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

Hello, everyone, and thanks for being with us today for our Third Quarter Earnings Call. Prior to getting started, please note that certain remarks on this call are not historical facts and might be considered forward-looking statements. Factors that may lead actual results to differ materially from W. P. Carey's expectations are described in our SEC filings. A web replay of this conference call will be accessible in the Investor Relations section of our website at wpcarey.com, where it will stay archived for roughly one year, and where copies of our investor presentations and other related materials can also be found. With that, I'll turn the call over to our Chief Executive Officer, Jason Fox.

Thanks, Peter, and good morning to all of you. Today I'll touch on a handful of areas: first the state of transactions, then how much we've invested so far, and how strong our deal pipeline looks. I'll also discuss tenant credit, with an update on a few of our largest tenants. With me are Toni Sanzone, our CFO, who'll walk through our third quarter results, guidance, and balance sheet, and Brooks Gordon, who leads Asset Management and will handle questions. Turning to the transaction environment: since summer ended, overall activity has picked up nicely and we're gaining more traction on deals, which keeps us squarely on pace to hit the midpoint of our full-year investment volume guidance. In Q3 we closed $167 million of new investments, which mirrors the typical late-summer lull. Since then, though, we've closed another $231 million, bringing our year-to-date volume to roughly $1 billion. While the market does seem more open, competition has also crept up, and sellers still expect rates to fall below where they've sat for most of 2024; as a result, we're noticing some cap rate pressure, even with the very recent move higher in interest rates. Deals continue to come in averaging in the mid-sevens, versus earlier this year when they generally averaged in the high sevens. So far this year, our closed investments show a 7.6% weighted average going in cap rate and an average yield above 9% once rent bumps are included, though we keep underwriting deals across a range of cap rates given our diversified approach. I'm happy to report our pipeline is very active right now, with identified deals totaling more than $500 million. Versus the two previous quarters, we're working through or reviewing more deals in both North America and Europe, though the bulk of our identified pipeline currently sits in North America. With the visibility we have now, we're confident we'll reach the $1.5 billion midpoint of our full-year investment volume guidance. And depending on when closings ultimately land, we could see a path into the top half of our $1.25-$1.75 billion range. We're encouraged by how strong the pipeline is today, and no matter which side of year-end these deals close on, they'll add positively to our AFFO growth in 2025. Average cap rates and average yields for the identified deals in our pipeline are fairly consistent with what we've closed year-to-date, so we don't anticipate a meaningful shift in our overall weighted average cap rate for the full year. Most of the deals we've closed this year look like those we've done before, focused on industrial and warehouse assets. We're also aiming to drive additional deal volume in U.S. On the retail side, we’ve got a team that’s solely dedicated to that asset class. U.S. retail is obviously among the largest components of the net lease sector, and our view is that we can generate additional transaction volume there through investments matching our return targets and underwriting standards. By adding more retail into our portfolio, we’ll become more diversified and, just as important, widen the set of opportunities we can pursue. Right now we aren’t heavily exposed to U.S. retail tenants or concepts, which works in our favor, and we’re seeing retailers and developers increasingly seek to broaden their buyer base as a way to reduce reliance on their existing landlords—a shift we are positioned to capitalize on. On top of that, we anticipate retail will be a segment of the net lease market where a larger share of transactions come through buying existing leases, which typically close faster than, for instance, leasebacks, giving us more predictability around deal timing. Now shifting to our capital requirements, one key thing I want to stress is that we don’t have to issue equity or exceed our long-term leverage target ranges in order to finance our investment pipeline this year and possibly through all of next year. As of the end of Q3, we held slightly more than $800 million in cash on the balance sheet and anticipate generating further disposition proceeds in Q4. We also have a $2 billion revolver with very little drawn on it, and we remain under our long-term leverage objectives, especially our net debt to EBITDA goal of mid to high five times. As we look toward next year, even though retained cash flow and routine dispositions will cover part of our 2025 investments under any scenario, there are several other capital sources available to us without any need to raise equity before 2026. For instance, we own two student housing operating properties and a substantial portfolio of self-storage operating assets stemming from earlier mergers with our managed funds. Our belief is that those assets would trade at cap rates significantly inside where we are investing in net lease, and as a funding source they would thus be accretive to AFFO while also helping us simplify our earnings profile further down the road. Beyond that, we can unlock more capital once a permanent refinancing of our Las Vegas construction loan takes place, and our capital needs next year could shrink further if we recover any proceeds from our Lineage investment, which right now yields under 3%. Before I pass the call to Toni, I want to address tenant credit, beginning with three top 25 tenants we’re watching from a credit standpoint: Hellweg, Parkside, and, most recently, True Value, which together represent 4.7% of our ABR. Hellweg is still paying rent on time as it works through its turnaround plan, even though it continues to contend with a difficult demand environment. If its business weakens further during 2025, we have confidence that solid underlying demand exists for our stores. In the event we need to retent any properties, other operators have shown tangible interest in our stores at rents that are broadly consistent with rents currently in place. We are also looking into disposing of several properties as a way to further cut our exposure over the near term. Although we fully back Hellweg and the steps it is taking to strengthen its business, the interest other operators have shown in our portfolio reassures us that we can proactively mitigate any rent disruption down the road. As for Parkside, nothing meaningful has developed, and because of the highly critical nature of the properties we own, our expectation of no rent disruption remains, even if a restructuring occurs, though we are still monitoring the situation closely. A few weeks ago, we filed an 8-K noting that True Value had filed for Chapter 11 bankruptcy. True Value is a wholesale hardware distributor, and it is important to note that the independent retail stores it sells to were not included in the bankruptcy filing. True Value also announced its sale to Do It Best, a larger member-owned hardware cooperative, alongside its bankruptcy announcement.

