Q4 2023 Broadstone Net Lease Inc Earnings Call
Participants
Brent Maedl; Director, Corporate Finance & IR; Broadstone Net Lease Inc
John Moragne; CEO & Director; Broadstone Net Lease Inc
Ryan Albano; President & COO; Broadstone Net Lease Inc
Kevin Fennell; CFO & EVP; Broadstone Net Lease Inc
Spenser Allaway; Analyst; Green Street Advisors, LLC
Anthony Paolone; Analyst; JPMorgan Chase & Co.
Vishal Sethi; Analyst; BTIG, LLC
Mitch Germain; Analyst; JMP Securities LLC
John Kim; Analyst; BMO Capital Markets Corp.
Ki Bin Kim; Analyst; Truist Securities
Ronald Kamdem; Analyst; Morgan Stanley
Presentation
Operator
Hello, everyone, and welcome to the Broadstone Net Lease Fourth Quarter 2023 earnings conference call. My name is Bruno, and I'll be operating your call today. Please note that today's call is being recorded. (Operator Instructions)
I will now turn the call over to Brent Maedl, Director of Corporate Finance and Investor Relations at Broadstone. Please go ahead.
Brent Maedl
Thank you, operator, and thank you, everyone, for joining us today for Broadstone Net Lease's Fourth Quarter 2023 earnings call. On today's call, you will hear prepared remarks from CEO, John Moragne; President and COO, Ryan Albano; and CFO, Kevin Fennell. All three will be available for the Q&A portion of this call.
As a reminder, the following discussion and answers to your questions contain forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially due to a variety of factors. We caution you not to place undue reliance on these forward-looking statements and refer you to our SEC filings, including our Form-10 K for the year ended December 31st, 2023 for a more detailed discussion of the risk factors that may cause such differences. Any forward-looking statements provided during this conference call are only made as of the date of this call. In conjunction with And included within our earnings release, we provided details on our ongoing efforts to simplify our healthcare portfolio through the disposition of clinically oriented assets. These materials have been furnished with the SEC and may be found on the Investor Relations section of our website at Broadstone.com. With that, I'll turn the call over to John.
John Moragne
Thank you, Brent. Good morning, everyone. I'm proud of what our team accomplished throughout 2023 in what was a uniquely challenging year on many fronts. But before jumping into perspectives on our fourth quarter and full year results and market conditions.
I would like to take a few minutes to discuss our decision and ongoing efforts to simplify our portfolio composition through the sale of our clinically oriented healthcare assets, specifically clinical surgical and traditional medical office building properties, commencing with our announcement of an agreement to sell 37 of these assets for $253 million that we anticipate to close in the first quarter, volatile macro economic conditions and depressed transaction environment we experienced in my 1st year as CEO provided our team with a great opportunity for internal process and portfolio evaluation. We completed a number of internal objectives and priorities, but perhaps the greatest was the clarity we obtained in our decision to simplify our portfolio, sell our clinical surgical and traditional MOB assets focused more intently and proactively on the industrial space and our other core investment verticals of retail and restaurant assets and remove the complexity caused by holding healthcare assets, not customarily included in the net lease wrapper since going public in the fall of 2020. The composition and complexity of our healthcare portfolio has been a hurdle for many investors over the years. And for good reason, clinical surgical and traditional medical office building assets do not always fit well within the traditional net lease framework. While they can be high quality in nature, these types of assets generally have shorter lease durations, greater landlord responsibilities, longer potential downtime upon lease maturity and in some cases greater potential challenges with tenants, Green Valley being the StarKist example. While the characteristics of these assets can make them attractive for a dedicated health care, property, investor and manager, those same characteristics can make them onerous for a net lease fleet operator at one time, our diversified health care portfolio may have served as a positive differentiator, but it has since become a negative distraction of the publicly traded net lease rate and a challenge to our growth and performance.
