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

All right. Welcome to Citi's 2025 Global Properties CEO Conference. I'm Smedes Rose of Citi Research. We're pleased to have with us Jason Fox, and -- CEO of W. P. Carey. This session is for Citi clients only and disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand [Operator Instructions]. Jason, I'm going to turn it over to you to introduce the company, your team and provide any opening remarks and then tell the audience the top reasons that investors should buy your stock today, and then we'll go into some Q&A.

Yes. Thanks Smedes and thanks Citi for hosting us, as always. With me today is Jeremiah Gregory, who is Head of Strategy and Capital Markets, and a member of our Operating Committee; and I'm also here with Peter Sands, who heads up Institutional Investor Relations. So at W. P. Carey, we're a diversified net lease REIT, diversified across property types with a focus on industrial, split between warehouse and manufacturing as well as retail, both U.S. and European, about close to 2/3 of our portfolio at this point is industrial. We're also diversified across geographies. About 2/3 of our portfolio is in North America with the vast, vast majority of that being in the U.S. and the remainder spread across Northern and Western Europe. We were founded in 1973, so been around for a little over 50 years, been operating out of New York as well as our European platform, which was founded in 1998 and currently kind of $20-plus billion of assets. Do you want me to start with the reasons to...

Well, yes, why don't you give us your sort of top reasons of why you think now would be a good time to buy the stock.

Yes, sure. I think, number one, there's an improved outlook for earnings growth, AFFO growth for us. 2024, we've talked about was we view as a transitional year over year in which we reset our baseline coming off of a year in which we separated from office, and completed our office sales as well as other, I would call, dilutive events such as the U-Haul purchase option. Now that's behind us, we're poised for growth this year, kind of set guidance kind of in the mid-3s for growth. When you add that to a dividend yield, we're approaching that high single-digit, low double-digit range for total shareholder return, which we think is attractive to investors. And that incorporates what we view, we can get into more of the details, an appropriately conservative initial deal volume guidance as well as an initially appropriately conservative credit loss assumption, both of which are big drivers. So that's number one. Number two, we continue to find appealing opportunities to put capital to work. We had a very strong fourth quarter with cap rates kind of in the mid- to low 7s for the year, we transacted at $1.6 billion at mid-7s cap rate. Currently pipeline is -- we characterize as greater than $300 million, with much of that we expect to close in and around the end of this quarter. We also have a $100-plus million of capital projects underway that we'll deliver this year. So we view the $1.25 billion guidance number for deal volume as conservative given -- again, appropriately so given the uncertainty in the world. But we do think there's appealing opportunities. And I think lastly, importantly, we can fund new investments in 2025 without the need to raise equity and happy to get into the details, but we can get to or even through the top end of our guidance, assuming just accretive noncore asset sales. And importantly, we would expect to generate 100-plus basis points of spread between where we're selling and what we're acquiring, which helps drive our growth.

Great. Okay. So maybe we can just talk a little bit about that last point, not really needing to rely on capital markets activity to fund the acquisitions outlook that you've outlined. And I think part of that is disposing of your operating platform, specifically in the self-storage space. In your guidance, I think you've talked about that this portfolio generates $70 million to $75 million of NOI. So maybe you could just talk a little bit about the process to sell the gap between realizing proceeds and reinvesting those proceeds? And just kind of -- maybe we can just talk about that in general for a little bit. And I know you have a few other operating assets. We can talk about those too, but I think the bulk of it is the self-storage.

Yes, the bulk is self-storage. It's around $50 million to $55 million of NOI expected for this year. And just to give a little bit of context. We own a number of operating properties as a result of some -- the mergers we previously did with managed funds, CPA:17 and 18, both of which had broader mandates and invested in operating properties, and it's mainly self-storage. There's also several student housing assets as well as a couple of legacy hotel assets, which we can talk about. But the bulk of it is operating self-storage. And it's something that we've talked about that we have -- willing to be patient with how we exit those properties. We've always expressed that being a pure-play net release is important to us, and they weren't long-term holds. I think historically, we've moved some of the operating assets into a net lease category through net lease conversions with Extra Space, where we put them under a net lease and they now are our top tenant. I think this year, we're more focused on leaning into asset sales, mainly to fund our investment growth for the year. We do think that these will generate a lot of accretion for us. I think self-storage historically and almost consistently has traded well inside of net lease, and -- but we still think that's the case now. I mean our -- we haven't marketed the properties. We're assuming big round number of roughly 100 basis point spread between where we can redeploy capital. So call it low to mid-6% cap rate range is an expectation. And of course, with storage and with many asset classes, there are 2 cap rates. There's a buyer cap rate and a seller cap rate, that's a seller cap rate. I think buyer underwriting, once you reset for taxes and other moving parts, it's probably a bit lower than that, but the important one that we focus on is the seller cap rate.