Our portfolio includes eight warehouses across the country plus a single paint production site, all net leased to True Value, and together these account for 1.4% of our ABR. True Value is still up to date on its rent obligations, and has paid nearly all of what it owed through the close of the year. Because of that, we do not anticipate any significant effect on our AFFO for either the fourth quarter or the full year of 2024. As for 2025, it is too soon for us to state with any precision how things will unfold, since True Value and its secured lenders are presently in bankruptcy court and are negotiating actively over the way forward. Over the next days or weeks, we anticipate that the parties and the court will decide if the proposed sale to Do It Best can move ahead — and if so, our belief is that Do It Best would probably want a certain share of our buildings, and would also need time to transition out of those buildings that don't fit into its long-term plans. If no deal is reached with the secured lenders, the proposed sale might instead turn into a liquidation, which could mean our leases get rejected and the process moves more quickly, though in that scenario True Value might still need to use our properties for some period during liquidation. Though it remains too early to be certain which of these scenarios will come to pass, we are already working closely with brokers on ways to keep or divest the properties, concentrating on limiting any harm to our earnings. As soon as we have clarity regarding the bankruptcy proceedings and what is likely to happen with our properties — including improved visibility on timing and the specific cash flow effects — we will certainly provide an update to the market. Turning back to 2024, we do not anticipate any further lost rent from these tenants or others with credit concerns. Regarding 2025, while it is premature to issue formal guidance, our initial assessment is that rent loss stemming from credit events in our portfolio, net of recoveries, might come to roughly 100 basis points, leaving out any possible effect from True Value because of the uncertainty surrounding that matter. We consider this the most valuable information under present conditions, since it offers a direct estimate of overall potential rent loss, and we will keep refining it as fresh information comes in; to wrap up, despite the possible consequences of tenant credit problems, a number of factors ought to help underpin our growth in the coming year. A robust close to 2024 in terms of investment volume will carry over into our 2025 earnings; we will keep producing sector-leading rent growth from leases, even with a softer inflation tailwind than in recent years; and we will receive a full year of rent from our Chicago warehouse asset that was recently leased to Samsung's U.S. logistics division. Our Lineage investment is going to deliver dividends for the entire year, and looking ahead to next year, we anticipate continuing to deploy capital without any requirement to issue new equity, covering investments by way of asset sales that are accretive, and with that said, I'll now hand things over to Toni.