With this important strategic step, I believe we are positioning Broadstone net-lease for long-term value creation and multiple expansion. After a detailed review, we identified 75 clinical surgical and traditional medical office building assets for sale on a pro forma basis. After completion of these sales, our healthcare exposure would be reduced by approximately 57% from approximately 17.6% of our ABR as of year-end, to approximately 7.5% following the sales. The remaining assets in our health care portfolio will primarily consist of consumer-centric medical properties that are customary for many publicly traded net lease rates. Examples of which include plasma dialysis and veterinary services assets with real estate fundamentals critical to the tenant's business and little to no regulatory risks. In addition to the 37 assets expected to close in March, we are in varying stages of negotiations on another 38 assets that we intend to provide an update on with first quarter earnings. We expect that some portion of the remaining assets may have a longer hold period as we determine best path forward for optimal disposition outcomes. I am highly confident in our decision to sell these assets and focus on redeploying proceeds into industrial retail and restaurant properties. Our pro forma portfolio statistics as measured by asset mix, occupancy, WALT, fixed rent increases and tenant diversification remain top of class with prudent redeployment. We expect those key metrics will improve even further. We intend to regularly communicate progress on both the disposition and redeployment efforts as they take place and are excited for what is to come for being out in 2024 in the years that follow.
Turning to our 2023 results, I'm happy to report strong fourth quarter to close out the year we consistently demonstrated our agility and prudence in a highly dynamic macro environment, characterized by significant fluctuations in interest rates and muted transaction activity across our investment sectors. As we navigated the challenging disconnect between interest rates and cap rates. We maintained our focus on long-term value creation and adaptability demonstrated by a high degree of discipline and selectivity as rates retreated from their highs at the end of the fourth quarter, we started to see sellers reenter the market at the beginning of this year with a somewhat refreshed set of expectations as compared to what we had seen during much of 2023. Despite the relative improvement and incremental optimism, we remained mostly on the sidelines, investing $64 million during the fourth quarter of which $16 million was revenue generating CapEx. As an example of our continued discipline as well as the challenging transaction market late in the fourth quarter, we walked away from a roughly $70 million investment opportunity as the unfortunately, increasing challenges in the insurance market proved insurmountable in this instance, resulting in an investment that would have exceeded our risk tolerance despite the lower than expected investment volume. We are pleased to report a full year FFO of $1.41 per share, in line with our guidance as we realized operational efficiencies across G&A and bad debt in our efforts to prudently redeploy disposition proceeds. We have secured $97.1 million of investments under control, which we expect to close during the first and second quarters. While our pipeline of opportunities has improved compared to 2023, we continue to believe a higher degree of selectivity is required as we navigate the macro backdrop we also continue to focus on sourcing off-market investments and unique capital allocation opportunities where we can partner with developers and tenants seeking capital solutions as the constraints on traditional commercial real estate lending persist. Our objectives for 2024 include redeploying substantially all of our anticipated disposition proceeds during the year, which is embedded within our 2024 guidance.
Shifting to our overall portfolio, which remains predominantly leased to industrial and entered retail and restaurant tenants that continued to perform exceptionally well as evidenced by 99.2% rent collections during the fourth quarter and 99.4% occupancy as of December 31st, 2023, Green Valley Medical Center was the only rent outstanding as of December 31st, and we began marketing the asset for sale during the quarter. This decision resulted in us recognizing an approximately $26 million impairment. While early in the process we have seen indications of interest from multiple parties for various uses, and we remain focused on putting this distraction behind us by the middle of the year.
With that, I'll turn the call over to Ryan, who will provide an update on our portfolio.
Ryan Albano
Thanks, John, and thank you all for joining us today. We continued to execute on selective dispositions during the fourth quarter. Selling five properties for gross proceeds of $16.5 million at an average cash cap rate of 6.7%, bringing our full year disposition proceeds to $200 million at an attractive weighted average cash cap rate of 6%. I'm extremely pleased with the outcome of our full year disposition efforts, which exceeded our initial guidance for the year. As we were able to capture opportunistic pricing for what I would consider a risk mitigation exercise. Given the environment, we were able to take advantage of market dislocation to sell assets with outsized credit and or real estate risk at a weighted average cash cap rate of 6% for the year.
On the external growth front, we remain highly selective and disciplined during the fourth quarter, which aligns with our consistent messaging throughout 2023. Given an anemic net lease transaction market in the back half of the year, we consciously chose to selectively allocate capital to investments that align with our growth strategy and mission to deliver long-term shareholder value rather than Target short-term accretion. This resulted in fourth quarter investment volume of $64.1 million, inclusive of $47.9 million in development fundings and $16.2 million in revenue generating CapEx at a weighted average initial cap rate of 7.5%. Fourth quarter investment activity brought our full year investment volume to $166 million at a weighted average cash cap rate of 7.2%.
