Session at Citi 2023 Global Property CEO Conference. I'm Eric Wolfe with Citi Research, and we are pleased to have with us W. P. Carey CEO, Jason Fox. This session is for Citi clients only. If media or other individuals are on the line, please disconnect now. Disclosures are available on the webcast and at the AV desk. As a reminder, the questions I will ask during this session will not reflect or imply views or opinions from myself or Citi Research, and are being asked for information purposes only. For those in the room or the webcast, you can sign on to LiveQA.com and enter code C 2023 to submit any questions if you don't want to raise your hand. Jason, we'll turn it over to you to introduce your team, give some opening remarks, and then we'll go into Q&A.
Okay, sure. Yeah. Thank you, Eric. Appreciate having us. Thanks all of you for joining us today and, of course, the tens of thousands of you that are listening over the airwaves. I'm joined today by Peter Sands, to my left, who heads up Investor Relations, and Jeremiah Gregory, who heads up Capital Markets for us. W. P. Carey, we're one of the largest net lease REITs with about an $18 billion equity market cap, about a $25 billion total enterprise value. We are diversified. We invest both in the U.S., North America, and Europe across property types, primarily industrial, both in the U.S. and Europe, and in addition to that, retail in Europe as well. We'll open up to you, Eric, for questions.
Great. We're in a pretty volatile environment, both in terms of capital costs, and sort of future expectations around economic growth. Given that you're a global investor, as you just mentioned, you look at multiple property types, you look at multiple geographies, can you just sort of talk about how you manage that entire process, given that you're looking at so much and then sort of making sure that you get the right spread to your cost of capital and the right risk adjusted returns for your investors?
Yeah, sure. I mean, being diversified, there's a lot of advantages in that. I think there's downside protection, which we talk about, and that's certainly important during times of economic volatility. It's also, you know, important on the growth side. As you mentioned, we have a lot of different geographies and property types we focus on, and we have a wide funnel, and therefore, we're able to kind of select the best opportunities and provide a, you know, higher level of externally driven growth. You know, we do have teams based both here in the U.S. and in Europe. We've been in Europe investing since 1998, so we've, you know, we've made our mistakes over time, but we have a pretty well-oiled machine at this point in time.
You know, the team in Amsterdam is about 40 to 50 people focused on operations, and we invest, you know, primarily out of London from the investments team. You know, they're pros. We have local people on the ground. They understand the markets. They understand the cultures. They have lots of relationships there, and it's part of the process. Certainly, you know, management, based in New York, we have a, you know, very, you know, rigorous, pricing committee and investment committee process that oversees all of it. You know, a lot of it is managed locally where we have good people on the ground.
I guess what were some of the mistakes? You said you made some mistakes in Europe. I guess just curious sort of what those were and sort of what you learned from them and how that sort of applied in your investment process today.
Yeah, sure. I mean, look, when you get into new markets, there's lots to learn, whether it's tax structuring, understanding local laws, bankruptcy laws. I wouldn't say there's a lot of mistakes, but, you know, each time you do a new deal, you learn something that you hadn't done in the past. At this point, you know, we're in many markets across Europe, but it's primarily northern and western. You know, Germany is our largest country. Like I said, we have, you know, great people on the ground and local partners that help us get through the underwriting and closing processes, as well as managing the asset portfolio kind of on a long-term basis.
I think you mentioned on the call that last year at this time, you saw rates rise pretty quickly, and that was a bit of a headwind towards acquiring more, just sort of an uncertain cost of capital. Same thing is somewhat happened this year. The ten-year is getting down to call it 3.2, 3.3, and then it's now in the 3.9-4 range. I guess now that the same thing is happening again this year, should we expect that to be a sort of a headwind towards your acquisition growth, or have cap rates adjusted enough to where you feel like you're getting the right spread to your cost of capital?
Yeah. I think there's a couple things to point out here. Number 1, cap rates have adjusted, especially in the markets that we target, and really maybe especially in the ways that we source new investments. You know, 90%+ of what we've been acquiring the last couple years have been sourced either through sale-leasebacks or build-to-suit, where we're able to dictate pricing, terms, lease lengths, you know, the type of bump structures that are in there. They're more complicated deals. There tends to be a smaller universe of buyers. You know, I think from a seller's perspective, there's more execution risk. We do have a bit more pricing power.