Thanks, Jason, and good morning to all of you. For the third quarter of 2024, AFFO came to $1.18 per share, and that penny gain versus the second quarter mainly came from the accretive effect of net investment activity and rent growth, largely offset by the net effect of higher interest rates. We're still on pace to land inside our full-year AFFO guidance range. We've tightened that guidance band to between $4.65 and $4.71, with the midpoint unchanged. What's behind that is more dividend income coming in from Lineage, which gets offset by us expecting less from other lease-related income, along with some transaction closings pushing further back into the year. On top of that, we're restating our expectation for investment volume this year of $1.25 billion to $1.75 billion. Jason mentioned earlier that we could land in the upper half of that range if closings happen when we think they will, and while that would fuel growth in 2025, it wouldn't move the needle much for 2024 AFFO, because the bulk of what's in our pipeline is slated to close toward the end of the year. During Q3, we completed sales on seven assets, generating $82 million in gross proceeds. Looking at the entire year, we anticipate disposition activity between $1.3 billion and $1.4 billion, as we've slightly raised the lower end of that guidance. I'd like to remind everyone that 2024 represents a particularly active year for dispositions, driven by our office disposition initiative as well as the U-Haul purchase option being exercised. Turning now to the portfolio, I'll start with same-store rent growth. In Q3, contractual same-store rent growth came in at 2.8% compared to the prior year, and that's the figure we anticipate for the full-year average as well. Looking further ahead, we anticipate contractual same-store growth will settle in the neighborhood of a mid-2% range. On a comprehensive same-store basis, rent growth came in at 20 basis points compared to last year, and we expect it to be slightly positive across the entire year, with the back half strengthening as we move past the effects of the Hellweg lease restructure along with the rent downtime tied to the build-out prior to the Samsung warehouse lease. Just to remind everyone, rent for the Samsung warehouse begins in the first quarter of 2025. When you look at our history, comprehensive same-store growth has typically run roughly 100 basis points below contractual, since comprehensive captures what happens with vacancies, leasing, restructures, and rent collections. As Jason noted, our guidance for the rest of 2024 still assumes there won't be any significant rent disruptions. Looking ahead, the fourth quarter should get a boost from rent recoveries that came in during October — roughly $0.04 of AFFO — and we'd already baked that into our guidance. Now, on the releasing side, the spreads we're seeing overall kept moving in a favorable direction through the third quarter, helped in part by wrapping up our exit from office; across the board we recaptured 103% of the rents we had before, with industrial, retail, and self-storage all posting positive releasing spreads, and we tacked on 7.2 years of additional weighted average lease term. Dispositions made up 2.9% of ABR, which is far higher than what you'd typically see in one quarter, and that was largely driven by the transaction we completed with Extra Space, so let me take you through it quickly. Through that deal, we converted 16 self-storage assets that were operating into net leases, purchased the outstanding 10% joint venture stake in certain of those assets, and re-set both rents and lease terms across our current Extra Space net lease portfolio. In early September, 12 of those self-storage operating assets became net leases carrying a 25-year term, while the remaining four are slated to become net leases during 2025. When all of that wraps up, roughly 20% of this year's annualized operating storage NOI will have been turned into long-term net lease revenue backed by an investment-grade tenant. On top of that, as part of the deal, we modified our existing portfolio of 27 Extra Space net lease assets, pushing rents upward and lengthening the term to 25 years, an extension of more than five years. All told, since initial rents were set against operating NOI, we don't expect this transaction to move our 2024 AFFO in any material way. At quarter's end, Extra Space stood as our biggest tenant, with 39 assets under 25-year net leases producing $36 million, which equals 2.7% of ABR. Our whole net lease portfolio closed the quarter with a weighted average lease term of 12.2 years, while occupancy stayed elevated at 98.8%. During Q3, lease-related income beyond the core business reached $7.7 million, bringing the total for that line item to $19 million over the first nine months. Based on our current visibility through the end of the year, no further payments large enough to significantly shift this line item are included in our guidance. Non-operating income in Q3 was $13.7 million, consisting of $9.9 million in interest income, $2.1 million in dividends tied to our equity stake in Lineage, and $1.6 million in realized gains from currency hedges. Within that line item, interest income improved from the second quarter, largely driven by the timing of this year's bond refinancings and the cash that landed on our balance sheet as a result. Right now, that extra cash is sitting in the U.S. and bringing in interest at roughly just below a 5% average rate. That income mostly cancels out what we owe in interest on the U.S. dollar bonds from our June issuance, at least until we put that money to work. As for the Lineage dividend, it represents the third-quarter cash dividend that was declared, adjusted proportionally for the period starting at its July IPO and running through the end of the quarter. When it comes to our AFFO guidance, we're assuming a fourth-quarter dividend of roughly $2.9 million, which lines up with the latest annualized rate Lineage reported, applied to the 5.5 million shares we own. One thing to remember for modeling: Lineage dividends get recorded by us in the quarter they're declared. Looking ahead to the fourth quarter, we presently anticipate non-operating income dropping to roughly $10 million, as lower rates reduce interest income and we put the rest of the excess cash to work in new investments. For the third quarter, NOI from operating properties came to $20.7 million, a drop of $1.1 million versus the second quarter. The main drivers were the shift of self-storage operating properties into net leases, which I covered earlier, plus the sale of a Marriott operating hotel that finalized at the close of the second quarter. On a same-store basis, operating self-storage NOI growth compared with the same period a year ago, excluding the assets moved to net leases, came in at negative 4.1% for the third quarter, an outcome that reflected a bit of sequential improvement relative to earlier in the year. As things stand, we expect NOI from operating properties to reach roughly $80 million for 2024, taking into account the storage assets we shifted into net leases. Turning to expenses, interest expense for the third quarter was $72.5 million, and the sequential rise mostly came from a full quarter's impact of the $1.1 billion of bonds we refinanced in the first half of the year. All told, our debt carried a weighted average interest rate of 3.4% in the third quarter, up from 3.1% in the second quarter. G&A expense for the third quarter was $22.7 million. We've nudged down the upper end of our full-year G&A guidance range and now expect it to land between $98 million and $100 million.

