Q1 2021 STORE Capital Corp Earnings Call
[music].
Good day and welcome to the store capital first quarter 2021 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please.
Please note. This event is being recorded on.
Now I'd like to turn the conference over to Lisa Mueller of Investor Relations. Please go ahead.
Thank you operator, and thank you all for joining us today to discuss store capital's first quarter 2021 financial results.
Morning, We issued our earnings release and quarterly Investor presentation, which includes supplemental supplemental information for today's call. These documents are available in the Investor Relations section of our website at IR Dot store capital Dot Com under news and results quarterly results.
On today's call management will provide prepared remarks, and then we will open up the call for your question.
In order to maximize participation, while keeping our call to on an hour we will be observing a two question limit during the Q&A portion of the call participants can then reenter the queue. If you have follow up questions.
Before we begin I would like to remind you that today's comments will include forward looking statements under the federal Securities laws.
Forward looking statements are identified by words, such as will be intend believe expect anticipate or other comparable words and phrases.
<unk> that are not historical facts, such as statements about our expected acquisition disposition or on a F. F O per share guidance for 'twenty 'twenty. One are also forward looking statements.
Actual financial condition and results of operations.
May vary materially from those contemplated by such forward looking statements discussion of the factors that could cause our results to differ materially from these forward looking statements are contained in our SEC filings, including our reports on form 10-K and 10-Q.
With that I would now like to turn the call over to Mary Fedewa, Joyce Chief Executive Officer Mary. Please go ahead.
Thank you Lisa good morning, everyone and thank you for joining us today.
Before discussing our first quarter results I would like to express how grateful I am for the opportunity to be the CEO of store.
I also want to personally thank Chris Volk for all his encouragement and support over the past 20 years, and we have been working together, Fortunately, Chris and I will have the opportunity to continue to collaborate and work closely in his new role as chairman.
I would also like to thank our entire board of directors for their confidence and support.
With me today are Cathy long, our Chief Financial Officer, Craig Barnett, our executive Vice President of underwriting and portfolio management, and Tyler Murray, our executive Vice President of acquisitions.
Many of you have already met Craig Ann Taylor at our Investor day, and other meetings. They have both been what store since our inception and were also part of prior platform.
It will be participating in our earnings calls going forward and you will see more of them and other strong leaders here at store at upcoming Investor and industry conferences and non deal road shows.
Turning now to the business at hand.
For 2020 was an extraordinary year that tested and proved the resiliency of our customers our team and our business model. We are enthusiastically moving forward in 2021 is off to a very good start.
During the quarter, we invested $271 million at an attractive weighted average cap rate of seven 8% with annual lease escalation of one 9%.
Consistent with our strategy first quarter acquisitions were granular and diverse with an average transaction size for the $11 million across approximately 20 different industries.
We added 11, new customers and closed the quarter with more than 520 customer relationship.
We continue to originate long term leases with a weighted average lease term for the quarter at 18 years, and we have virtually no near term lease expirations.
Our occupancy continues to be high at 99, 6% with only 11 vacant properties at the end of the quarter.
As you know our disciplined approach to real estate acquisition focuses on certain table stakes to ensure superior at lease contracts.
All of our first quarter investments were made at a below replacement cost and at attractive yields and grocery churns of nearly 10% when you add the going in cap rate to our annual lease escalations.
This resulted in continued nice spread as our debt costs remain at historic lows.
We also received master leases on multi unit transactions and unit level financial reporting on all acquisitions in the quarter.
Overall, our customers entered the new year on strong financial health and are focused on growing their businesses.
Cross the board, we are seeing re-energized confidence, among our customers and prospects and a growing pipeline of attractive investment opportunities.
We have been extremely pleased with how well our business model, which was designed with margin of safety has performed through an unprecedented economic shutdown.
These margins of safety include a highly diversified and granular portfolio of disciplined and selective approach to underwriting close relationships with our customers a compelling customer value proposition and a strong balance sheet and financing flexibility.