We have seen cap rates rise more within the sale-leaseback market, especially when you consider the types of companies that we target, which is just below investment grade, where we think we can get the better structures and more yield. Really at this point in time, we think, you know, in my 20-plus years of doing this, I'm not sure if we've seen a more constructive point in the cycle to do sale-leasebacks where corporates have fewer alternatives to raise capital, especially those that are just below investment grade. The high-yield markets have ballooned out a lot further than, you know, an investment grade bond issuer like we have. Our cost of capital is in a very strong position relative to, you know, their alternatives, which might be the leveraged loan market.
I think on top of that, historically, our competition for sale-leasebacks has been mainly private equity real estate investors, funds that are targeting a similar asset or transaction that we are. They've historically relied on higher leverage to generate their returns. It's mainly in the mortgage markets that have gapped out, again, much further than where our costs have. We're in a good position. We have some pricing power. We have the history of execution. We have relationships. I think all those tailwinds have benefited us to maintain, you know, spreads despite the volatility in the rate markets. I think on top of that, you know, we have, you know, been very proactive in how we've raised capital.
We're sitting on just under, as of the end of Q4, just under $600 million of equity forward, all raised at or above where we're currently trading. We also have, you know, significant availability on our revolver, which gives us over $2 billion of liquidity. You know, we can be patient. We don't need to be in the capital markets. You know, we could execute on a large percentage of our 2023 target investment volume and not have to be in the capital markets. We're certainly mindful of where bond prices have gone, where interest rates have gone, and we're gonna, you know, demand that we get cap rates and pricing execution in our deals that make sense in the current interest rate environment.
I mean, that leads to my next question, which is if you hadn't sort of pre-funded, some of your growth, whether through equity or raising debt capital earlier on, and you just had to look at today's sort of unsecured debt costs or wherever you think you could borrow, like would deals at the current cap rate make sense?
Yeah. I think that we underwrite based on the current capital markets, not necessarily what we've already raised. You know, historically, we've targeted cap rates in the 5%-7% range, a relatively wide range, but it's a diverse, you know, target of investment opportunities. We're currently targeting, I would say, 6%-8% range, with the vast majority of the deals we're acquiring in the 6.5%-7% and into the, you know, maybe up into the mid-sevens as well. We think that is enough spread relative to where we can currently issue bonds based on where our current multiple is. It's, like I said, a good environment for us.
Gotcha. You mentioned that the sale-leaseback market has never been sort of more promising because debt costs are higher, the private equity guys have moved away. I guess one thing you probably want to avoid though is being the sort of the lender of last resort. When you think about the sort of type of opportunities that you're looking at, I mean, are you looking at companies that are trying to grow with this capital? Are they simply trying to refinance debt that they can't, you know, get refinanced anywhere else? What are the type of sort of companies and why are they, you know, utilizing the sale-leaseback market to raise capital from you?
Yeah, I mean, more recently, a lot of our target deals have been alongside private equity firm buyouts, so alongside sponsors who are putting in, you know, big equity checks, you know, larger than what we're contributing to the capitalization. I think that certainly, you know, a piece of it. We're open to underwriting, you know, across the credit spectrum. Most of the deals are just below investment grade. I mean, you know, we have a history and an expertise in credit underwriting. I think it's part of our competitive advantage, you know, relative to many of our peers. You know, a lot of it is underwriting the corporate credit. A lot of it is selecting the right assets, acquiring at the right basis, setting rents at levels that are at or below market.
In the event there is some downside scenario, you can, you know, reposition these assets and maintain the same level of cash flows. It's part of a pretty well-honed process at this point in time. You know, we've been doing this for 50 years. We actually celebrate our 50th anniversary next month as a company. You know, the history of the company has been focused on structuring net lease transactions. It's a market that we're comfortable with. These tend to be large companies. You know, for instance, some of the deals we're looking at now are with multi-billion dollar buyouts where we're a piece of the transaction.