Looking forward into 2020 for price discovery in the transaction market persists, interest rate volatility continues to influence the capital allocation decisions of buyers at a more accelerated pace than the price expectations of sellers leading to a persistent gap in bid-ask spreads and an overall muted level of completed transactions in the broader market.
As John highlighted, we remain focused in our efforts to source attractive investments and highly selective in the pursuit of opportunities as the market continues price discovery, our investment activity during the quarter consisted entirely of fundings related to UNFI and incremental revenue-generating CapEx, UNFI, our previously announced $204.8 million build-to-suit transaction remains on track to be completed and delivered to our tenant in the third quarter of 2024 with rent commencing no later than October, and we have funded approximately $93.9 million through December 31st. We will continue to look at creative opportunities to partner with developers in this capital constrained environment while remaining selective and cautious as the macro environment evolves.
Moving to our existing portfolio, 2023 credit performance was in line with prior years, which exceeded expectations. Given the interest rate and macroeconomic backdrop heading into 2024, we remain cautious on and continue to pay extra attention to industries that are sensitive to discretionary consumer spending. Of note, we have seen some operational performance decline in the furniture sector and as recently as this month had one tenant within the industry representing one asset or 0.2% of ABR filed for Chapter 11 bankruptcy. As part of the Company's reorganization efforts, we anticipate that the tenant will vacate the site which is predominantly a distribution center that also has a small retail showroom. We will begin working to backfill the space upon receipt of the property and expect to receive rents in the interim Red Lobster site level performance remains healthy, and we will continue to look to opportunistically sell these assets as we did during the fourth quarter for a single site at a 6.45% cash cap rate. Thai Union recently announced its intention to sell its stake in Red Lobster, and we are working with them as they navigate that process, given the strength of our site performance, the quality of our real estate, the strength of the brand and early interest in Thai Union stake, we remain cautiously optimistic about Red Lobster's future.
As John noted earlier, we will finalize the resolution for Green Valley Medical Center through a near term sale of the asset. The tenant has been unable to pay rent since October of 2023 and still has not commenced operations given the ongoing challenges in the financing markets.
And lastly, re-leasing efforts for our previously tenanted Shutterfly location has increasingly improved as we have received significant interest in the property. We are in late stages of negotiations with multiple parties and now expect a new tenant to take possession in the fourth quarter of 2024. Shutterfly will continue to pay rent and operate at the site through the second quarter of 2024. So we are expecting minimal downtime at the property.
With that, I'll turn the call over to Kevin for commentary on our financial results for the quarter.
Kevin Fennell
Thank you, Brian. During the quarter, we generated FFO of $71 million or $0.36 per share, an increase of 1.6% in per-share results year over year. For the full year, we generated FFO of $278 million or $1.41 per share, an increase of 1.1% year over year. And in line with the midpoint of our guidance quarterly and full year results were largely driven by same-store portfolio growth and incremental asset recycling throughout the year. We incurred $8 million of cash G&A during the quarter and $32.1 million for the full year or 1% increase year over year. We once again ended the quarter in a strong and flexible financial position. Despite no capital markets activity from a leverage perspective, we ended the quarter in a position of strength at five times net debt, up slightly from 4.9 times at the end of last quarter. Our mostly fixed rate debt capital structure keeps us insulated from interest rate volatility with no material near-term maturities. So our exposure to floating rates will start increasing later this year as our existing swaps start to roll in Q4 at our quarterly meeting of Board of Directors maintained our $0.285 dividend per common share and OP unit payable to holders of record as of March 29th, 2024 on or before April 15th, 2024. This represents an increase of 3.6% over the dividend declared in the first quarter of 2023. Our dividend remains well covered and represents an attractive dividend yield relative to many of our peers, given likely timing differences between asset sales and capital redeployment throughout 2024, our payout ratio could increase into the low 90% range of the middle of the year. However, we anticipate returning to our targeted payout ratio of mid to high 70% range in the relative near term as we redeploy the sale proceeds.