As a result, we believe store is at an important inflection point of opportunity.
My top priority is to lead our team and to leverage the platform. We have built to continue to scale. The company through the next phase of growth and success.
Good day store has a nearly $10 billion real estate portfolio and a team of more than 100 outstanding and talented professionals.
Developing our dynamic and industry, leading team has been one of the highlights of my career at store.
We continue to serve our large market of national and regional customers and vital industries.
And deliver attractive industry, leading returns to our shareholders. One of my highest priorities as CEO is building the next generation of leaders.
I look forward to the opportunity ahead.
Now I would like to turn the call over to Craig.
Thank you Mary it's great to participate on the call today.
I'm going to take a few minutes to provide an update on our portfolio.
Since our inception, we have built with purpose of granular and diversified portfolio today includes a 117 industries.
From 2600 properties.
As of the end of the first quarter our portfolio mix is approximately 64 per cent service industries, 17% experiential retail and 19% manufacturing.
More than 75 per cent of our portfolio is comprised of customers, who individually account for less than one per cent of our base rent and interest.
And collectively our top 10 customers accounted for just under 18% of base rent and interest.
There were no significant shifts to our top 10 customers in the first quarter.
Spring education remained our largest customer accounting for just 3% of base rent and interest.
We continue to actively manage our portfolio.
First quarter resulted in robust disposition activity, which was driven by pent up demand during COVID-19.
During the quarter, we sold 44 properties, which had a total acquisition cost of $141 million.
23 were strategic sales and were breakeven compared with cost.
These were opportunistic sales and resulted in a 24 per cent gain over cost.
Remaining sales are part of our ongoing property management activities and resulted in a 60% recovery of our original cost.
Turning to cash collections are percentage of contractual collections held steady at 93 per cent for the first quarter moving to 95 per cent for the month of April.
We are extremely proud of our success in collections and attribute this to several important factors.
First the diversity of our portfolio as a direct result of our deliberately diversified portfolio only a handful of the 117 industries. We serve were highly impacted by COVID-19 and in need of rent deferral agreements.
Most of our tenants are in industries that benefited from COVID-19, such as home furnishings outdoor recreation RV sales.
Net and medical services, and many others were proven to be essential and therefore, COVID-19 resistant such as manufacturing tenants.
The benefits of maintaining a diversified portfolio are also evident in our unit level fixed charge coverage ratio, which was two two times at the end of the first quarter up from two one times last quarter and consistent with pre COVID-19 levels.
Second our infrastructure and systems together with the collection of tenants corporate and unit level profit and loss statement.
Constant communications really made a positive difference.
Taken altogether. This allows us to analyze trends in our review of credit performance real time and to make the best portfolio management decisions.
And he rapidly involving situationally COVID-19 the benefit of real time information that informs decisions cannot be underestimated.
Third we have strong relationships with our customers and work directly with them to understand the impact of adverse events, such as business shut down on their liquidity profile operations and future outlook.
During COVID-19 this enabled us to effectively tailor short term deferral arrangements for tenants, who need a debt agreements that would work for them store.
Core and our stakeholders.
As of today, none of our properties are mandated to be closed from since there is a direct correlation between our locations being open and rent collection, we are seeing tailwind and collection we.
We expect this to continue as restrictions are further lifted and COVID-19 vaccines are completely rolled out.
Our customers are telling us they are seeing positive trends in their businesses and are optimistic about 2021.
And so are we.
I'll now turn the call over to Cathy to discuss our financial results. Thank you Craig.
I'll discuss our financial results for the first quarter, followed by an update on our balance sheet and capital markets activity that I'll review our guidance for 2021.
Our first quarter revenues of $182 million increased by two five per cent from.
From the year ago quarter, primarily related to the growth in our real estate portfolio.
Sequentially revenue increased $9 $4 million from Q4.