These are big companies that have access to institutional capital, who have liquidity, and that's a, you know, big part of our underwriting.
Maybe you could give us a sense sort of the total deal volume you're looking at, sort of what percentage for how you source it, what percentage of it generally closes in between the time that you're looking at it versus when it closes, the due diligence that you do. Obviously, it's different probably whether it's a new tenant or existing tenant, but maybe you could go into the diligence process.
Yeah, sure. I mean, you know, sale-leasebacks tend to be a little bit more complicated from an accounting and tax standpoint. Again, that's a competitive advantage for us where execution is something that, you know, the advisors and the companies are more focused on than pricing. We may not be the top bidder or even the top two bidders, but we have a cost of capital that allows us to be competitive, and of course, we have the execution history on our side. You know, the process typically is a, you know, we might be one of a very few group of buyers that are engaged with the tenant. In many cases, these are private equity sponsors, and these are repeat transactions.
There is a lease negotiation that adds some uncertainty of a deal, but on repeat deals, that tends to be, you know, easily navigated. I would say deals tend to take, 60 to 90 days start to finish and includes a, you know, a underwriting period upfront, a negotiation of terms, and ultimately the lease and, you know, the other transaction documents. It's typically a 60 to 90-day period. We're careful not to, you know, have hard deposits in place until we're ready to close, until our diligence is done. You know, we don't typically enter into binding purchase and sale agreements. They tend to be letters of intent that then, morph their way into a closed transaction.
I think that's especially important in an environment like we're in right now, with the change in capital markets. Again, it's a process that's been well-honed through many years. I think that, again, a lot of our counterparties rely on us to do transactions in tough environments, and, you know, distress causes opportunity. This is a time when I think that we will outshine, you know, many of our peers that are newer to the space than we are.
I guess what percentage of deals would you say that you look at end up closing? I guess what I'm trying to get a feel for is, you know, if you're doing $2 billion of acquisitions in a year, does that mean you're looking at sort of $10 billion of deals and sort of trying to think through?
Yeah.
Organizational sort of necessities to look at $10 billion of deals.
I mean that's probably order of magnitude. It's somewhere in the $10 billion range. you know, our funnel's pretty wide at the top, but we can discard a lot of deals pretty quickly that I wouldn't even include in the $10 billion. Either they don't have structures in place that we like. They're too small. They're in geographies or property types that we're not focused on. I think $10 billion is probably the big round number that funnels down into a, you know, $2 billion year for us. Out of that $10 billion, you know, I would say, you know, maybe $3 billion of that is something that we're pursuing in a serious way.
Once we get to a point where we're negotiating with a tenant, it's a, it's a pretty, you know, pretty good hit rate. The deals that we pass on are ones typically I would say, pricing can be an issue. Structure is also an issue. We are very much focused on doing portfolio transactions with master lease. We're looking for critical operating real estate. We're looking for fungible real estate in markets that have, you know, velocity in terms of re-tenanting, and those are things that, you know, get shaken out relatively early in the process. It's probably gets filtered down to somewhere in the $3 billion range that would ultimately result in a $2 billion transaction year.
Got it. One of the unique things about your portfolio and the way you've structured a number of your deals is that you have a higher percentage of CPI-linked escalators than many of your peers. Just given how high inflation has been for the last, you know, two years or so, is there more reluctance to structure deals like that? Are you still able to get people to agree to a CPI-linked deal? I would think that if, you know, inflation is running at 6% or 5%, they'd probably be less likely in the environment to agree to something like that.
Yeah. Look, it's certainly, as you can expect, you know, more of a conversation at this point in time. I mean, we, as I mentioned earlier, we've been doing this for a long time. When Bill Carey founded the business, you know, a lot of the growth happened in the late seventies and into the eighties, investing and obviously, those were, you know, high inflationary points in time. Inflation was an important mitigant, especially when you have these long duration contracts. We typically focus on 15 to 25 years. So, you know, historically it was something that we were able to negotiate, especially during benign inflationary environments. I would say it's a little bit more prevalent in Europe where it's more customary. You know, we still are achieving a fair amount of our deals have inflation-based increases.