During Q3, property expenses that weren't reimbursed came to $11 million, down versus Q2, mostly because carrying costs on empty buildings fell after we sold three of the four vacant premium WNA sites and Samsung picked up carrying costs while that warehouse asset was being built out. At present, our expectation for Q4 is that it matches Q3. On an AFFO basis, tax expense came to $10.6 million, largely tied to foreign taxes levied on rents generated by our European portfolio. That marks a shift back toward a more typical quarterly run rate versus Q2, which had been brought down by certain one-time benefits tied to settling tax-related items. Turning next to capital markets activity and how our balance sheet is positioned. Since we had refinanced slightly more than $1 billion of maturing bonds across the first half of the year, and because of the sizable liquidity we've accumulated, no capital raise was required in Q3. Our debt maturity schedule is still quite manageable, since nothing else matures in 2024 and a single $450 million U.S. bond comes due in 2025. In the same way, no material mortgage debt comes due in this year's fourth quarter, and roughly $240 million comes due in 2025. We closed Q3 with total liquidity of about $2.6 billion, which includes being barely drawn on our $2 billion revolver and holding a bit more than $800 million in cash. As Jason mentioned, our liquidity is adequate, together with anticipated disposition proceeds and retained operating cash flow, to cover investments in our pipeline through Q4 and into 2025 without issuing equity. At the close of Q3, leverage sat at levels comparable to those seen across the first half of the year. At 41.1%, debt to gross assets stayed comfortably inside our target range in the low to mid-40s, while net debt to EBITDA came in at 5.4 times, still under the bottom of our mid to high five times target range, even though we keep expecting it to move back up into that range in Q4 as more capital gets deployed into new investments. Finally, on our credit facility, I wanted to note briefly that in the quarter we completed a sustainability-linked amendment that could let us gain from somewhat reduced interest rates and fees on the facility and associated term loans should specific emissions reduction targets be achieved. With that, I'll return the call to the operator for questions.