About 70 per cent of the increase was from net acquisition activity, which represented a full quarter's revenue from Q4 acquisitions.
And only a small portion from first quarter acquisitions, which were back end weighted.
The remaining increase in revenues included a mix of recoveries on previously reserved receivables scheduled rent escalations and higher revenues from COVID-19 impacted leases.
During the first quarter net rent deferrals totaled $2 million down from about $6 million in the fourth quarter.
This quarter's deferrals were provided to a limited number of tenants and the few industries that had been slower to reopen namely theaters family Entertainment and health clubs.
At quarter end net COVID-19 rent receivables stood at $43 million. This represents cumulative COVID-19 rent deferrals of approximately $71 million since the beginning of the pandemic.
$16 million in repayments to date.
Less reserves of $12 million.
The rest of for all repayments began in earnest in the fourth quarter and just over 30 per cent of the tenants who received deferrals have already completely repaid them.
Over half of our current receivables are scheduled to be collected by the end of 2021.
And we expect about 80 per cent to be collected by the end of 2022.
Now turning to expenses.
Interest expense increased by just over $130000 from the year ago quarter, primarily due to our third issuance of senior unsecured public notes last November the.
The increase was offset by debt pay downs, we made with the proceeds from this transaction, which resulted in a reduction of our weighted average interest rate from four three per cent for 2%.
Property costs for the first quarter decreased $1.3 million year over year to $4 $7 million.
Sequentially property costs decreased $2 $7 million, a big improvement from Q4.
Excluding those costs that are reimbursed by our tenants property costs totaled about 14 basis points of our average gross portfolio assets.
Compared to 27 basis points last quarter, and 21 basis points in a year ago quarter.
G&A expenses increased from the year ago quarter, primarily due to the timing of expense recognition for long term stock based incentive compensation.
One expenses include about $10 million of noncash compensation expense that was earned on certain performance based stock awards in the year ago period, we recognized $6 $7 million of expense related to awards that were no longer expected to be earned due to the impact of the pandemic.
Excluding this volatility compensation expenses overall G&A expenses were relatively consistent year over year.
As a percentage of average portfolio assets G&A expense, excluding the impact of noncash equity compensation was 50 basis points, which is slightly lower than the 51 basis points a year ago.
During the quarter, we recognized an aggregate $7 4 million dollar impairment provision, which includes $2 million recognized on our portfolio of loans and financing receivables and an aggregate $5 4 million dollar impairment provision on properties, we're likely to sell.
Hey, if a BOE for the first quarter increased to $125 million from $120 million a year ago.
On a per diluted share basis, <unk> was 47 versus 49 cents a year ago.
Sequentially <unk> per share increased from 44 cents in Q4 to 47 cents in Q1, primarily due to higher revenues from net acquisitions and lower property costs.
We declared a first quarter 2021 dividend of <unk> 36 per share, which we paid on April 15th to shareholders of record on March 31st.
Our dividend payout ratio has been steadily decreasing as the impact of the COVID-19 pandemic pass.
For the quarter it approximated 77%.
We strategically aimed to maintain a conservative payout ratio in order to garner dividend and add to a robust internal growth.
With rent collections of 95 per cent in April and expectations for continued reduction in tenant rent deferrals, we expect our ability to retain internally generated cash to only get better in 2021.
Now turning to acquisition activity on our balance sheet.
We funded our $270 million of first quarter acquisitions with cash from operations cash proceeds from asset sales and proceeds from the sale of equity through our ATM program.
Since the majority of acquisitions closed later in the quarter the bully ethical impact will be visible beginning in Q2.
During the first quarter, we used the ATM program to issue about $3 5 million shares of common stock at an average price of $33 32 per share.
<unk> net equity proceeds of $114 million.
At March 31st we had approximately $3 $7 billion of long term debt.
With a weighted average maturity of $6 for years and a weighted average interest rate for 2%.