So are you -- you're saying do you think you could sell the portfolio at a 6% cap?

So low to mid-6s. So somewhere in that neighborhood. And I think the expectation is it's a big portfolio of $50 million to $55 million. We do have lots of alternatives. We do expect to sell it. We think there is a lot of interested parties from public REITs to private players who have raised a bunch of capital recently. There hasn't been a lot of self-storage portfolios sold over the last couple of years. So we think there's a lot of pent-up demand for something like this. And we'll monitor. And my guess is that it's not sold in 1 large portfolio, maybe it's 2 or 3 chunks, but we can be a bit opportunistic in how we approach it. And my expectation is over the next year through mainly asset sales, but also through potentially incremental net lease conversions, we'll largely or maybe entirely be out of the self-storage operating space. And that's important to us to simplify our business. We've been on a journey over the last number of years to continue to simplify our business. And this is one further step, which we think is going to be well received by investors.

And you said the self-storage portfolio now generates maybe $50 million to $55 million of NOI.

That's right.

Okay. So you're looking at kind of, call it, $800 million to $850 million of gross proceeds on the sale.

Yes, in and around that neighborhood, correct. And again, that's not all necessarily this year, I would say, we're expecting second half of the year execution for this. Some of that -- if we do multiple portfolios, some of that could bleed over into the beginning of next year depending on our needs and what our alternatives are. I mean we do have lots of alternatives apart from self-storage, but that's kind of the primary one that makes up maybe the bulk of the expected dispositions.

And the -- I mean I don't cover that space, although I did for a while, and it's been having a lot of difficulties, kind of did very well coming -- during and coming out of COVID, and it kind of continues to reset. So what's the interest level from buyers? Are they just taking a longer-term view? Or kind of what's the -- how do you think the sales process will go?

Well, there's a lot of platforms. So I think they're dedicated self-storage platforms. Clearly, the publics will be involved in this, and we know them well, and we do know there'll be interest. But the private equity-backed platforms as well. I mean they haven't had many opportunities to expand their portfolios. So I think this is going to be a good one to do in scale. It's a good, diversified portfolio, concentrations in some of the bigger states, as you would expect, California, Texas, Florida, Illinois. It's some, I think, 70-plus odd assets. So we do think there'll be a lot of interest, and that's what we've heard as a kind of a soft launch. My guess is it will be in the market over the next month or so.

And are they branded?

They are. They're managed, I would say, the vast majority are managed by Extra Space and CubeSmart.

Okay. So they -- and they're branded under those names already?

That's correct.

Okay. So presumably, there might be some interest from those guys. And then I know it's a smaller piece, but the student housing, and I think you have maybe 4 or 5 hotels. Could you just touch on maybe your thoughts on exiting from those...

Yes, it's similar. It helps with the simplification strategy. Those asset classes, in particular, student housing, those will trade well within inside of where we can reinvest into net lease. I think the student housing is -- it's maybe $7 million or $8 million of NOI. So it all adds up, of course, but it's not nearly the scale as the self-storage. I think hotels are a little bit different. We have one operating asset, again, a legacy CPA:18 asset, they recently had to go through a PIP. So this is the time to sell it. The other 3 assets are part of the Marriott Courtyard portfolio that we've sold. There was 12 of those, we've sold 9 of them. The remaining 3 are very high-quality locations, one right on Newark Airport, one in prime Irvine, California and another kind of Main and Main in San Diego. Each of those, we think, have higher and better used to be redeveloped. I think the one in Newark, perhaps we do because it's likely to be industrial. The other 2 will go through entitlements to optimize value and then we'd likely sell to the developer. But there's a lot of kind of upside opportunity in those. But in the meantime, they're generating very good and consistent NOI, so we can hold them through that entitlement process, but ultimately, those will be sold, if not this year, likely over the next year or 2 beyond.

What sort of proceeds do you think they could bring?

