Hello, and welcome to W. P. Carey's Second Quarter 2019 Earnings Conference Call. My name is Kevin, and I'll be your operator today. All lines have been placed on mute to prevent any background noise.
Please note that today's event is being recorded. After today's prepared remarks, I will now turn today's program over to Peter Sands, Director of Institutional Investor Relations. Mr. Sands, please go ahead.
Good morning, everyone. Thank you for joining us today for our 2019 Q2 earnings call. Before we begin, I would like to remind everyone that some of the statements made on this call are not historic facts and may be deemed forward looking statements. Factors that could cause actual results to differ materially from W. P.
Carey's expectations are provided in our SEC filings. An online replay of this conference call will be made available in the Investor Relations section of our website at wpkeri.com, where it will be archived for approximately 1 year and where you can also find copies of our investor presentations. And with that, I'll hand over to Jason Fox, Chief Executive Officer.
Thank you, Peter, and good morning, everyone. We had an active second quarter, which included creatively converting the bulk of our operating self storage assets to net leases, selectively adding several industrial properties and successfully accessing the capital markets, all of which I'll go through in my remarks this morning. Then I'll hand it over to our CFO, Tony Sanzone to review our Q2 results, guidance and balance sheet. And after that, we'll take questions along with our President, John Park and our Head of Asset Management, Brooks Gordon, who are joining us on today's call. Starting with the investment backdrop.
Central banks, both in the U. S. And Europe, have signaled their intentions to keep interest rates low that they may go even lower if global growth continues to slow. The search for investment yield has kept demand for net lease assets high. And while this means that our portfolio is more valuable than ever, it has also kept the acquisition environment very competitive.
Within industrial and logistics, which continues to be sought after asset classes, our long standing presence in sale leasebacks and ability to provide certainty of close ensured we continue to see a significant number of opportunities, executing on those that met our underwriting criteria. Given our improved cost of capital, an increased number of higher quality industrial assets at tighter cap rates provides us sufficient spread to be accretive, We are actively bidding on deals we like. Other property types presented a good number of opportunities, but ultimately, their deal structures did not provide an adequate risk return trade off. We are unwilling to accept shorter lease terms in office, for example, and remain very selective in retail, which we view as generally unattractive as it continues to adjust to the disruption from e commerce. Amid this backdrop, we completed $155,000,000 of investments during the quarter.
This comprised 4 industrial sale leasebacks totaling $124,000,000 supported by strong tenant businesses and providing good rental growth and completion of 3 capital investment projects at a cost of $32,000,000 I'll briefly review some of the more notable deals. The largest of our 2nd quarter investments was a $70,000,000 sale leaseback of an operationally critical food production and distribution site in Pennsylvania, totaling more than 400,000 square feet net leased to Turkey Hill, an industry leading supplier of ice cream and beverages. This is a triple net lease with a 25 year term and fixed annual rent escalations. The site is powered entirely by renewable clean energy sources and the tenant has implemented green initiatives to eliminate waste and to minimize its environmental impact. So in addition to being an accretive transaction, we're pleased to add this environmentally responsible property to our portfolio.
We also completed the $24,000,000 sale leaseback of 8 production facilities totaling 525,000 Square Feet Located in the U. S. And Mexico, net leased to a global supplier of electrical components. The tenant is a market leader, generating about $1,000,000,000 in annual sales to a diverse customer base. The mission critical properties represent a significant portion of the tenant's North American manufacturing footprint.
The portfolio is triple net leased for 20 years under master leases by country and denominated entirely in U. S. Dollars with annual rent escalations tied to U. S. CPI.
And we closed a $19,000,000 sale leaseback of a 300,000 square foot warehouse and light manufacturing facility just outside of Charlotte, North Carolina. The property is net leased to a leading supplier of sports uniforms, performance athletic wear and fan wear. The facility is triple net leased for 20 years with annual uncapped CPI rent increases. Our 2nd quarter investments had a weighted average cap rate of 7.1%, providing a healthy spread to our cost of capital. We also achieved long lease terms with a weighted average of 20 years.