You know, the conversation is there's more pushback on uncapped CPI. Sometimes it's just reflected in a higher cap rate if we're willing to provide a cap in place. When we are willing to put a cap in place, we tend to get a floor as well. In this current environment, both the floors and the caps, to the extent we have them, are higher than where they have been in the past. Instead of, you know, call it a floor of 1 and a cap of 4, you know, we might be talking about a 2% floor and a 5% cap now. Even when we're not getting an inflation-based increase during our negotiations, we tend to end up with better fixed increases as well.
I think historically, if we were not able to achieve inflation-based increases, we would settle on a fixed increase that was typically in and around 2% per year. Those now are 2.25%, 2.5%, sometimes 3%. If it's not directly flowing through in our increases, you know, into an inflation-based lease, we're still seeing the benefits flow through to our fixed increases. And that's reflected in our same-store growth, which is, you know, very much at the top end of all of our peers set.
We had a question from the audience. This is where do you think your stock trades, relative to NAV, since you've issued stock below the current share price, via the ATM, over the past year?
Yeah. Jeremiah, you wanna talk about that from capital markets perspective?
Sure. I mean, I think our view is that we're certainly trading at a premium to NAV.
Can you hear?
Oh, that's on. We're certainly trading at a premium to NAV, you know, maybe more or less on any given day. But a healthy premium, one that feels comfortable for us to be issuing equity accretively, both from an earnings perspective but also from an NAV perspective. I guess the second part of the question of it was we were issuing stock, I guess, at prices both above and below. I mean, most of the stock that we've issued really over the course of the last year has kind of been in the zone that we're trading in right now. I think if you go back to 2021, we did, I think, some overnight transactions that were below $80 a share.
Maybe it's in reference to that, but certainly over time, I mean, our goal is of course to keep growing accretively, keep growing our equity value and continually fund deals with a, with a mix of debt and equity, keeping leverage neutral.
Even leaning on the ATM a little bit more than, you know, sort of using follow-on offerings. Just curious, is that a strategy to sort of try to spread out your cost of capital and not sort of time the markets or just simply a product of just how things have worked out with your acquisition activity?
I mean, it's maybe a little more of the second. I mean, I don't think there's any intent on our part to signal that, you know, we're leaning more strongly to ATM versus overnight issuance. We're always gonna evaluate, kinda what our needs are, where the stock's trading, you know, obviously our view of the markets and our view of our needs in terms of upcoming investments. I think over the course of the last year, for the most part, we've been, you know, ahead of whatever our funding needs are. Like Jason said, we're currently sitting on just under $600 million of equity forward.
I think in that kind of stance when, you know, sort of the way the deal flow's been working out and just where the stock's been trading, the ATMs made a lot of sense to kind of, you know, sort of continue to stay ahead of needs and maybe, you know, kind of match funding needs but preserve our dry powder. We could certainly imagine scenarios where we'd be, you know, just as interested or more interested in doing overnight transactions. It really just depends on all those factors. I mean, the bottom line for us right now is we're in a very comfortable position. We would say a very strong position from an equity perspective.
The balance sheet metrics are at or below what our leverage targets are, and that's without accounting for the almost $600 million of equity that we're sitting on. We certainly feel like we have a position here where the balance sheet is strong, and we can, you know, we can do deals if we like those deals, if we think they're the right risk-adjusted returns. We obviously wouldn't hesitate to use that equity that we've raised. I think that gives us a lot of flexibility and a lot of optionality in terms of how we raise capital over the course of 2023.
I mean, when you see your cost of capital go down, I guess the question is how aggressive would you be in sort of thinking about accelerating external growth? Some of your peers, like NNN, have kind of come up with a more strategy of just trying to generate mid-single digit growth. Just curious, like when you see maybe your spread gap out to like 250 basis points of accretion or whatever level of accretion is, do you try to accelerate growth at that point, or are you trying to keep things a little bit more steady, predictable and, you know, kind of generate a double-digit type of return with, you know, mid-single digit earnings growth and a 5% dividend yield?