So those, in total, probably have around $10 million of NOI. So I think it -- I think there's a range, and I don't think that we're prepared yet to give an indication of what that is. But again, another chunk that's probably in the size range of the student housing. And then just to be clear. I think beyond that, there's other sources of capital. We've talked probably often about our stake in Lineage, the public company. That's come down, of course, as their stock prices come down, but it's still a sizable investment, kind of in and around maybe slightly below $300 million now. That's going to be very accretive capital to reinvest. It's currently paying a dividend yield inside of 4%. So reinvesting it into the 7s in net lease is going to be highly accretive. We've also talked about a $260 million construction loan on a project that we backed in Las Vegas that's been very, very successful. It's almost 100% leased up. That loan is bearing interest at 6%. So at the time we sourced that in 2021, when we were investing at 5% net lease yields that looked attractive, now that's going to be attractive capital to get back and reinvest at a higher spread. And we think that's probably, if not this year, next year, but another sizable piece of capital. And then, of course, we always have the option to look into equity. I think our stock has rebounded. We think it's getting to more attractive levels, but I think our position and our assumption for this year right now is that we won't need to raise equity but it's always an option. And it's a good thing to have that flexibility of a number of different sources to fund investments.

Yes. I mean between just the stuff that you just delineated, I mean, that's getting you I mean well over $1 billion. So you've just kind of satisfied the acquisition guidance that you've laid out for this year. I know some of this is going to bleed into next year, but...

Yes. And on top of that, we generate, call it, roughly $250 million of free cash flow. We have a $2 billion credit facility that is largely undrawn at this point in time. So lots of liquidity. I think we're well within our target ranges for leverage. So there's a lot of flexibility on how we can operate our business this year and going forward, and we like the position we're in.

I just wanted to go back just a little bit. So 2/3 of your asset class, you said is in warehouse and manufacturing right now, just with what's going on with the broader -- the tariffs that have been announced, concerns over the retaliatory tariffs, et cetera. Maybe how are you thinking about how those warehouses and manufacturing facilities are going to hold up in the current environment? I realize you're not operating them. You're collecting rent. So you're kind of the secondary person there, but -- and more of a safety spot, but kind of what do you think -- what are you kind of expecting?

Yes. Look, I think that what we own in manufacturing and warehouses, we think there tariffs could provide tailwinds for domestic manufacturers. And we certainly have a very large installed base within our portfolio. So we think that's a likely tailwind if anything. I think there's balances in terms of the uncertainty and perhaps the impact that we may see on margins and consumer demand. But by and large, I think that anything that is going to drive near-shoring or onshoring, we think we're going to be a beneficiary of that. And we've seen anecdotes within our portfolio, within our tenant base, where we've had inquiries, and we've also had some activity picking up on expansions within our portfolio as well as conversations about build-to-suits. And in fact, a couple of new investments have been companies -- in one instance, a Canadian company that manufacture a lot of their goods in Asia, we have a newly purchased warehouse that they're going to convert into a battery manufacturer and as part of that, likely have $500 million-plus of investment into our facilities. So I think there's a number of examples that suggest that tariffs from a portfolio standpoint could provide a tailwind. I think from a new investment standpoint, obviously, there's risks and there needs to be focused diligence on the credit side and think about who winners and losers may be. And it's very early days. I mean we're effectively day 1 today in tariffs. But in our view, historically, uncertainty and volatility can create opportunity, especially when you think about how a sale leaseback fits into the financing landscape.

You mentioned on your fourth quarter call, a little more of an emphasis on retail investing. You bought, you can remind us, at least one or maybe more Dollar General portfolios, and I think that bleeds over into the first quarter. Maybe just talk about the cap rates you're paying for those, what you like about that portfolio, comfort with getting more exposure to Dollar General.