Our leverage remains at a historically low level of 37% on a net debt to portfolio cost basis.
Approximately 64% of our gross real estate portfolio was unencumbered.
And our ratio of unencumbered NOI unencumbered interest expense remains exceptional at seven times.
We have no significant debt maturities until 2024, and three series of Master funding notes will become available for prepayment without penalty during 2021.
These notes have a 24 month prepayment window and they bear interest at a weighted average rate of 5.6%, giving us an opportunity to continue to reduce debt costs. This year.
At the end of March we had approximately $146 million in cash $670 million available under our ATM program and full access to the $600 million credit facility, which also has an $800 million accordion feature we're well positioned to fund acquisitions and our pie.
Right.
At attractive cap rates.
Currently expect 2021 <unk> per share to be in the range of $1 92, $1.96 based on this projected net acquisition volume.
Our asset growth guidance is based on a weighted average cap rate on new acquisitions of seven 7% and a target leverage ratio in the range of five five to six times run rate net debt to EBITDA.
Our <unk> per share guidance for 2021 reflects anticipated net income excluding gains or losses on property sales of 80 to 85 cents per share plus 97 to 98 cents per share of expected real estate depreciation and amortization.
Plus approximately 13 cents per share related to items, such as straight line rents equity compensation and deferred financing cost amortization as always we'll continue to reassess guidance as the year progresses.
And now I'll turn the call back to Mary.
Thank you Cathy before we open the call up to questions I'm happy to tell you that we will be issuing our second annual corporate responsibility report in a few weeks our dedicated ESG team has been very active in exploring and executing on ways to contribute to a more sustainable environment.
We believe that we will make a big contribution to leaving the world a better place by living up to the principles of corporate and social responsibility and are committed to building on and creating new initiatives and programs each year.
The pandemic highlighted the importance of corporate responsibility and the many benefits of an all stakeholder approach to managing the company.
We attribute much of our success in weathering the COVID-19 storm to our direct customer relationship and our focus on partnering closely with all of our stakeholders in both good and challenging time I.
I want to thank my many colleagues who work incredibly hard on behalf of all of our stakeholders here each and every day for their continued support and commitment with that I will turn the call over to the operator for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
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The first question will come from frankly with BMO. Please go ahead.
Hi morning, everyone. Congrats Murray from promotion.
Thank you for him.
Yeah, now that you're transitioning to a new role can you talk about any changes on how you would like to run the company and maybe how involved you'll be on the investment side versus on your previous role.
You bet, Frank happy to address that so.
So in my new role as CEO I'm, we're gonna actually we're going to very much be listen and listening and open to all opportunities and we actually believe that we're at a really important inflection point right now we've been building. This platform for 10 years now and as a founder I've been very involved in every aspect of that so we're going to continue to stay disciplined.
A planned and focused on granular diverse our profit center assets all while we continue to scale the platform by inflection point, what I mean is that we have largely come through a global pandemic and the portfolio has performed really well and in fact, the triple net space has performed really well so the business model work.
And we believe this will give us a great opportunity to have even greater access to capital to serve this very large market place, where we're going to continue to get attractive yields and great returns for our shareholders. So I'd say in a nutshell you won't see a lot of changes I've been here the whole time and building us, but we're at an inflection point, where we are.
Been through this pandemic and we think we're going on we're gonna continues to scale to our platform.
Okay, Great and then.
Oh. This is the second quarter in a row, where between disposition activity exceed $100 million like I know you talked about sales being on the slower side last year is this more of you pulling forward some of that plan.
This is from last year or are you taking closer look at managing some of your exposures.
Yeah, I can help you with that one Frank sure Yeah. So some of it was related to pulling some of the 2020.
Dispositions.
Two into this quarter, just due to or driven by pent up demand for.
From buyers.
The next question will be from Jason Belcher of Wells Fargo.
Yes.
Yeah, Hi, you mentioned are the two acquisitions in Q1, where were back end weighted just wondering if you can give us a little more color there for modeling purposes.