Finally, details of our 2024 guidance and key assumptions were included in our earnings release last night, they include an FFO of $1.41 per share, reflecting the timing of our ongoing dispositions and redeployment efforts. Investment volume between 350 and $700 million, disposition volume between 305 hundred million dollars with ongoing health care sales accounting for the substantial majority. And finally, cash G&A between $32 million and $34 million, which is the same cash G&A guidance last year.
I'll now turn the call back over to John before we open up the line for questions.
John Moragne
Thanks, Kevin. As you can hear from our remarks, we are quite proud of the way we navigated 2023 and are excited for what's to come in 2024, reflecting on 2023 and my 1st year as CEO. I'm proud of the decisions we have made the discipline we have shown in our commitment to long-term value creation and the results. Our actions produced in a volatile year. I believe the combination of these efforts will be demonstrated through the growth opportunities they will present us with as we navigate 2024 with an eye for what that means in 2025 and beyond.
The last year has been challenging for real estate generally, but I believe the future is bright for B&M. We can now open up the line for questions.
Question and Answer Session
Operator
(Operator Instructions) Spenser Allaway, Green Street.
Spenser Allaway
And Joe, how are you able to share any color on the buyer pool for the assets currently under contract and do you have a sense of whether any of these assets will be repurposed or if they are intended to remain leased to clinically focused and then expense or buyer pool?
John Moragne
We had a pretty robust list that we went out to. There was an active marketed process. So we were very pleased with the ability of the brokers that we worked with our team to drive this down to the best optimal disposition outcome for us. So robust process. These are a variety of dedicated health care operators in the real estate space. There's some private players in there as well as some public in. And our understanding is that all these assets are going to continue to be operated sort of as they are structured. So they're not being repurposed into something different, whether there's a view towards retenanting some of these in the future, given that that's something that is more prevalent. And as we talked about sort of in the prepared remarks in the dedicated health care space. I can't speak to that and what their plans are, but there's not a view that these are going to be I've torn down and turned to something totally different from the health care purposes they serve today.
Spenser Allaway
Okay, thank you. And then just turning to your investment guidance for 24 I suggest you would plan to be a net acquirer this year in the event that you continue to trade at a discount to NAV. Would this still be the case or should we expect dispositions to outpace acquisitions again for this year?
John Moragne
Yes, I think it depends on what we see from. We as you've heard in our remarks, there's a little bit of price discovery still going on. We're cautiously optimistic that this will start to sort of clarify itself over the coming quarters and you'll start to see volumes pick up. There's a lot of good indicators that suggest it should we're about 18 months into this tightening on net lease volumes as we start to see, hopefully, some of that bid-ask spread come in a little bit more from where it was particular during 2023. As you start to see some cost of capital improve, there might be some more buyers and get sellers more excited. That's part of the issue that people have experienced. But sellers haven't necessarily been willing to go out and market their properties or to look for transactions because I'm not sure what the buyer pool looks like. But what we have seen is even though there's been an increase in some places and the number of offers, you're not seeing it everywhere buyers that are well-capitalized, all cash buyers are in a much better position than those that are coming in with financing contingencies, which you continue to see on both deals that we're bidding on and deals that we are actively selling ourselves. So that positions us really well. And we also, as you heard in the remarks, are really keenly focused on looking at off-market opportunities that might come through our network as well as unique investment structures that we can take advantage of with developers and others that are struggling still because of the constraints in the commercial real estate lending business. That's one of the areas that we talked about a lot last year, and we're starting to see some good effort and good opportunity there. Within the $97.1 million that we've got under control is a fairly large transaction. That's a repeat deal with a developer from UNFI. So we're very excited about that repeat relationships, being able to find those off-market direct opportunities to invest capital and things that we get really excited about and are the places where we hope to see some more so just depends on what's going to happen for the year. And as we said, we will regularly update folks on both the sales efforts relative to the healthcare portfolio simplification strategy as well as our redeployment expenses.
Kevin Fennell
I mean, I would just add on the other part of your question is, um, from a need for capital, we're in the same spot. We were last year were low lowly levered. So we've got some leverage capacity as we think about net acquiring.
Spenser Allaway
Okay. Thank you.
Operator
Anthony Paolone, JPMorgan.