In conjunction with our recent leasing activity, this had a positive impact on the overall weighted average lease term of our portfolio, which ended the quarter at 10.4 years. These transactions brought our first half investment volume to $395,000,000 And since quarter end, we've completed 2 additional investments totaling $45,000,000 bringing our total investment volume year to date to $440,000,000 The increased size of our portfolio remains a good source of investment opportunities for us. Including build to suits, we ended the quarter with 6 capital investment projects outstanding for an expected total investment of approximately $184,000,000 of which we expect to complete 4 projects totaling $96,000,000 this year in addition to what has already been delivered year to date. In many respects, the most meaningful addition to our net lease portfolio during the quarter was the transaction we entered into with Extra Space Storage, under which 36 operating self storage properties acquired in our merger with CPA:seventeen will be converted to net leases. As we said at the time, this creative transaction represents a win win for both companies.
For W. P. Carey, it allows us to maintain growing income from self storage with rent increases expected to exceed same store growth from our existing portfolio in a structure that minimizes our exposure to the capital expenditures associated with this business, and it adds certainty to our cash flow streams, consistent with our focus on being a pure play net lease REIT. More broadly, it also emphasizes the potential of self storage as a source of net lease investment opportunities for us as operators look to take a more asset light approach. We know the asset class well, having invested in it for over 15 years and have a team of people focused on sourcing net lease investments within self storage.
Since announcing this transaction, I'm pleased to say that Extra Space has received an investment grade rating from S and P, which will show up in our 3rd quarter metrics as a boost to the percentage of ABR from investment grade tenants. And given the timing of the conversions, we also expect Extra Space to rank among our top 10 tenants next quarter. So in summary, this transaction added an investment grade tenant to our net lease portfolio with strong rental growth on a 25 year lease term. Turning briefly to our capital markets activity during the Q2. We have been deleveraging since the start of the year and during the Q2 further utilize our ATM program to efficiently raise equity capital.
We also successfully completed our 8th offering of senior unsecured notes with our recent U. S. Bond issuance, raising $325,000,000 at a coupon of 3.85 percent for a 10 year term. We saw strong institutional interest pricing at the tightest spread and at the lowest coupon of our U. S.
Bond offerings to date. This was an excellent outcome for us, highlighting our improving credit profile as well as our ability to access a variety of capital markets as a regular issuer of both U. S. Dollar and euro investment grade bonds. In closing, we're focused on utilizing the cost of capital advantage we've established to enhance our investment spreads and access a wider set of acquisition opportunities, while continuing to mine our large and diverse portfolio for following opportunities with existing tenants.
In aggregate, the investments we've completed year to date and the capital projects we expect to complete this year total close to $540,000,000 On top of this, the transaction we entered into with Extra Space, once fully converted, will add close to $500,000,000 of self storage assets to our net lease portfolio. Equally, we're focused on the other side of the balance sheet and the importance of maintaining access to diverse sources of capital in order to fund our growth. And with that, I'll hand the call over to Toni.
Thank you, Jason, and good morning, everyone. This morning, we announced AFFO of $1.22 per share for the 2019 Q2 with 96% or $1.17 per share generated by our core Real Estate segment. Annualized base rent or ABR grew to just over $1,100,000,000 at quarter end, primarily reflecting our 2nd quarter investments and leasing activity and same store rent growth of 1.6 percent year over year. The majority of our 2nd quarter investments were completed towards the end of the period, so their impact will be fully reflected in lease revenues beginning in Q3. And we also expect our same store to bump up in the 3rd quarter, driven by a scheduled rent increase from 1 of our largest tenants.