Look, I think that, you know, if the capital markets and cap rates are in sync and we're generating, you know, spreads, especially if they're excess in what we've been generating historically, I think that we would lean in and wanna do more deals and accelerate growth. You know, I think that's an environment that we would embrace and, you know, hopefully, that's what we see this year.
In terms of thinking about industry, asset types, where are you seeing sort of the best opportunities right now?
We're still seeing the best opportunities in industrial, I would say, you know, skewed towards the U.S. right now. These are, you know, you can hear the theme. It's primarily sourced through sale-leasebacks, where we have, you know, a lot of advantages to drive some yield. Many of these, as I said, are in conjunction with larger buyouts. These are still diverse. You know, it's still a big diverse group of assets. There are logistics assets, light manufacturing, but we've also found a good niche in food production and food processing, kinda non-discretionary businesses with, you know, high criticality, you know, really substantial tenant investment, highly disruptive to shut down or change facilities. Those are the type of investments that we like.
Again, we've seen some traction in that space as well. As well as R&D. You know, there's been some lab investments we've made. Those are all areas that we think are interesting right now. You know, retail in Europe has been another place that we've focused. I think their added volatility and maybe the sharper increases in interest rates have, you know, created a little bit of a bid-ask spread on deals in Europe, but we're starting to see some activity percolate over there, so I think that's gonna be interesting for us too.
Yeah. We have some more questions here. Can you address tenant retention in the current environment? Is there good versus bad churn at the end of a lease?
Yeah. Do you wanna talk about the lease outcomes, Jeremiah?
I don't think that, you know, we'd sort of point to any big trends we're seeing right now. I think when we think about tenant retention, we're gonna just refer to what kind of our historical metrics have looked like. While we've had, frankly, on re-leasing, we've had several quarters where our re-leasing spreads have been positive and sort of stronger than they've been historically. We tend to look at a longer period of time historically to kind of point to an average of, you know, anywhere from, you know, 100% recovery to, you know, maybe, you know, 3%-5% rent, you know, rolled on on average across the portfolio.
I don't think there's anything that we see right now in terms of, you know, trends or changes in the portfolio that would cause us to, you know, sort of think about it differently when you think about, you know, underwriting the company as a whole. You know, so. You know, we always have to remind people that for us, you know, these really long-term leases, you know, 20 years or more than 20 years in terms of, the new ones we're originating, in any given year, it's always a very small amount of our portfolio that's rolling. You know, it may, in some cases, just be a handful of tenants. It can be tricky to extrapolate too much from, you know, what you see in any given year, certainly what you see in any given quarter.
That's why we focus more on a longer-term kind of trailing average.
Presumably, if you're selling assets, you're either selling them for one of two reasons. One, that's just the price is so attractive. Or two, you know, you're trying to sell problem assets, things that are vacant or things that you think will be problems in the future. Is there any just general level that you're able to recover of your original investment? You know, if you put in $100 into something and you're having to sell it for whatever problem reason, you get it back $0.80 on the dollar or just trying to understand how much of asset value you generally cover when you have those sort of problem assets you're trying to sell.
Yeah. Look, it's a mix of outcomes. I think that, you know, we're not selling many assets per year. I think our guidance for this year is 300 at the midpoint. 300 at the midpoint on a $25 billion portfolio. You know, there are some that are no longer core assets, ones we think have peaked in value. I can think of, you know, example of a recent deal in which we provided a small amount of capital for expansion. We extended the lease term. We thought that was the optimal time to sell it. It was, you know, non-core real estate, a credit that we saw deteriorating. We got great execution on that.
I think what's embedded in our big piece of what's embedded in our guidance this year are some Marriott hotels that were under a long-term lease to investment grade Marriott that just recently went through a conversion from net lease to they did not renew, we've said entered into long-term franchise agreements. These are performing hotels that have, you know, just a little bit of an uptick in cash flow post-conversion. Those aren't core to our holdings. You know, we would expect to sell those. I think the guidance we suggest would be sold at end of the year this year. We can be, you know, opportunistic on the exact timing, but, again, it's not in our core holdings to keep those assets.