Anthony Paolone
Great, thanks. I guess first, just some clarifying items on the health care portfolio that you intend to sell. 11% of ABR is about $43 million, but there's some MOBs in there and such and it sounds like some landlord responsibilities as the NOI. a different number. Can you -- is it the $43 million?
John Moragne
The way we're thinking about a $40 million kind of certainly some savings built in. (Multiple speakers) Yes, sorry, so that the NOI is the $43 million, though, it sounds like.
Kevin Fennell
There's certainly some savings in there from property kitchen CapEx resulting from additional landlord responsibilities. But the way we've been thinking about it from a sales and redeployment endpoints focused on the 43.
Anthony Paolone
Okay. And then how should we think about cap rates on the stuff to be sold still outside of prices? There's no new NOI there, but this is just higher cap rate stuff. Do you see it as or is this seven nine reflective of the first tranche I counted? How should we think about that?
John Moragne
Yes, I think the seven nine that's reflective where we've been focusing on this is sort of that mid to high sevens for where we're looking to sell these assets. And we're not straight price takers in this exercise?
No, this is not something where we're looking to fire sale. These we took a long time to think through this process. And what we thought was going to provide the best long-term shareholder value. And we believe this is it we're really excited about executing on this in 24 and what that's going to mean for 2025 and the years beyond in terms of our ability to grow and drive value for shareholders, including AFFO accretion and multiple expansion. So we're not looking to sell these at really high cap rates just to move them along if we need to hold these for a little bit longer.
That's okay. These were assets that we had a lot of conviction in before we went public when we acquired majority of them. And so we can hold these and look to execute and then mid to high sevens. This is not something like a site that's going to be fire sale that higher cap rates.
Okay.
Anthony Paolone
And then with that being said, then if we are kind of sitting here looking at you are taking on this divestiture initiative, like how do we get comfortable looking out to 2025 and that being a return to growth? Or it may not be like I mean, how should we think about that? Like when when does this process kind of end and you get back to and driving accretive casino acquisitions?
John Moragne
Yes. I mean, 2025 is where we expect that to happen, although there's a chance you could see it in 20 for the reason we came out at $1.41 rather than providing a range one is that the timing on the sales and the redeployment is, as you can imagine, the single greatest variable on the range and the focus there is entirely on the health care simplification strategy. There's not anything that we were thinking about from a broad credit issues. There's no credit that that's not that worried about. You heard us during our remarks from a bad debt. And from a tenant credit standpoint, there's only a handful of relatively immaterial issues that we're focused on right now. So this is entirely based off of the strategic work that we're doing in the clinical healthcare sales and then redeploying those proceeds. And the goal here is that at worst, we wanted this to be a neutral exercise. So one, 41 to one 41, but things go our way a little bit on the timing standpoint, both in terms of are there ways that we can lengthen out some of the sales but still execute or are there ways that we can accelerate some of the investment activity depending on the opportunities we see we might be able to push it, but we started the year one 41. We're going to regularly update this. We believe as we get closer to sort of the end of Q3, beginning of Q4, we'll have a very clear view as to what our growth path looks like in 2025. And that's what we're gearing ourselves to a big piece of this, but I don't want to get lost either is and we talked a little bit about this last year is the huge benefit that we're going to get from UNFI coming online. But not only are we going to be going into 2025, hopefully with the majority of this healthcare portfolio simplification strategy sort of put to bed, but also we're going to have UNFI coming online and both of those things, plus whatever other kind of incremental redeployment we can do this year are going to give us one heck of a 2025. We think. So we're excited for that.
Anthony Paolone
So the intention is to manage this process to have growth in AFFO in 2025?
John Moragne
Correct.
Anthony Paolone
Okay. Thank you.
Operator
Michael Gorman, BTIG.
Vishal Sethi
This is Vishal on for Mike and with the UNFI facility coming on later this year and starting to impact cash flow. Can you remind us how those economics impact impacted back the back half of 2024? And as you near the end of the project, are you've seen other similar opportunities in the market right now? And where could we see you?
John Moragne
Yes, why don't you do the UniFi update?