As Jason discussed, our year to date investment volume through today totaled $440,000,000 and we currently have about $100,000,000 of capital investment projects scheduled to be completed during the remainder of this year. Our near term pipeline remains active and we continue to expect our full year investment volume to be in line with our guidance assumptions. During the Q2, we sold 5 industrial properties for gross proceeds of $17,000,000 bringing dispositions for the first half of the year to 22,000,000 dollars For the full year, we continue to anticipate total dispositions of between $500,000,000 $700,000,000 the majority of which are expected to close towards the end of the year, including 2 larger dispositions in the Q4, comprising the New York Times repurchase and the anticipated sale of 1 of our 2 remaining operating hotel properties, which is currently under contract. Turning to leasing activity. We were extremely active on the asset management front during the 2nd quarter with re leasing activity impacting about 3% of ABR.
We executed 28 lease renewals and extensions with existing tenants that in aggregate recaptured just over 100 percent of the prior rent and added just over 8 years of incremental weighted average lease term. Most significant was the restructuring of the AgriCore portfolio, which comprises 23 grocery stores and 1 warehouse property acquired in our merger with CPA:seventeen. Under the restructuring, we reached agreement with the tenant on new rents for 19 properties, increasing the ABR associated with those properties from $10,100,000 to $15,400,000 and extending their lease term to 15 years. We also reached agreement to collect approximately half of the prior unpaid rents with about $7,000,000 expected to be recognized in the second half of twenty nineteen and $4,500,000 in early 2020. These recoveries will flow through lease termination income and other revenues, which is where we typically capture lease related payments resulting from past recoveries and formations.
We expect this line item to trend higher in the 3rd 4th quarters, resulting from these payments as well as certain other lease related settlements that are nearing completion, all of which has been reflected in our guidance range. In terms of new leasing activity, during the Q2, we entered into 31 new leases on existing properties with a weighted average lease term of 24 years, driven primarily by the transaction we entered into with Extra Space Storage. On June 1, 22 self storage operating assets were converted to net leases with ABR of $13,600,000 An additional 5 properties were converted on August 1 with ABR of $5,900,000 As a result, you will see the partial quarter impact of the increase in lease revenues in both the second and third quarters, along with an associated decrease in operating revenues and expenses. The remaining 9 properties will convert to net leases as they become stabilized over the next few years. And as a reminder, we continue to operate 10 self storage properties, which were not part of the transaction with extra space.
Those assets are performing well and will continue to generate operating revenues and expenses while we evaluate alternatives for them. Moving to our capital markets activity. We further utilized our ATM program during the Q2, efficiently raising $88,000,000 at a weighted average stock price of $80.33 per share. This brought our first half ATM issuance $392,000,000 at a weighted average price of $77.06 per share. The impact of ATM issuance during the first half of the year will be fully reflected in our Q3 diluted share count, which we expect to be approximately 172,000,000 shares, assuming no further ATM activity.
As Jason mentioned, during the Q2, we also successfully completed a U. S. Bond issuance, raising $325,000,000 with a maturity of 10 years and a coupon of 3.85%, which is well below the 5.1% weighted average interest rate on the mortgages we prepaid during the first half of the year. We continued to actively reduce mortgage debt during the second quarter, primarily through $294,000,000 of prepayments, bringing total mortgage prepayments during the first half of the year to 493,000,000 dollars Secured debt as a percentage of gross assets was 14.7% at the end of the second quarter, down from 18.3% at the end of 2018. And we remain focused on continuing to find new opportunities to prepay mortgages and further reduce that percentage over time.
Our capital markets activity over the course of this year has further strengthened our balance sheet with leverage levels currently at the low end of our targeted range. While this activity has a moderate near term impact on earnings, it also positions us extremely well to execute on our acquisition plans and drive long term AFFO growth going forward. In the second half of the year, we expect acquisitions to largely be funded by disposition proceeds and our revised guidance range currently assumes no additional equity or bond issuance in 2019. We will continue to monitor market conditions along with the timing of our capital needs and remain well positioned to act opportunistically. Turning briefly to our Investment Management segment.
