office at all given that we have a lot of positives with the remainder of the portfolio. Is that the question?

Yes. Just given the strength in the portfolio, just kind of your thoughts around why we -- why separate the 2 and create more complexity with the 2 companies within the ABR and the dividend cut?

Yes. Look, I don't disagree. I think the portfolio itself has a lot of strong attributes to it. But I think it's hard to argue that separating out office or maybe said differently, it's hard to imagine a scenery in which a portfolio, after removing the office assets, won't be valued higher or trade at a higher multiple. So we view this as a positive to remove the weakest component of our portfolio set. But yes, I think we have a great portfolio going forward and maybe one of the highest within the net lease sector, 62% weighted to industrial and warehouse, we'll have about a 12-year WALT. And as you mentioned, sector-leading same-store rent growth with about 55% of our leases linked to CPI, with the remainder on fixed increase. So we're set up very well for growth. And I think this is only going to enhance that growth profile when we remove what historically has been a drag on our growth. In terms of the complexities, by separating into an externally managed REIT, I think that's the -- we're really using that structure to expedite the office exit in the most efficient way we can. And maybe your question implies, did we consider or should we have considered an internally managed vehicle. That would have been costly. I think it would have been very difficult to put a new management team together to run that. And really, the external management agreement is appropriate given NLOP's business plan. It's not a growing business, we'll not need to raise new capital. And we think that we've structured a pretty simple and efficient management structure for NLOP and it's finite in nature. And I think lastly, everything that we'll do for NLOP is going to be done within mainly our asset management team, who has always overseen our strategic asset management and disposition strategy for any of our assets for that matter. So nothing will change there, and we think it will be pretty seamless.

Okay, that's helpful. And then one last one for me. Just on the initial SpinCo and the NLOP, just curious on your thoughts, just given the lower wallet in that portfolio, what is your thoughts for that piece? Will you look to renew those leases or will you potentially sell down those assets and try to recoup distribution?

I think it will be a combination. Brooks, do you want to provide any color there?

Sure. I mean the vast majority of the assets in NLOP don't require incremental asset-level activity. There's certainly some great opportunities to create some value and extend leases and then exit, but the large majority, we're going to exit those in an orderly manner, and we're really hitting the ground running there. So we're making good progress on that, sort of already.

Next question is coming from Mr. Germain from JMP Securities.

Jason, how should we think about the remaining internal growth of the portfolio in terms of how much is tied to CPI?

I don't think it changes substantially. I think it's going to be -- around 55% is tied to CPI, with the vast majority of the remaining 45% on fixed annual increases that have historically averaged, call it, in and around 2%. And as we've talked about before, I think our new leases that we're signing are above that. In fact, year-to-date this year, they've been around 3% for fixed increases. So from a contractual growth standpoint, I don't think this changes that much, I think, from the other metric that we disclose, comprehensive same-store growth, I think you should see a positive effect from this. The office assets historically have provided the biggest drag to our re-leasing spreads. I think it's been historically averaged in the high 80s versus the rest of the portfolio is just below 100%. So I think you also should see a pickup over time in our re-leasing spreads, which will lead to better comprehensive same-store growth as well.

Appreciate that. Does that stay consistent when the next batch of office -- the on-balance sheet office is sold? Is that including -- is that assuming that those assets are sold? Or is that what the portfolio looks like post-spin?

Yes. That's post-spin. But again, the Office Sale Program, we expect to complete that quite quickly, much of it is underway. Our second largest office asset is sold, the largest one is under agreement to be sold. And the rest of it, we would expect that we could complete the sales by the end of this year. So probably by early 2024, we'll be done with that. The caveat is it's an uncertain office market, but that's the expectation. So we should see the kind of run rate growth pickup beginning in 2024.

Got you. And then last question. I'm curious about the dividend policy. I recognize that that's at the Board level. But given your positive sentiment on the remaining portfolio, it does seem like it's a little bit of a reduction from the way that you've approached your dividend policy today. So can you provide some context around that?

Yes. Toni, do you want to touch it down?

Sure. Yes. I think over time, we've been trying to maintain our payout ratio. And as you well know, with our strategy in the long term, we've moved away from the investment management fee streams. And I think we're looking at this as an opportunity to really reset the payout ratio at a level that we feel comfortable with and one where we can retain a higher amount of cash flow. I think certainly, in this environment, it's an added source of capital for us that we can use to fund investments accretively and effectively lower our cost of capital. So I think that's really the analysis that we did to kind of arrive at sort of the reset and it's all driven by trying to get the payout ratio in the low to mid-70% range. And I think that will also align us with our peers and perhaps it can put us ahead of our peers and some of that in the net lease peer group.

Next question today is coming from Anthony Paolone from JPMorgan.

Just these transactions shrink the company and reset the dividend. So, just I guess 2 things. One, what does it do to overhead on a go-forward basis in total? And two, how does it change your view, if any, on the operating assets and what's been, I guess, roughly about $2 billion of sort of noncore, other stuff outside of office and the thinking there?

Yes. Let me touch on the second question. I'll let Toni Sanzone handle the first question. I think our approach to the noncore operating assets, this is mainly self-storage as you referenced, there's a little bit of kind of legacy CPA:18 and because of student housing asset or 2 and a hotel, mainly the Marriott that we mentioned before. I don't think this changes any of that. I think we've looked at that as at least with the hotel and the student housing as noncore. I think it's a great source of capital for us. They should trade at levels at least with student housing inside of where we're investing in net lease. So I think at some point in time, we can look to monetize that and do that accretive trade. I think with storage, maybe that's a little bit different. We've always -- we've been invested in this space for a long time. We think it's a great portfolio. It has a lot of things that we like about net lease, including stable cash flows throughout cycles, low CapEx and the ability to really index rents to inflation, given the kind of duration of those monthly contracts. So I think that we can be flexible there. We've talked about converting some of that to net lease in the past. I think we've also talked maybe more recently about actively exploring selling some of that if we think that's the best way to fund deals. Again, like student housing, I think self-storage. There's a deep buyer pool, cap rates are still well inside of where we could reinvest into net lease. So I think that's a great option for us as a potential funding source for new net lease transactions to the extent we think that's the best way to fund it. So not a lot of change there. Toni, do you want to talk about G&A, given the smaller asset base?

Sure. Yes, I think the way that we're looking at this is really net neutral to our G&A and our overall cost structure. I think while certainly, there's a balance sheet impact and with the office assets going away. We've always talked about how we have a pretty scalable business model, and I think we would look to reinvest in additional assets. So effectively, we're replacing the office assets with more industrial and warehouse going forward. And I think with that, we don't really expect a material change in our cost structure. We do plan to utilize our existing team and our platform to manage the assets that are in the SpinCo through NLOP and we are going to receive asset management fees and an administrative reimbursement to cover the cost of that personnel. But like I said, really, in the long term, we do continue to expect to grow our balance sheet here. So I think no real change as a result of this.

We reached the end of our question-and-answer session. I'd like to turn the floor back over to Peter for any further or closing comments.

Thanks, everyone, for joining us and for your interest in W. P. Carey. If you have additional questions, please call Investor Relations directly on (212) 492-1110. And that concludes this morning's call.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.