Morning. I appreciate you fielding my question. To start, I'd like to dig a bit deeper into the choice to expand into retail. It seems you exited office, and at present you're entering retail. How are you viewing the composition of your portfolio moving forward? Is there a maximum threshold for how much retail exposure you'd want? Please walk us through the way you're framing what the portfolio will look like down the road.

Absolutely, Michael. At present, retail accounts for roughly 25% of what we hold. Most of that — likely around three-quarters — sits in Europe. We have made investments in the U.S. previously, though those were more opportunistic rather than a core priority for us; and we've been building up our U.S. retail operation with a number of dedicated investment officers. They bring extensive experience buying retail net lease and, crucially, possess many deep ties with tenants as well as the brokerage community. Considering our scale and standing, we believe this is very logical. I'd add that right now, there are somewhat fewer rivals because of some consolidation that occurred across the past couple of years. And as I noted before, discussions with developers, brokers, and tenants have all shown that we would be a welcomed participant to assist in diversifying some of their capital partners. So we believe now is a good moment to push forward. So far this year, we've completed, I believe, around 15%, which is a bit under what we might aim for. That spans both the U.S. and Europe. Our pipeline is somewhat larger. It represents roughly 40% of the total, counting retail. And once more, that's divided between the U.S. and Europe, though I believe most of the pipeline lies in the U.S. And it will fluctuate. I think in time, perhaps I'd want 30%-40% of our yearly deal volume to come from retail, and possibly a large portion of that would be in the U.S. But we're large at present. And as I said, 25% of our portfolio is retail. More than 60% is industrial; so it would require a fairly substantial overallocation to truly shift that needle much, but we'd be at ease going above the 25% we currently have. And I could envision that eventually reaching beyond 30%, but that will likely require some time; and regarding the strategy, I'd say it won't differ much from what we pursue in other property types. We'll examine the whole sector. There are definitely some we'll concentrate on more and others we won't touch at all. But I think we'll seek deals featuring long lease terms and the sorts of yields and IRRs that generally align with what we've been doing; and assessing the tenants will clearly be key. What we'll be focused on is the economics at the unit level, how much site coverage there is, that sort of thing. Up to this point, we've completed a number of transactions involving car washes. That was likely before we got deeper into the year. A bit of fitness, a bit of experiential retail. Dollar stores and discount retail are on our radar, along with C-stores, certain automotive service opportunities, and possibly more experiential retail too. Grocery could be in the mix, and that's probably more probable in Europe rather than the U.S., though we'll keep watching for it, but that's roughly the overall strategy and as I mentioned, my sense is now is a favorable moment to press forward.

And as a second question, regarding True Value, could you describe what you anticipate or the possible results you foresee for 2025, and additionally, do you have any involvement with American Tire, which filed for bankruptcy lately? Thanks.

Yes, regarding True Value, we are currently in the midst of the bankruptcy proceedings, and we receive daily updates on that; we believe that process will conclude perhaps within the next 2 days or 2 weeks, but it remains highly uncertain, which makes it somewhat harder to precisely define what we expect for the coming year. I believe we laid out some of the general boundaries, but Brooks, would you like to provide further detail on that?