We expect to continue to earn asset management fees on the remaining non traded funds until their ultimate liquidation at run rates generally consistent with the Q2. Structuring and other advisory revenue was negligible for the Q2 and is expected to be insignificant going forward. Turning quickly to expenses. G and A expense for the 2nd quarter was $19,700,000 as certain compensation related costs such as payroll taxes are weighted in the first half of the year, we expect G and A to trend lower in the second half. And for the full year, we continue to expect G and A to be between $75,000,000 $80,000,000 And lastly, as we announced this morning, we have narrowed our 2019 AFFO guidance range to between $4.95 $5.05 per share, including real estate AFFO between $4.70 $4.80 per share, primarily reflecting our expectations for acquisition timing as well as the deleveraging of our balance sheet this year.
Given our diversified approach and current pipeline, we continue to anticipate We remain We remain confident about both our short term and long term outlook and our ability to generate growth through our existing portfolio and new acquisitions, while maintaining a strong and flexible balance sheet. And with that, I will hand the call back to the operator to take questions.
Our first question today is coming from the line of Spenser Allaway from Green Street Advisors. Your line is now live.
Hi, thank you. Could you maybe provide some color on the disposition pricing in the quarter, perhaps just like an average cap rate and then maybe how these came about? Were these reverse inquiries or are these opportunistic sales?
Good morning. This is Brooks. While we won't comment on specific cap rates for this quarter, I can tell you for the year, we expect our average disposition cap rate roughly in line with acquisitions, so in and around 7%. These particular deals were pretty small. 1 was a small purchase option of an industrial property in Las Vegas and the other 4 was actually a put option of some printing facilities, which the tenant bought back.
Okay. Thank you.
Thank you. Our next question today is coming from Tony Paolone from JPMorgan. Your line is now live.
Yes, thanks. Can you talk about just first half deal flow and whether it came in above, below expectations in terms of like the stuff that you all looked at? Or did you feel your hit rate was out of the ordinary? Just trying to understand sort of back end loading as we get through the year here on the transaction side.
Yes, sure. Good morning, Tony. So, as Tony mentioned, we feel like we're on good pace for this year. The first half of acquisitions, it was around $450,000,000 closing to date. So that included, I think, 2 deals that closed after quarter end that you won't see in the supplemental yet.
It was focused more on industrial. I think year to date, about 80% of what we've purchased has been industrial. We certainly continue to value diversification and look at a wide range of opportunities, but industrial is where we've seen better opportunities. I think they've almost all been sale leasebacks, certainly in the Q2 and what we've closed since quarter end, they've all been sale leasebacks. So that's a typical theme, structured transactions where we can get some incremental yield.
They've also all been in the U. S. The pipeline has picked up some in Europe, but given how low rates have moved in Europe, there has been some more meaningful cap rate compression and more capital inflows looking for kind of the stability of net lease. We do expect to do some deals there, but it has become a little bit more competitive. I think Tony also mentioned that we tend to see a pickup in deals going towards year end.
So again, we're optimistic about our acquisition range. And then lastly, we also have a number of what we call capital investment projects, expansions and some build to suits that are currently under construction that once complete will flow through our rental income and be part of our acquisition volume for the year.
And as you look into the rest of the year, do you think that bent toward U. S. And industrial will continue to be the case?
I do. I think that that's where our pipeline is a little bit more weighted right now. I do think that we'll do some European deals this year that we have year to date, or nothing significant size for that matter. So that'll change, but I think by and large, it still will be weighted towards the U. S.
And towards industrial and probably towards steel leasebacks as well.
Okay. And then maybe a question for Tony. If we think about just the capital source and use that you talked about and you have New York Times coming out, where do you think net debt to EBITDA lands at the end of the year when you factor all these things in?
Yes, I think that is one that moves around again depending on the quarter activity. We see that trending downward with the ramp up in earnings as the year progresses, continuing kind of our debt strategy where we are now. So I do see that coming down a bit towards the end of the year, but still within the ranges, what we're expecting. And I think we normally highlight our target range in the mid to high five times.
Okay. So the 5.8 in the last couple of quarters maybe comes down a little bit, but not probably going to the low 5s, it sounds like?
Right. And any movement again could be temporary, could go up and down in any one quarter, but we do see that trending down slightly for the back half of this year.