Ryan Albano
Sure. So in terms of UNFI, we expect it to come online and start paying rent in the last quarter of the year, so fourth quarter. So we'll have one quarter of that and this year and then obviously a full year next year so most impactful for 2025 in terms of additional opportunities like that, we have been spending a lot of time with a host of relationships that we've built over the years from a developer perspective, and I'd call it the depth of that somewhere from just north of 10 relationships that we've been working with and seeing opportunities from there. Certainly, as John had mentioned some dislocation in the capital markets, and we do see future opportunities on a build-to-suit basis, Tom, but to be determined as we continue forward here in terms of how meaningful that will be if it makes sense.
Vishal Sethi
And then how does the deal flow look on the reinvestment side? Basically, how quickly you think you can redeploy these proceeds and as you think about redeploying assets, where are you seeing them interesting opportunities?
John Moragne
We feel pretty confident right now and the redeployment there. As we mentioned, we've got that $97.1 million that's already under contract. We're seeing more and more come along whether those transact or not. It's still an open question. As you heard in Brian's prepared remarks, there continues to be a lot of opportunity out on the market, whether those transact or not has really been the key thing in 2023 and what we've seen so far in 2024, but we've sharpened our pencil. There's a number of things that we're looking at in our core verticals, industrial and defensive retail and restaurant sectors that we think are actionable. So we're working hard on it. Expect to see some of that come in for Q. two Q. three, the timing, as I mentioned before, on the redeployment of the healthcare sales proceeds is going to be critical. So we're hopeful that we're going to see what we can, but we're going to maintain that discipline. That is still not the market of 2022 or 2021. This is an area where we still need to be disciplined and focused on finding the right opportunities. You're shifting ourselves to find a way to get to a yes, but still being very comfortable to say no, if it isn't going to work. But there's good opportunities right now in all three of those industrial retail and restaurants.
Vishal Sethi
Great. Thank you for your time.
Operator
Mitch Germain, Citizens JP Morgan.
Mitch Germain
Looks like a change companies on the Asian safe to assume that there's are there any other acquisition or sorry, dispositions planned other than health care? How should they think about that?
John Moragne
They be pretty minimal, Mitch, there's the usual risk mitigation stuff that we'd be focused on depending on how we're looking at the individual asset from an underwriting standpoint. But with the pressure that the healthcare sales put on earnings growth for the year. That's clearly the area that we'll be focused on, and it will only be a handful of things that we might do separately.
Mitch Germain
Got you. And then John, you said, call it around a high seven cap rate on the sales. You were able to do some deals recently. I think it was like an average low sevens for deployment how should we think about kind of yields that you're seeing in the market today?
John Moragne
It's can you replicate something close to the seven nine or is there likely to be a little bit of dilution as you go through that process. It depends on the asset, obviously, but more focused in the sevens with selling off. I mean, if you think about this first tranche of things that were selling the healthcare portfolio, you're talking about sub five year, Walt, the individual landlord responsibilities and some of the other things that, again don't work well for us as a publicly traded net lease company, but worked great for dedicated healthcare investors. That's a lot of the stuff that they look for in terms of where they have the ability to leverage their operational expertise as opposed to more of a passive net-lease environment. So that's why we believe that there's good opportunity to sell these and move them along and on that redeployment side, we're solidly in the sevens. There's still good opportunity out there, particularly in places where we're able to find off-market opportunities and unique investment structures with developers or others that aren't able to find the type of financing they used to 18 months ago. So that's where our focuses on an individual deal. You might be talking low to mid sevens on a blended basis, maybe we're talking mid sevens, but that remains to be seen as we go.
Mitch Germain
Got you. You talked about a repeat deal with the UNFI relationship that brought you that transaction, that's not a development deal, right? That's a traditional acquisition. Is that the way to think about it?
John Moragne
It's not a it's actually not a there's an existing property that they're working through, yes, solution on in terms of potentially selling some of the asset and looking for a financing solution on the other pieces. So we're working on that now it's not a straight up development and the entirety of it does not include sort of a straight fee-simple sale. So working on, as I said, you need transaction structures to help the developers out there that aren't finding what they need anymore from commercial real estate lending.
Mitch Germain
And that's one. Obviously, you mentioned the swaps are expiring and I think that's kind of the start to bleed into your earnings over the course of the next couple of quarters or years. Is there any desire to, you know, pursuit on something to replace and what's expiring right now? What are your thoughts there?