What portion of those can we assume a portion of that run rate revenue can we assume that in Q1.
Hi, Jason This is Cathy so it was a march.
Heavily march weighted and I want to say.
Three quarters of it were in March.
Got it that's helpful. Thank you.
And then just if we could touch on your investment pipeline, a little bit I'm just wondering.
What sectors, you all are seeing more opportunities and more activity in and if you could touch on any changes you might have picked up in the acquisition market, whether that's who you're going up against from a competitive standpoint or any changes in lease terms might be creeping up with elevated inflation outlook things like that.
Yeah, Hi, Jason This is pilar and I'll touch on that so.
So first of all from our pipeline, where we're really excited about the pipeline that are front end direct originations team is a sourcing we're seeing a traditional mix on our pipeline of that kind of 62020 in terms of 60 per cent service and 20% each of our retail on manufacturing definitely pleased with the velocity of the pipeline, which continues to pick up.
As you know historically about a third of our volume is with repeat customers and we're starting to see pent up M&A activity as our customers begin to execute on their pipeline for those opportunities, allowing us to partner with them and expand our relationship and our team continues to find out.
Find opportunities with attractive yields.
Does that answer your question.
It does thank you very much.
Sure.
The next question comes from Caitlin Burrows of Goldman Sachs. Please go ahead.
Hi, good morning.
I guess, maybe on the on acquisition.
Thanks for that.
Guidance for one.
I'm quite cheap.
But once you came in at just about a quarter, but I know you've talked about what do you think Q zone.
So I was just wondering if over the course of Manhattan.
Over the course of the rest of the year.
Bad debt acquisition volume could pick up similar to what we've seen on the path.
I think Tyler Hey, Caitlin its married nice to hear from you how it's going to take the front you know a piece of it doesn't I think capital adds to that but that's going on.
Net volume yeah, Okay, Yeah, no I mean on the volume yeah, Yeah sure. So.
Caitlin.
Our growth acquisitions of $270 million was in line with our average first quarter over our history in store.
As Craig mentioned earlier, we did have an unusually large amount of dispositions in Q1 totaling $141 million and those are focused on strategic sales for the time in which was driven by pent up demand from buyers.
We create tailored for transactions with our customers and as such they can be lumpy from a timing standpoint, but the pipeline of new opportunities, but for the front end is identified continues to be a for a Boston, we're seeing increased velocity among amongst both new and existing customers Yeah and Caitlin. This is Cathy traditionally Q4 is always the biggest quarter.
With Q2 being oftentimes either Q2 for Q3 being our second biggest quarter. So I think what we're probably going to see that same kind of cadence to continue.
Okay, Yeah got it on and then maybe Kathy you mentioned that net debt to portfolio cost they can get.
Was is low versus history.
Net debt to EBITDA basis.
I guess, it's slightly higher than the midpoint of that five five to six times debt you mentioned I'm sorry, yes.
On the metric you're looking at me decide from there.
Equity issue in the quarter.
And do you think that activity could pick up.
In the second quarter.
Hi, Caitlin you were breaking up quite a bit there. So I didn't hear the whole question. I know you were talking about leverage can you say the question on one more time.
Yeah, I was just asking.
Deciding how active with the ATM in the second quarter on debt to EBITDA is now.
More active.
Okay.
You know I think will stay on our normal cadence.
If you look at debt to EBITDA part of that it's five eight on a run rate basis part of that is related to the stock comp.
Spence recognition that we had in the quarter that was unusually high because there's no stock comp doesn't affect assets, though it does affect EBITDA. So if you exclude that.
Sort of catch up adjustment that we made.
We're at a five and a half times funded debt to EBITDA, which is right for the low end of our target. So I think we'll stay on normal cadence if that answers your question.
Is that thanks for that.
The next question will be from keeping Kim of true.
Okay.