Okay, great. Thank you. Welcome.
Thank you. Our next question is coming from Emmanuel Korchman from Citi. Your line is now live.
Hey, good morning, everyone. Good morning, Emmanuel. Tony, the lease term and other revenue items that you ran through in your opening remarks, were those already included in prior guidance or those incremental to sort of the information you gave us previously?
Those had already been baked in at some degree. I think at the beginning of the year, we had line of sight to the activity that we expected this year. I would say we were fine that as the year progressed. And certainly with AgroCore done, that's a big portion of that. So I would say it was certainly contemplated when we went into the guidance range.
Okay.
The more recent strength in that?
Well, I think we look at the capital. The line we also have the bond in the quarter. So factor that at 1 point in time and just balancing that out over the year.
Great. Thanks, Donnie.
Thank you. Our next question today is coming from Todd Stender from Wells Fargo. Your line is now live.
Thanks. And just to kind of stay on that theme of the permanent capital, you've been more conservative. You've tapped and being opportunistic, but you've tapped the Is that kind of the push and pull that you had to decide in the quarter? Is that kind of the push and pull that you had to decide in the quarter, which ultimately, I guess, brought down your AFFO guidance at the high end?
Yes. I think we're certainly always mindful of the dilution impact, but we do look to run with the most amount of flexibility that we can give ourselves to fund acquisitions in the long term. So running the line up high is not a part of our strategy. We like to have that flexibility to do significant deal volume as we need to. So it is a balance as we look at timing throughout the year, but I think we were happy with what we executed and the timing of when we did and we continue to keep the balance on our line fairly low.
All right.
I guess switching gears just to the income statement. Your property operating expenses, we would have thought would have come down, I guess, in Q2 versus maybe an elevated number in Q1. Any color there? I don't know if you've covered it already.
I think that line item is running around consistent with how it has in prior quarters and that's in line with our expectation. I mean, I think the vacancy rate has stayed fairly consistent quarter over quarter. And as we're working through some of those vacancies, we do expect that will come down over time. But I think it's still in line with what our expectations were quarter over quarter.
And have you guided for a number for the full year?
No, we really don't guide on property expense, but I think in terms of kind of the percentage of revenues, roughly in line with where we are now, shouldn't move meaningfully.
Okay. Thank you.
Thank you. Our next question today is coming from Greg McGinniss from Scotiabank. Your line is now live.
Hey, good morning. Tony, I apologize, it's a bit of a repeat of my question from last quarter. But the full year earnings guidance range implies a fair bit of acceleration into the back half of the year. And I know you mentioned the increase in same store growth is expected in later quarter acquisitions. And I'm curious if anything else needs to happen to reach the top end of the guidance range this year.
I mean, does the $700,000,000 of back half acquisitions still seem like a reasonable goal given the more competitive environment you guys have noticed?
Yes. I mean, I think we
still feel good about the opportunity set we see. We held our guidance assumptions in that regard. But in terms of the factors that are driving us up, I think I did mention the bulk of them. I would say the transaction timing is certainly meaningful, causing variation from quarter to quarter. So we will see the deals that we closed just at the end of the quarter and just after quarter end take effect on the full year, depending on where you place the remaining transaction volume for the back half of the year will certainly have an impact.
And our disposition activity really is weighted towards the very end of the year, as I mentioned. So combining that with some of the other items, the lower G and A expense that we were seeing towards the back half of the year and the higher lease termination income largely due to AgriCore and some other settlements we're expecting. Those are really the points that are driving us up in the back half and we'll see that ramp up put us in line with our guidance range.
Okay, thanks. And Jason, can you just give us maybe an idea of like the level of deals that are in terms of acquisitions?
Yes, I mean, we don't typically talk numbers. We've been doing this long enough where we know that these deals don't close until they're closed. But we do feel good about the pipeline. I mentioned earlier, characteristics are more U. S.