Got it. There is actually an audience question around that. Also could you give some color of company expectation around the leases of U-Haul?
U-Haul is our largest tenant. We had acquired the self-storage assets through a sale leaseback with U-Haul back in 2020, or 2004. As part of that transaction, we agreed to give them a purchase option at the end of the initial lease term, which is in the spring of 2024, so one year from now. We do expect them to exercise that option. The purchase price is a function of the original. The purchase option price is based on the original purchase price grown by inflation. Really, it's 90% of inflation over the 20-year period. We've seen some, you know, good tailwinds in terms of what that option price looks like.
You know, it's something that is certainly higher than where it would've, where we thought it would've been several years ago. The disposition cap rate has effectively been coming down. We've also had the benefit of seeing rising cap rates on the reinvestment side. That spread that, you know, maybe a couple years ago looked like it could've been more substantial is really just a modest spread at this point in time and maybe even a very slight, you know, headwind to growth, you know, beginning next spring when they exercise that. We do expect them to exercise. These are a very good portfolio. The option's in the money, and that's something that we'll, you know, provide a little bit more color around timing, I think, when it becomes more visible.
It'll be a very modest drag at this point. I think one thing that, you know, we wanna make sure we mention in conjunction with U-Haul, we have another similar size asset on our balance sheet. This is the Lineage Logistics securities that we own. It's, you know, I think the latest mark is around $400 million. That investment is not providing or not paying a dividend, so it's effectively a zero yielding investment that we have. It ultimately will be a very cheap source of capital for us to invest.
When you think about we have, you know, negative spread on the U-Haul transaction, maybe 1%, will more than make up for, call it, the positive, you know, 7% spread that we'll have in reinvesting the Lineage proceeds when we choose to do that.
I guess, I don't know if you can share the size of the U-Haul but also the cap rate. I'm assuming from what you just said, it sounds like a 1% sort of negative, kinda like 8%.
Yeah.
Cap rate, then you reinvest at a seven. That's where you're getting the 1%.
Yeah. It's probably in the low eights depending on where the purchase price moves with inflation, and it's in the $400 million-$500 million range in terms of asset value.
Gotcha. I guess any other sort of repurchase options in the near term, next kind of 3 years, 4 years?
No. The only two that have been on, you know, of scale and worth talking about was The New York Times transaction from several years ago, and that was a benefit to dispose office after a, you know, very successful 10-year investment, and then the U-Haul transaction. I think any other purchase options that are in our portfolio are gonna... For one, they're nothing of significant size, and then two, they're primarily and probably almost entirely structured as the greater of some factor above our original purchase price or fair market value. In this case, you know, U-Haul would have a different outcome if it had been an FMV purchase option.
Your bad debt has been pretty low and was frankly low through a lot of COVID, which, you know, certainly speaks to asset quality. You know, when you do see problems in tenant, like how are you monitoring your tenant's financial health? What do you do to try to get in front of those issues? If anything, what sort of recourse do you even have? Like, ability do you have to actually do something? I'm assuming that mainly you can just sell the asset, but I'm wondering if there's other cases where you actually work with the tenant to try to improve performance or if it's really just more of an asset management type decision.
Yeah. Look, I mean, we have a big portfolio, and we have a, you know, very talented asset management team, and they, you know, each have their portfolio of assets that they oversee. We have a quarterly process where they report on the state of the assets, you know, to our management team. You know, that's their day job, is to stay on top of the assets and look for best outcomes to stay in front of, you know, negative events and potentially look to either, you know, sell those assets or understand what the alternatives may be. You know, our watch list is quite benign at this point in time. When we do have, you know, any kind of defaults, our outcomes usually are quite strong. We tend to own critical operating assets with big companies.