Sure. Yeah. I'd say the same thing. Trying to forecast a particular result for 2025 at this point is premature. Right now, the parties are working out the specifics of the way the sales to Do It Best ought to move forward. We're hopeful they'll reach an agreement, though I should warn you that bankruptcy is fluid and not finalized, so this is a sale that's perceived as planned; our expectation is that they'll need every one of the buildings for a transition period. The precise timing of that is difficult to predict, but it could stretch well into 2025, substantially dampening any effects on next year. Over the long term, our view is that they'll need a subset of our buildings. They're still working through finalizing their plans on that. Whatever the outcome, we expect they're going to need our buildings in the near term to execute whichever path is decided. And alongside all of that, we're proactively working with brokers on all these assets. We expect to have a lot better clarity in the coming weeks and towards the end of this year.

Thanks. Jason, when it comes to those retail deals, they're clearly usually on the smaller side. So is the idea that you'd do more portfolios in that space?

Yes. My sense is that these will mostly be portfolio transactions. Where we've been seeing some intriguing deal flow, I'd say, is takeouts for developers; that means certain retailers that have strong capital positions and want to grow. Because of the volatility we've had in the rate markets, I'd guess developers have somewhat less desire to keep their portfolios longer or to retain them and sell them off one at a time into the 1031 market. Obviously, going that route lets them achieve tighter cap rates and solid execution, but with the volatility, it introduces additional risk. So I'd say you're correct. My sense is it will mostly be portfolios, though I think our team is ready to roll up their sleeves and dig in. And maybe completing a few one-off deals can open the door to tenant relationships or developer relationships that grow into bigger transactions.

Understood. And perhaps only a bit of thought regarding what you said about the credit reserve for the coming year compared with the current one. My understanding is it's 100 versus 50 basis points, so maybe just talk about what your general thinking is when it comes to offering that commentary.

Yeah. Look, within this climate, certain industries have faced some operational challenges. I'd say especially industries where demand got pulled forward during COVID, and at present we're observing somewhat of a gap caused by customers scaling back. I think inflation and elevated prices have likewise affected consumer demand and, concurrently, margins for many companies. And there are also businesses still feeling the effects of the absence of housing and mobility. So as for the 100 basis points, that's a figure that clearly it's early to give for the following year. We lack visibility into anything particular that would go into that figure, but we believe directionally it's a large round figure and it's sensible for us to begin at that level and afterward revise it upward or downward based on what we observe; and I think crucially, as we said before, True Value is excluded from that figure. I think Brooks at minimum provided some color, not clearly specific outcomes or even estimates for what that might mean for the following year; so the intention would be to refresh that once we have slightly more clarity so we can produce an estimate there too.

Thank you.

You're welcome.

Hello, this is Cheryl calling in for John Kilichowski. I appreciate you taking the time to address my question. I wanted to ask about deals in the U.S. compared with those in Europe. When the year began, our mix was two-thirds U.S. and one-third Europe, and then European-focused activity decelerated during the prior quarter; so given that, how have sellers' expectations shifted since then, and what's your view on how spreads will move in Europe relative to the U.S.?

Yeah, absolutely. Yeah. So looking at activity so far this year, we're approximately two-thirds U.S. and one-third Europe, which matches up with the broader portfolio targets, more or less. For the pipeline, Europe represents a somewhat smaller allocation. At present, it's roughly one-quarter of the pipeline. So compared with North America, it's trailing a bit. I wouldn't call it a major lag, but there is some lag. Following a summer that was slower than Europe's norm, we've observed activity levels improve. Still, we're positive on the backdrop. My sense is that euro borrowing costs sit about 100 to 150 basis points below what borrowing would cost us in the U.S. Cap rates aren't dramatically different. Of course, Europe is a wide-ranging market, and I'd say cap rates vary based on which country and, naturally, the particular deal. Even so, on average, European cap rates might be somewhat below those in the U.S.; what that signals, I think, is our expectation that we'll find appealing opportunities in Europe. Those will come with wider spreads, and we're hoping to grow our pipeline. And we are watching it build; predicting much beyond year-end is difficult, but I believe it's a solid market for us and one where capital will be deployed.