Ryan Albano
Yes. I think the first part of the answer is we've got time right skewed October of this year. Is when they'll start to roll. That's another $30 million by the end of this year, another $125 million into next year. So that order of magnitude is not particularly significant. And I think the decision on what you do is easier to make and clear to make as you get closer and if for no more potentially sitting on cash or whatever considerations we have, you know, we'll certainly evaluate best option and look at that alongside our maturities, which don't start until 2026.
Mitch Germain
Thank you.
Operator
John Kim, BMO Capital Markets.
John Kim
John, you mentioned the rationale of selling that that would certainly make sense while lower weighted average lease term potentially some higher risk to the landlords. But I just wanted to clarify the timing of this decision now and whether or not there was any tenant issues that were drilling are something that we were seeing on the horizon?
John Moragne
Yes. No, obviously, we've got great value from a set of issues that we've spent a lot of time talking about, but from the rest of this portfolio, this is a strategic structural issue, call it this is not looking at any individual tenant concerns. This is not something that we're thinking about from tenant credit, bad debt standpoint. And as I mentioned during my remarks, 2023 was a great year in many ways for us to be able to sit back and think about what do we want to be, what is the thing that's going to help us drive long-term shareholder value, get into some multiple expansion, get back to that virtuous cycle and we're now thinking of this sort of three year period has been critical to that 2023 was sort of a pause in the net lease market gave us time to sit and think about where we are, particularly relative to where we came from for years prior with going public 2024 is now going to be the execution period. And then 2025 is when we get to harvest the fruits of these labors, we're going to be spending a lot of time in 24 executing really well setting ourselves up the core mission of this business as any public statement, the three would be is to grow long-term shareholder value to grow FFO. We're not focused on sort of the vagaries in the vicissitudes of quarterly earnings. We're looking at what is going to drive long-term shareholder value, and that's what we're doing this year. And that was what drove this decision. And we're excited, as I said, to sort of harvest the fruits of these labors in 25 and beyond.
John Kim
Okay. And then in your answer to prior questions, on the cap rates that you expect now under remaining certified assets identified for sale, if it's at seven, nine or lower, that would imply roughly 95 on the remaining assets and so that's the total for that hospital acquisitions in the five, 50 or higher and your guidance for this year on dispositions of $300 million to $500 million. So I was just wondering if you're being conservative on that decision around or was there some kind of time make it just happened?
John Moragne
We're not accounting for it. No. I think it's the other home. I think that was sort of our best view as to what we've got in the pipeline right now.
I think another key component of this is Tom, and I think I touched on this earlier, but the we're not wedded to selling every single last one of those 75 assets or the 38 that aren't under contract right now. And 2024. We're not going to be price takers on this. We can be patient with these. So there may be a handful of those are more of that slip into 2025. And that's okay. This is again with a long-term view towards driving shareholder growth and value. So we're not going to trying to push them all through 2024. So that's for the range. I think if you're seeing any disconnect there, it's probably our view that some of these are probably going to push into 2025 as opposed to we are just taking whatever we can in 24.
John Kim
Okay. So more of a timing, a timing issue because I guess my other question is on your G&A guidance. You expected to be down $6 million or 15% this year versus last year. I realized last year you have $1.6 million of severance costs are not expected to happen again. But what is the remaining cost savings that come from on the SG&A side?
Kevin Fennell
Hey, John, it's Kevin. I think the numbers you might be combining we guide to cash G&A and the delta that explains most of that's probably the stock-based comp.
John Kim
Okay. Got it. Thank you.
Operator
Ki Bin Kim, Truist.
Ki Bin Kim
Thanks. Good morning. Tom, just wanted to go back to the AFFO cadence that we should expect in 2024. I think you mentioned at one point you'll hit a 90% payout ratio, implying a FFO of or low $0.3. Just want to confirm that. And if you can comment on the cadence, please?
Kevin Fennell
Yes, I think a point of clarification that is that in terms of trying to quantify where the dividend could theoretically go to, we basically said if these all happen today, what would the payout ratio look like, obviously, the timing impact will mitigate a lot of that. And so, you know, once again, we're back to the I think point of clarity here that the timing both on the disposition and the redeployment will be the driving factor and a lot of the quantitative outcome each quarter here.