Hi, good morning, so I didn't get that for well good morning.
And congratulations Mary.
I didn't catch that for exchange.
But could you just explain why that EBITDA run.
Run rate.
It went from 190 day it looks like it.
<unk> $59 million last quarter to 155 million for this quarter.
Yes, so okay Kathy.
What we had this year, you'll notice there's such a swing in G&A expense from quarter over quarter. So if you exclude noncash stock comp G&A is actually flat to down.
So the change that you see there is really due to the timing of expense recognition of these performance based equity awards. If you recall the year ago quarter, we do recognize a $6 $7 million of noncash expense for awards that werent expected to be earned due to the impact of the pandemic.
And GAAP requires deep recognition based on that probability and then in Q1 2021, REIT, we reinstated a portion of that expense plus.
Pulling forward the current period accrual again as would be required by GAAP.
Our award that a significant portion of that is tied to absolute <unk> growth. While most others have plans tied to relative shareholder return so given the impact of the pandemic on 2020 results our comp Committee realigned the awards to adjust only that portion that was tied for the absolute.
For both metrics. So that's the change there if you exclude that from assets. So I mean from the EBITDA calculation, because it was sort of a catch up.
Where were you would be back on a normal cadence show that going forward.
Run rate funded debt to EBITDA would be five and a half.
$5 five.
Does that help I. Thank you for debt, yes. Thank you.
So the second question for Mary.
Is there anything incremental that we should expect in terms of how you're thinking about.
What the sweet spot is for the things that youre looking to buy over the long haul.
You know keeping we're gonna really stick to our you know granular and diverse portfolio across many asset classes focused on profit center real estate. So we're gonna stay there as I mentioned in my first answer.
With Frank.
You know I do think that we're in an at an interesting inflection point here, having largely come through this pandemic and what that means for US is the business model is proven and as a result, we would we're expecting to see even greater access to you know our capital and to serve this really large market. So even in the triple net sales did really well.
On the pandemic. So we're excited about that you know I'm I'm showcasing the team here today. So we're going to we're building the next generation of leaders, which they're here and they're terrific. So youre going to see us really continue to scale debt and I think the pandemic has been a really great cash that we've but the business model is that.
Okay. Thank you.
Welcome.
The next question is from harsh from Nanny of Green Street.
Thank you.
I was wondering we've been seeing a goldman Sachs cap rate compression across the year.
Your addressable market, it's a net.
It's different than all the other net could you. Please so I'm just wondering if you are seeing the same given the capex breakdown in any bid on.
Can you talk about it from the perspective of both GAAP and then growth you Sue.
Separate then what was the last part of that I'm sorry.
The last part was growth yields make income.
Including these oh nice bumps like debt, Oh, gosh Degrassi L. D about growth returns you bet, So Tyler who's going to talk about cap rates on yes, we can we'll round it out together you bet sure.
So the triple net space has attracted some attention with its resilience from the pandemic as investors continue to search for yield and that increased competition has put pressure on cap rates that we've been seeing in the marketplace and this is why we've guided to seven 7% cap for this year as compared to the eight 1% last year.
That said, we definitely serve a very large sector middle market and larger companies, which we estimate to consist of roughly 200000 companies. So it's a huge market and our front end origination team to see plenty of opportunities for this granular in this market, where it's really on value for our customers and continue to earn attractive cap rate.
Yeah, and I would just add to that this is Mary that you know.
We originate directly you know with a lot of customers and prospects and as a result of that our sales team is out there really.
Asking for the cap rate on asking for the escalation, so we're creating our own and on our own leased forums here and their incentive to do that so we're going to continue to do that we tend to compress left from the marketplace.
And that's just from our business, our direct origination business model and the market is very huge that's probably started to keep doing that but we are seeing pressure on cap rates and competition on the space.
That's great. Thank you.
Welcome.
The next question is from Sheila Mcgrath of Evercore ISI.
I guess good morning.