Yes. I mean we completed -- it was about $200 million of Dollar Generals in Q4, over 100 properties, I think it's spread across 21 states. So what's pretty typical of a Dollar General portfolio. I think it was 4 separate transactions, 4 separate sellers. And I think it's consistent with what we've talked about. We've discussed how we believe U.S. retail can be a source of incremental deal volume. I think to be clear, because we've had some questions around this. This is not a pivot away from what we've done in industrial to U.S. retail, we're going to remain very active, and I would expect that the majority of what we buy is still industrial. This is going to be incremental what we're doing here. And it's ramping up. I think in Dollar General, I think we view and I think that the market generally agrees that they're the strongest of the dollar store operators. The sector was somewhat out of favor for much of 2024. There's obviously headwinds to their equity. I don't think there's a lot of concern, certainly not near, medium term, and maybe not even long term about their ability to continue to pay rent. They're still a big company, profitable and highly rated. So -- but I think we saw that as an opportunity being out of sector. I think there was -- we're also filling a void. If you look at our peers within the net lease space, most of them have dollar stores, if not Dollar General as a top 10, top 5 or top 3 tenant and most of them are pretty full. In fact, we were a buyer of a peer who needed to decrease their exposure. We also helped several developers fund future development by taking them out of their stores they recently completed. So I'd characterize it as opportunistic in many ways. Cap rates were kind of low to mid-7s depending on when we originated them. Kind of the lower side would have been back in the fall when treasuries were in the mid- to high 3s. And on the higher end would be the ones that we originated closer to the end of the year when treasuries were higher. But I think that, that can certainly be something that we invest in. We didn't have any exposure. So a $200 million chunk still doesn't even crack the top 20 for us. So could there be more of these? Yes, potentially. I think we're going to be focused on pricing. There's lots of small- to medium-sized portfolio opportunities out there for us to consider.

So would you see that moving into like a top 20 tenant or even a top 10 tenant...

Yes. I mean it is a top 20 tenant now. It's probably right at the bottom of the top 20 list. I mean we like the name. I think a lot of it comes down to pricing. And I think that -- yes, I think that could move higher, but it really depends on the opportunities.

And what about other retail in the U.S.? What's of interest to you?

Yes. I mean we've done select deals. I think nothing of substantial scale at this point. There's a fitness operator that's growing that we like where they use very generic boxes. We tend to be in high-growth markets like in and around Phoenix and Las Vegas, where we've done some of those. We've looked at some experiential real estate. I think we can do some more of that. Maybe some of the automotive servicing, I think we'd be select with C-stores. Those are opportunities we would look at as well. We do -- we backstopped one car wash operator that's a portfolio company of Golden Gate Capital, top 5 operator. I wouldn't say that we're going to do lots of car washes, but we do like that operator that we've backed. So I think that's a flavor. I mean we're open. We're looking at lots of opportunities. And like I said, I think it doesn't take a lot of incremental market share for us to contribute several hundred, $300 million, $400 million of potential deal volume, maybe more over time to our pipeline.

I'm just kind of interested, you mentioned in car washes, obviously, it's been a big topic of late because it is a big tenant for a lot of other net lease companies, generally the smaller ones. But why wouldn't you want to have more exposure there? Just anything you don't like about it? Or it's just not in your wheelhouse of where you do...

Yes. I mean it's -- look, I think right now, we're probably a little bit under 1%. We don't have a lot of exposure. I think for the right opportunity, we'd be open to that. I think the industry more broadly right now, has seen some headwinds. Obviously, there was the recent bankruptcy. So I think we're just being cautious, but I think that we could also be opportunistic. And I wouldn't -- I certainly wouldn't rule it out.

Okay. Maybe just let's switch to -- always -- there's always the topic of watch lists and credit loss. Remind us what's embedded into your guidance in terms of credit loss? And maybe how does that compare to what you realized in '24 and kind of how it's been historically?

Yes, sure. So we -- in our guidance that we issued, it assumes $15 million to $20 million of credit loss. And like deal volume, I think I've characterized that as appropriately conservative given the uncertainty in the environment right now. That's both a top-down -- looking at kind of the views from a top-down perspective and maybe a lot of the uncertainty that we can foresee coming and staying for some period of time. But it also is informed by a lot of bottoms-up analysis as well. And we can talk about some of those details. I think...

Sorry. So $15 million to $20 million. Just what does that translate to into bps? I mean normally, people say, we've embedded 50 bps of credit loss or whatever. So what is it?

Yes. So at the midpoint, it's approximately 125 basis points. which, to your question, is meaningfully higher than where we've been historically, both under assumptions but also realized credit loss. We've probably been more in the 50 to 75 basis point range. And so part of the philosophy and the approach to guidance this year is to include, again, what we view as appropriately conservative assumptions, both on deal volume and credit loss, certainly relative to historical numbers, that's the case. So we can have some events within our portfolio that can get absorbed by that and still maintain what we view as mid-3s, if not higher earnings growth. And to the extent the world proves to be more benign, there could be upside as well for us then.