Ki Bin Kim
Okay. And I just want to go back to the Red Lobster and Shutterfly comments, should we expect some type of rent or asset value dilution as these assets transitioned to different owners?
John Moragne
Possibly for the Red Lobster, we're working with them as they trying to find a new home for their stake in Thai Union being them. And that has not come up yet. That's not something that we're interested in. There's good value in the real estate that we own there. And we're not interested in taking a step back. It has not been a conversation that we've had as they have explored potential opportunities. And then on Shutterfly, it's in a great market. We've already had a handful of tours coming through. We feel pretty good about our prospects there. So we're not looking to take a step back, although as we mentioned in our remarks there, as I were thinking that our re-leasing that is probably scheduled for the fourth quarter and then Shutterfly would be vacating at the end of the second quarter. So there's a little bit of downtime there, but immaterial overall.
Ki Bin Kim
Okay. Thank you.
Operator
Ronald Kamdem, Morgan Stanley.
Ronald Kamdem
Just a couple of quick ones. So I'm just looking at the presentation about sort of the pro forma our portfolio as you were sort of going through this process? Was it solely focused on sort of the health care vertical? Or did you sort of kick the tires at some of the other verticals? And I'm thinking office here as well, right? Why not sorry, do everything at once and so forth. So how do you guys think through that?
John Moragne
Yes, we looked at everything, honestly, as I mentioned 23 was a great year for sort of stepping back. We didn't want to go into it with preconceived notions. So we were very keen on evaluating everything that was in the portfolio as Ron as you know, and as everyone else knows, we have been very industrial focused in the last five years north of $2 billion in total acquisitions, 70% of that being in industrial, I'm part of the part of our hypothesis around the clinical healthcare assets was looking at where do we transact and that had fallen off the cliff less than 10% of total investment volume in the last five years. And then all the other things that we had talked about. So not only was it a place that doesn't really fit well in our wrapper, but it's also a place that we hadn't been able to scale in a meaningful way for a long period of time.
On the other assets. So in terms of our core verticals, industrial and an extensive retail and restaurant sectors, we feel really, really good about, particularly after doing a deep dive and going through a massive asset and sector by sector in terms of what works for us and what we think will drive long-term shareholder value and multiple expansion.
But office, what you just touched on starting with, I think is about this time last year, we took a very clear stance that office is not going to be a part of our future on a stand-alone basis. We will be looking to slowly wind that portfolio down. We're very happy to hold onto those master leased office assets just because we think of them more as being a part of the industrial or retail or restaurant grouping that they're with. But those standalone office assets are better held somewhere else, but we're not going to fire-sale. There's good credits on those that consistently pay rent. We don't have any landlord obligations. It's not something that is causing any real issues for us. So we will happily hold those until we can find an optimal disposition outcome, but we will be looking for an optimal disposition outcome at some point.
Ronald Kamdem
Got it. And then just in terms of most people and staffing as it does anything change there? Like are there people that are working on the healthcare that are either getting let go or refocusing? Or is it like how does the how does the team actually change come from from the extraordinary events.
John Moragne
So we're fairly mainly staff to begin with, and we haven't had a lot of growth. We've been pretty much flat for the last two years to three years here on the healthcare in particular. And there was already some attrition that we had experienced during the year. And then we have one retirement that's coming up that's a plan separate. And apart from our healthcare reorganization and then keep in mind, even at the end of this, we're going to have 7.5% sitting in the our consumer-centric health care space. And so the folks that we have that work on that would continue to be dedicated to that space. So we're kind of flat from a personal person basis for the last couple of years here, and we anticipate that's going to hold true for this year as well.
Ronald Kamdem
Great. That's it for me. Thanks, Omar.
Operator
We currently have no further questions. So I'd like to hand the call back to John Moragne for closing remarks. Over to you.
John Moragne
Thanks, Bruno. Thanks all for joining us today. I hope you can hear the excitement that we have about the strategy and what we're going to be doing in 2024, particularly with that long term view of growing shareholder value and multiple expansion in 2025 and beyond. We look forward to seeing many or all of you in the upcoming weeks at various conferences and hope you'll enjoy the rest of your day. Thank you.
Operator
Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.
John Moragne
Thank you all. Enjoy the rest of your day.