Big companies tend to restructure rather than liquidate. When you have a critical operating asset, you know, the vast majority of the time they're gonna affirm the lease at 100 cents on the dollar. I think at other times when, you know, we either got underwriting wrong or we don't have a critical asset because it's changed over time, you know, we do have the real estate to fall back on. It's predominantly, you know, the largest percentage of our portfolio is industrial. We tend to see, you know, certainly some tailwinds in those markets. You know, we've tended to fare, you know, quite well in outcomes just like that one.
You mentioned the same-store growth of around 4%, but there's a bit of a gap between that and the comprehensive same-store growth, at least last year. It sounds like this year, based on your earnings call, you're expecting more like 4% in terms of same-store contractual escalators, but maybe around 3% in terms of comprehensive same-store growth. First, I guess, question is that correct? Second, maybe you could help people understand, like why does the 4% go down to 3%?
Yeah. Jeremiah, you wanna touch on that?
Sure. I mean, the comprehensive same-store growth is probably... I mean, I think in the net lease world, a lot of people focus on contractual rent bumps. Certainly, it's something that people have been interested with us, so that's an important disclosure to have out there. The comprehensive number is probably more akin to what people are used to thinking about, certainly outside the net lease space when they're thinking about just what's referred to as same-store growth. All that means is that it's accounting for not just the contractual rent bumps, but also, you know, if there's a vacancy, if there's downtime, if there's a lease rolldown, I guess for that matter, if there's a lease roll-up, from a vacant asset, if a tenant stops paying rent for some reason, all that's gonna be captured in comprehensive.
It's all in that number. I mean, that number when we first started disclosing it, which was maybe four or five years ago, certainly before COVID, you know, we always Our thesis was that there was gonna be about 100 basis points of leakage. We got into COVID in the last several years and, you know, those numbers have really gotten scrambled. We've had, you know, some quarters and maybe even close to a year where comprehensive same-store growth is actually higher than contractual same-store growth. I think, you know, this year we think maybe it settles back into what we would view as more of what we would have expected to have been more of a long-term equilibrium.
In any given year, I think it could be a little bit more, a little bit less than that, depending on what happens with individual assets or individual tenants. As far as, you know, expectations we might wanna set or the way maybe we think people should look at it, we do think that on average, there's gonna be some leakage between the contractual headline number and then what's actually kind of flowing through earnings.
If there's no more audience questions, we've been asking each session about your top ESG priority. Then, again, if there's no more audience questions, then we'll go into rapid-fire questions after that.
Got it. Sure. ESG, you know, our focus has been on data collection. You know, we built a scalable system to collect and aggregate and analyze really our tenants' energy usage across the portfolio, so that we're ultimately gonna be in a pretty strong position to report on portfolio emissions. Not an easy task as a net lease REIT. As a net lease REIT, it was by definition, our tenant is operating these properties. You know, we're effectively asset managing, but, you know, we've had some good response. At this point in time, we're a little over 50% of our ABR or of our tenants by ABR, we're able to collect.
The vast majority of that is automated, where we built in systems through through some cloud-based technology. We hope to expand on that. I think our goal for this year is to get to 60%. I think we're, you know, I think clearly the market leader in net lease from a actual data collection. Importantly, the data gathering, and the tenant outreach that goes along with the data gathering, really helps lead to project-based investments as well, whether it's solar installations or other systems that we can invest, lengthen lease terms, put more capital work, you know, all beneficial to us.
All right. I've been told that I forgot to ask top 3 reasons to buy your stock, and I have to ask 'cause we need it for our weekly.
Okay. Sure. Number 1, internal growth. We talked about that. We continue to generate sector leading same-store growth, mainly driven by the 55% of our ABR leases that are tied to CPI. 37% of that is uncapped, 18% is capped. We expect that to translate into 4% same-store growth in Q1 of this year and really for the full 2023. External growth, you know, mainly with the focus on sale leasebacks. I talked about the constructive environment we're in as companies continue to explore sale leasebacks as an alternative to high price, high-yield debt. We expect more deal volume this year at higher cap rates and broader spreads. I think third, you know, we alluded to it earlier, we're well positioned on a balance sheet perspective.
You know, dry powder, well-priced equity forwards that'll support our investments for the year.
Thank you very much.
You're welcome.