So it seems like, just backing up for a minute, coming into 2024, obviously, you had the sale of your office portfolio. So we all -- that's kind of well communicated reset in terms of your earnings, and that's about when I actually started covering your company, so I kind of missed that piece. But it seemed like, as I kind of started learning the space, the last thing people want to have is surprises. And I feel like last year, your company was a little bit plagued by surprises. It was Hellweg, it was a couple of other things that kind of worked through. And it seems like those are kind of behind you now, or well identified in terms of factoring into your earnings. And you've talked about potential upside to acquisitions. You have a lot of credit loss baked in relative to peers, and you have 3% earnings growth, and it seems like there's upside to that. So you're kind of trying to take an overly cautious stance so that you can provide significant upside as we move through the year? Or kind of how are you thinking about guidance now as opposed to maybe how you had provided guidance previously?

Yes. I mean I think that's right how you described it. I think we're starting the year off with what -- again, I think what we've heard from investors is an attractive starting point for earnings growth, kind of 3.6% at the midpoint with conservative consumption -- conservative assumptions driving that is a good place to start the year. But look, there's a lot of uncertainty. I mean I think there's reasons to stay conservative on these assumptions. And I say conservative, it's relative to what we've done historically. I mean, on the credit front, I mean we talk about Hellweg True Value and Hearthside. I think the good news is that Hearthside is largely unchanged. We expect them to emerge from bankruptcy. We expect to continue to get paid 100% rent, they'll firm all of our leases and emerge with a stronger balance sheet. And that's the expectation. Big company, important company, and we have a lot of critical facilities that they need to operate. True Value was another company that...

Sorry. Can I -- so on Hearthside, I'm just wondering, so when they come out and they're kind of reset and they're -- do you keep them on the watch list, or you take them off at that point...

I think we need to continue to evaluate and see what the balance sheet looks like, see what the operating environment they're in. There's still headwinds certainly to a lot of consumer-driven products. But yes, I think that we'll continue to monitor like we do all our tenants and that would include Hearthside.

So sorry, I didn't mean interrupt. You were going to touch on True Value.

Yes. So True Value is another one that's attracted the headlines. When we learned of their bankruptcy, and I think that you characterized some of these things that surprises. I mean that one was -- they were kind of limping along, but we think they would have continued to do that for quite some time. The sale to Do it Best, I think, perhaps was a bit of a catalyst to push them through bankruptcy to help facilitate that sale. So that has taken some attention. I mean, the outcome there, we think, has been well received. At this point, we view it no longer a credit concern. We have an agreement in place with Do it Best, still subject to documentation. And I can recap it really quickly. There are 7 -- sorry, there's 9 properties that we had leased to True Value, 8 warehouses and 1 paint manufacturing facility. Do it Best is going to operate and lease 6 of those 9 on a weighted average lease term of, call it, 7 years at 100% of the rents. And those are stable assets that we think are well placed. The other 3 assets, they're going to lease through the end of June of this year, at which point we'll -- we're running a dual process right now of leasing and sale. I think we're likely to lean towards the sales to move the vacancy and carrying costs of our -- out of our portfolio sooner than later. It's all baked into our guidance number for this year. I think the expectation is we probably sell those in August or September, and then we'll reinvest those proceeds back into our typical net lease. So that's what...

What sort of proceeds would you expect from those 3 assets?

We don't have a number yet. I think we're still in the process right now. I think it's maybe roughly $4 million of ABR associated with those 3 assets, half of which we'll receive for this year. And then obviously, we'll sell those for -- vacant assets, they're not going to sell as well as they would if they're occupied, but we think there's a good market for those. That's effectively been resolved, and we think that's helpful to have full resolution on there. And based on conversations we have with investors, I think that that's a good outcome, and we would agree with that. I think lastly, Hellweg is one that's been obviously front and center for us and one that we've talked about quite a bit. And that's one where I would say, we talked about this on our earnings call quite a bit. The German economy is still -- and for those that don't know Hellweg is a do-it-yourself retailer in Germany.

So they're sort of like a Hobby Lobby or something.