Thanks. Next, regarding American Tire — from what I understand, they filed for Chapter 11 not long ago. I'm just wondering what kind of exposure you have to them?

Yeah, absolutely. Michael did raise that question, and I didn't get to respond; the amount is quite minor. It comes in under 20 basis points. In my view, it's more like 15 basis points of ABRs across 2 properties. Brooks, would you mind adding some detail? Given the situation, this is basically a non-event for us, but perhaps you could share a bit of context?

Right. Yeah, sorry about that — I missed answering it earlier. Yep, we're talking about a pair of buildings, and one of them is really quite small. The second is a warehouse of roughly 270,000 sq ft, and it's completely occupied. It sits within the Charlotte MSA. It's a solid building, though once again, our actual rent exposure there is extremely minimal.

Thanks. I'm glad to have that extra detail. I've got nothing else to ask.

All right. Thanks.

Appreciate it. Let me circle back to those organic growth ranges for 2025. As I recall, Toni said the typical entry point sits around two percent, and you generally give up a point. So that hundred basis points you flagged, Jason — does it come on top of the usual one? Which would mean you're essentially looking at flat prior to True Value, or maybe I've just gotten a bit tangled up in how that's all put together.

No, that figure is included in the total. To repeat, True Value is not in it, though it does form a portion. Over the past several years, as we've previously discussed, our same-store growth—contractual same-store growth—has run roughly 300 basis points, or 3%; and I believe the long-term average shows a gap of about 100 basis points separating contractual from comprehensive. Credit is among the components inside that 100 basis point gap. It might be credit. It might be vacancies. It might be releasing. Once more, looking across an extended period, credit probably accounts for around half of it. That makes the figure somewhat larger. My view is it's a big round number. For the moment, it serves as a placeholder. And as I said, we'll refine it once we gain a bit more visibility into next year and move nearer to some possible outcomes. But at present, it truly is a placeholder.

All right, so once more, just so I've got it straight: 3 is the level under contracts historically. Typically you give up a point for all sorts of reasons, though perhaps that gets somewhat larger in the coming year, since with the bad debt component, you're beginning at a whole point rather than it possibly being 50% of that in an earlier instance.

Yes. I'd say that's accurate. That seems like a solid perspective on it.

All right. So regarding the growth topic, since all of us are, I think, concentrating heavily on 2025 right now, it sounds like you have a great deal of confidence about getting back to growth in the coming year. So does that essentially boil down at this moment to the transaction pipeline and investments that add value, or to a smaller number of sales that could be dilutive the way you experienced during this year, or perhaps you could share a few of the other elements behind your confidence about growth in 2025?

Yes, absolutely. I mean, correct — those are the primary variables in play. The transaction volume, in particular. What matters, and we've stressed this point, is that right now we possess sufficient liquidity, with $800 million in cash and a revolver that is largely untapped. Altogether, that comes to roughly $2.6 billion in liquidity. That's certainly enough to cover, using cash, the rest of this year's deal activity, and that's 2025 — and when we think about 2025 and funding deals, we've discussed our operating properties, the student housing assets we hold, and the larger portfolios, namely self-storage. We believe we're able to finance our normal yearly deal volume — though obviously we aren't providing any guidance on that at the moment — across the whole of 2025; we don't care for our equity price, so it doesn't hinge on issuing equity at these levels, certainly. Beyond that, we've got contractual rent bumps, which are significant. They typically lead the sector. We also get a full year of rent from the Samsung lease we've mentioned previously, plus a full year of dividends from Lineage, so everything there will deliver extra growth from the portfolio we already have. You brought up the gap between contractual and comprehensive — sure, that's definitely one piece of the puzzle, but those are the primary variables, and offering complete specifics is difficult. Clearly, we don't know yet how True Value turns out, but I believe we're positioned well for growth, provided we can offset those losses, and I think we can.