Focused, more industrial focused. I think it's been kind of a consistent size throughout the year, the pipeline. We do hope that and expect that it will build a little bit more as we get into the 4th quarter. That's typically what we see coming into the end of each year. And then lastly, we do have full visibility into our capital investment projects.
Those are properties that are under construction that we expect to complete this year and those get added to that volume at that point in time. We've done, I think there's $200,000,000 call it $185,000,000 to $200,000,000 Under construction right now, we expect about 100 of those close by year end. The rest of that would fall into the pipeline for 2020.
All right, great. Thank you, guys.
Welcome.
Thank you. Our next question today is coming from Karin Ford from MUFG Securities. Your line is now live.
Hi, thank you. Good morning. Good morning, Sharon. How much do you think cap rates have come down with the recent move in rates? And I know you mentioned in your prepared remarks that you're willing to go lower on the spectrum given your cost of capital improvement.
How low are you willing to go? And where do you think investment spreads will end up in 2019?
Yes. So the first part of the question on cap rates, I think in the U. S, they have come down. It's hard to put a number on it, but broadly, I would probably say 25 basis points perhaps over the last quarter as interest rates have really continued to move down lower. Europe over throughout the year, it's probably been more than that.
It's we're probably down at least 50 basis points in Europe, maybe even a little bit more depending on the country and the asset class. I think generally speaking, we're still finding deals, I would say, in the 6s and into the 7s. As you did mention, we are continuing to look at deals that are inside of 6. Call it, maybe low to mid-5s is where we would start to focus. And a lot of that is our cost of capital has come down.
We've our equity multiple has certainly expanded. We have our spreads have come in. As I mentioned earlier, we had the lowest spread and coupon for U. S. Bond issuance since our inception.
So all that's trending positively for us on a cost of capital standpoint. And we think we can pick up some incrementally deal volume by looking at what we expect to be higher quality deals at tighter yields, deals that may have better located real estate or higher growth built within them.
Okay. And what specifically what type of characteristics would a deal have
to have to for you
to be willing to pay a cap rate in
the low to mid fives?
There's a lot of variables that we look at and some of those are the strength of the tenant behind the lease, the length of the lease term, the fundamentals of the market in which they're in, more primary markets, ones that we would expect to have long term positive trends and dynamics. Those are factors. Certainly, how we look at the real estate itself, we'd like to be in a market or below market rents, perhaps to give us some mark to market opportunity, replacement cost matters, basis matters. So all those factors will impact where we bid on deals, and it's really individual deal specific.
Okay, great. And then last one for me. I know we talked about this a little bit on the last call, but have you seen any impact in the recent quarter in Europe competition wise or deal wise from Realty Income's entry into the European market?
We really haven't seen them in Europe yet. And generally, we tend not to overlap with them a lot in the U. S. So perhaps that'll hold true in Europe. As we mentioned before, we think it's a big enough market where there's plenty of room for a new competitor to the extent that we do overlap some and it adds credibility to our business model.
But we really haven't seen much of them yet.
Great. Thanks for taking the questions. Welcome.
Thank you. Our next question is coming from Sheila McGrath from Evercore ISI. Your line is now live.
Yes, good morning. On the self storage transaction, if you look at the NOI that you were receiving before the transaction, should we just assume you converted that into rent? Or was it structured considering some coverage ratio to account for property fluctuations? Just want to understand how that structure a little bit?
Yes,
sure. I mean, it's roughly in line with our NOI. I think there's a couple of exceptions and that's looking backwards roughly in line. There is CapEx was factored into the formula to set rent. So when those were operating properties, those did not run through our income statement.
But now that they've been set relative to rent, they will decrease the net lease rent relative to NOI. Going forward, there'll probably be a little bit of cushion. We hope there will be as these properties continue to grow. But by and large, I think it's roughly in line with NOI.
And then you mentioned in your release that you converted some more. Is it the same structure with the same parties? Is that
Yes, it was under the same deal with Extra Space. There really was just timing differences on the 36 assets. So some closed in June, as Tony mentioned, some just converted August 1. And then there is a, I think another 9 properties that are stabilizing and once stabilized over the next year to 2 years, those would convert as well.