More like a Lowe's or a Home Depot. The operating environment there hasn't improved. I think Hellweg's operations haven't improved either. The consumer is still struggling in Germany and DIY is clearly a consumer-driven industry. So we still focus on them. We get regular updates. We're focused on their liquidity. Their lenders have been supportive, and we expect they'll continue to be. But from a landlord's perspective, I think we're focused on reducing our exposure to them, and we can do that through really 2 levers we can pull. One is we can sell some assets, and we're in the process of selling a couple of assets at what I would expect to be good outcomes for us. I think where we can move the needle a little bit more is to take back some of these stores and re-tenant them with alternative German DIY retailers. Germany is a bit different than the U.S. You have a duopoly in the U.S. with Home Depot and Lowe's. In Germany, there are 10 operators. So we do have other options. I think we've talked publicly about being in dialogue and being proactive about what those options are. And so I think there's an expectation, and we have been dialoguing with them and targeting 9 underperforming stores. We can help them with their liquidity, and we can help ourselves by putting in stronger operators and helping decrease our exposure. I think there's a pathway to get them out of our top 10, maybe sometime this year, and we think that's going to be a positive outcome, and we can keep on whittling away at that exposure. But I think the -- maybe the message there, they're still struggling. But I think there's a reason why we have a $25 million -- I'm sorry, a $15 million to $20 million credit loss assumption. It certainly could cover a range of outcomes within Hellweg. And when you think about putting in alternative operators, there's likely to be some downtime in free rent periods. And I think that is something that the $15 million to $20 million certainly could accommodate.

You're incorporating like a range of particular outcomes there?

Yes. It doesn't cover every outcome imaginable. If they're current on rent -- if they stop paying rent tomorrow, I'm not going to cover that, but they are current on rent. And again, there's a pathway to continue to reduce our exposure there.

Okay. And maybe -- I know we're coming towards the end, but could you just talk broadly about kind of the landscape of investing in the U.S. versus in Europe right now? You obviously have active platforms in both. So...

Yes, sure. I mean in 2024, we did about 75% of our investments in the U.S. and Europe was quite choppy and had a very slow summer. I think that we're seeing some increased activity beginning of this year, while it was 25% of our investments last year, it's currently, call it, 1/3 to 1/2 of our pipeline. I think importantly, and this is something that I think is underappreciated about W. P. Carey, is we can borrow substantially cheaper in euros. In fact, our cost to issue eurobonds is about 150 basis points cheaper than where we can issue U.S. bonds. So we can generate wider spreads over there. I think that gives us an opportunity to lean into pricing a little bit. We are seeing increased activity. So I think we're optimistic that Europe will play a bigger part this year. It's hard to predict exactly what that will look like when we sit here at the beginning of March. We don't have visibility into the second half of the year. I mean we typically have kind of 90 days of visibility into a pipeline. But where we sit right now, I think there's reason to think that there's going to be a little bit more activity with really interesting spread levels in Europe.

And you have -- don't you have a euro term loan coming due either this year or maybe it's next year that you'll need to...

Jeremiah, do you want to talk kind of balance sheet a little bit?

Yes, there's a term loan that's coming due next year. We're already working on a recast there. So I would expect to maybe be done with that even by the next earnings call. Pretty typical, just bank debt refinancing. We have a large diverse bank group. They continue to be very supportive, kind of push that out and just push out the maturity basically with very similar structure, the same way I think most REITs do. That loan, when we put it in place, we swapped it. I think it was -- at the time, it was a rate when we swapped it probably in the low 4s. As the swap burned off recently, it's currently floating. So it's lower now. Kind of the spot rate today is probably in the low to mid-3s. So the new term loan, we'll consider on whether or not we let that float or we swap it. To the extent we do swap it, there's probably room for that kind of fixed rate to be even lower, maybe call it, around 3%.

Okay. Okay. And I mean, anything you're seeing on the competitive landscape in Europe in terms of either U.S. folks coming in or other local players that are being more or less aggressive?

Yes. I mean the reason why we can get better pricing in Europe, why it's attractive is there is much less competition there. There's no built-out kind of really pan-European public net lease REIT. We'll see realty income clearly from time to time over there, and there are some domestic or local competitors mainly by country, but it's generally less competitive than what we have seen historically and what we currently see in the U.S.

And as we come into the last 45 seconds or so, for 2026, what do you think same-store NOI growth can be for the net lease industry overall in the U.S.?

We've been a market leader. We've been kind of -- I think our expectations for same-store on a contractual basis, low to mid-2s. We think we'll be probably at least 100 basis points better than our peers, so call it, kind of 1% to 2% on same-store for the peers. And when you factor in credit loss, vacancy, re-leasing, which we disclosed, I think a lot of our peers don't, maybe there's a wider spread there.

Okay. And more, the same or fewer net lease companies in the space a year from now?

Yes. I mean, look, there's a lot of net lease companies, a lot of them, 20 to 25. It seems like there should be fewer eventually, but I'm not so sure there's a catalyst this year to see some M&A. Maybe in the second half of the year, you'll see fewer.

Okay, thank you. Appreciate...

Welcome.