All right, and could I just pose a single question regarding XR and self-storage, was there some particular trick to completing the quantity of properties that you completed? Did either party want to do additional ones or fewer, and what ought we to anticipate going forward on that matter?

Well, that's a fair question. What I'd say is, we've spent quite a while now discussing the flexibility that exists inside our storage portfolio. Our thinking was never that every asset would be sold, nor that every asset would be converted. And with the amount of cash we've been holding onto throughout this year, it seemed reasonable to consider taking a portion of the portfolio and placing it under net lease — sort of a dollar-cost averaging approach, rather than doing everything in one shot, working through sub-portfolios instead. So we felt that was the appropriate move right now. That said, I think as we look to next year, we'd probably tilt more toward selling assets, naturally that depends on how deal activity shapes up and what other alternative capital sources look like. But at the moment, that one's looking fairly attractive, so my sense is that's likely the direction we take, certainly for 2025 as things stand today. What we just completed represented roughly 20% of the operating portfolio, so it's a decent-sized piece, though definitely not the bulk of it or anything outsized.

Okay. Thank you.

Yep. You're welcome, Toni.

Morning. Thanks. Please don't bite my head off. I want to pick up where Toni was probing, since looking at pages 26 and 27 of the supplement, I'm simply attempting to get a clearer handle on what you're initially anticipating for organic growth in the coming year. Unless I've got this wrong, roughly 53% — yes, 53% — of total rent has a CPI linkage. Then approximately 43% carries a 2% contractual bump. So are you suggesting the whole top line might land near 2% in the next year, prior to any credit concerns?

Toni, I'm going to hand it over to you to explore the specifics, though the figure is likely somewhat above that level. My view is that everything hinges on the point where inflation ends up. Please proceed, Toni. I'll leave it to you to provide a portion of those specifics.

Yes. I believe that, simply from what we presently anticipate regarding CPI in both the U.S. and Europe, we are observing a leveling off within the low to mid-2% band for our company across the entirety of next year, considered on a long-term basis. So essentially, when we incorporate that alongside what has recently been a larger fixed increase, since we have, in a sense, achieved improved execution on fixed bumps amid the inflationary conditions as well. Thus, I would say the mid-2% range is truly the top line we have in view.

All right, that clarifies things, since it wouldn't work any other way. And reflecting on what was mentioned previously, Jason, you seem to suggest perhaps a slight shift toward somewhat greater retail exposure, clearly taken step by step. Yet what typical kinds of escalators would you aim for when it comes to retail investments, versus what I believe are, unless I'm wrong, rather robust annual escalators of roughly 3% on the industrial side? In what way do you make up for that difference, or do you believe you can achieve that sort of organic growth through retail transactions? Thanks.

Yes. That's a solid question, Jim, and it is something we definitely consider. At least across the past five years — possibly a bit beyond that — we've managed to secure more substantial rent bumps on our industrial transactions, covering both manufacturing and warehouse properties. For quite a few years now, that has generally landed around 3% on average. On the retail side, what you'd more commonly see is closer to 2%; and of course, certain concepts or tenants come in even below that. They could be at 1%-1.5% annually. Perhaps it's 5% every five years, though that reflects a different escalation pattern. And it's likely worth pointing out that not every cap rate, not every going-in cap rate, is the same. What we've been able to deliver this year and in prior years, but specifically this year, is roughly the mid-sevens cap rate alongside bumps averaging about 3% for the fixed increases, plus those tied to CPI. Many of them carry caps, but those caps now exceed 4%. So while going-in cap rates matter when you examine them, I think — as you're rightly emphasizing — the bumps carry real weight too; and that's a factor we'll evaluate when reviewing retail deals. We might capture somewhat more accretion on certain of those deals during year one, yet the continuing accretion will be a bit lower than what our standard portfolio or standard investments have delivered.