And do you think that this is kind of a one off because you were in a position where you own the assets? Or do you think there's other opportunity in that segment to add to your balance sheet?
No, we think there's opportunity here. I mean, we've been in this space since 2004 when we first did the U Haul transaction, a large sale leaseback. I think it was 78 properties, a deal that I worked on at this point 15 years ago. So we know the space well. We've been a very active investor in the space within the funds, which is how we acquire these assets beginning with through the CPA:seventeen transaction.
We have a deal team in place that's evaluating deals. So it could be operating assets that are converted. We're in discussions with some of the operators to see if there are opportunities for sale leasebacks of their existing portfolios as they look to perhaps shift a little bit more to a asset light strategy. And there's also private players out there that it could play into. So, part to tell how big that opportunity will be for us.
Time will tell, of course. But it falls under the diversified business model for us where we have lots of opportunities in terms of asset classes and geographies to allocate capital and look for the best opportunities.
Okay, great. And then on the mortgage prepayments, just curious, do you wait, target the mortgages that have burned through a prepayment penalty to unencumber those or, do you owe prepayment penalties?
Yes. I mean, generally that's our objective is to minimize that to as little as possible, and that's where we're trying to be efficient there in identifying those opportunities. But we've been able to keep that number fairly low this year with around $500,000,000 of prepayments.
Okay. And last question, just on the transaction that you mentioned in U. S. And Mexico,
is that all industrial and are
the rental revenues all in U. S. Dollars?
Yes, all industrial and all U. S. Denominated rent. And it's a U. S.
Company as well.
Okay, great. Thank you.
You're welcome.
Our next question today is coming from John Massocca from Ladenburg Thalmann. Your line is now live.
Good morning.
Good morning, John.
Good morning, John.
So, apologies if I missed this in your leasing commentary and prepared remarks. But if you look at Page 32 of this up, what drove the rent roll down in kind of the 5 warehouse properties that were renewed or extended in the quarter? Just any color there would be helpful.
Sure. This is Brooks. Those were our portfolio of warehouses across the U. S. Leased to true value.
We were able to extend leases by 12 years. We did absorb a bit of a roll down and contributed a small amount of TI, which is spread over about 6 years in terms of its actual payment. We think the deal added tremendous asset value, and really locked in the criticality of that portfolio with true value. But, yes, slight roll down on those. Okay.
So essentially Blended, it makes sense.
Correct.
Okay. And then following up on your comments on kind of the potential for converting operating self storage assets to kind of a net lease structure. Do you think there are opportunities with other operating property types that you could maybe bring on the balance sheet as operating properties and then transition them to net lease? Maybe more specifically, I was kind of thinking is that a possibility in the student housing space?
Yes, sure. I mean, we've done a number of transactions like this where we've taken operating assets and converted them to net lease. And this goes back a long time. You think back in the 90s, we did a large sale leaseback in the hotel space with Marriott and still own a number of those properties. As you know and I mentioned earlier, the sale leaseback that we did with U Haul in 2,004 and obviously the extra space conversion we just did right now.
We're also pioneers in cold storage probably 15, 20 years ago, moving that operating business into a net lease model as well. So I think there are opportunities. For us, what's important here is that we make sure that we're balancing the risk return. We don't want to take too much of the downside if we're not getting all the upside in our operating property. So that would mean that we'd want to see longer lease terms.
We'd want to see strong credits behind them. I think student housing is a space that could be interesting to the extent there are operators out there that are, that we deem creditworthy that we can put on long term leases. We're not doing anything actively right now, although we do have a couple of those assets within our portfolio that we've done with some universities over the years. So I think it's a possibility. And I think again, given our diversified model, there are a wide opportunity set for us to consider those different types opportunities.
Okay. Appreciate the color. That's it for me.
Thank you very much. Thanks, John.
Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.
Thanks everyone for your interest in W. C. Carey. If you have additional questions, please call Investor Relations
Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.