Kathy I was wondering just wondering if you could clarify again, the volatility volatility and G&A I think the headline number is why the stock it might be a little bit weak today. So it was because of the not because of stock price performance, but a change in the comp target is is that what it was driven by.
Yes, so, whereas most people have their plans tied to relative shareholder return. So when the pandemic happens everyone gets hit everyone's on the same boat. So you just have to worry about relatively or you're doing better than the next person. We also have we also have a portion of our plan.
It works that way.
And in that state just the way it was but but a.
A significant portion of our metrics are absolutely if it's on growth. So and there is it's a three year. These are three year plans. So.
The comp committee.
Felt that the 2020 performance should be.
Adjusted for the pandemic on an absolute basis, and so, whereas a year ago will Derecognize day.
Because that's what GAAP would require.
We did reinstate a portion I mean, not all the expenses, but a portion of the expense and then brought it up to date, so you're seeing sort of a catch up in Q1, but it's not not.
The normal cadence so the normal cadence is like three and a half for four and a half million per quarter.
And Q1 got hit 10 million. So that's the difference.
Okay. Thank you and then I think in your prepared remarks, Mary you may have put the buckets of your portfolio into service experiential retail and manufacturing and I was just wondering if you could let us know.
The tenants that requested book at least for they in the majority in the experiential b.
Retail category for COVID-19 relief.
Hey, Sheila its actually there the tenants that requested maybe additional relief theres not been any real new customers for a long time now we're just in the essential.
And the essential are the not the central asset classes that got hit in COVID-19 or you know the nonessential I'm sorry, the nonessential assets classes. Yeah. So if we're looking at who was remaining in Q1 as having deferrals. It was really movie theaters.
Jim and family Entertainment.
Yeah.
Okay, great. Thank you.
Yeah.
The next question is from Todd Thomas of Keybanc capital markets.
Hi, Thanks.
[noise] Mary you you talked about being at an inflection point, a number of times and I'm.
I'm just curious what additional advantages in scale, you're eyeing or what other sources of capital are out there for you to tap can you just describe what you're referencing perhaps in a little bit more detail.
Yeah, well, Hey, Todd nice to hear from you. So I would say the inflection point as I mentioned is really you know having proven the business model through COVID-19. So we've come through a global pandemic and economic complete economic shutdowns on the business model works and we are seeing a lot of interest in the triple net sales on a lot of money coming into the space because all.
They said well so we would expect to be able to tap into that and you know increased interest in.
And the markets 200000 companies in 10 years, we have 522 customers. So we have a long runway and these are customers that need us where we can actually we can add value and we can actually get continue to get attractive cap rates and great returns. So we're we're that's what we're seeing and that's where something Todd.
Got it so it's just an increased opportunity for investments its not.
Something sort of strategic or transformative in nature in terms of how you're thinking about the business necessarily guerard relative to how you've been.
You got it you got it I mean as I mentioned, we're going to be open and we're less than we're hearing the word listening listening to be open, but yes, you're correct.
Okay.
And then just Oh.
For the last question I guess in some of the comments around collections do you do you have line of sight into AR collections improving further around.
The timing for.
Theaters fitness centers or or restaurants to begin paying rent that that might be lagging today.
Yeah, Yeah, Yeah, Craig can give you a little color on on the <unk>.
<unk> from the 95 and you can also give you a little color on movie theater.
Those interest rates, you just mentioned right.
So we're extremely pleased with collections, reaching 95 in April and as we strive to get to 100, obviously that the delta between that is.
We've got COVID-19 related deferral arrangements that are going to fall off.
And then as the highly impacted businesses returned to normal capacity, we expect collections.
To continue to increase.
Okay.
Okay. Thank you.
The next question is from Ronald Camden of Morgan Stanley.
Yes.
Great. Congrats Mary just on the couple of quick ones first of all on just on the 10.
Yeah, I think the commentary suggest that.
Feeling a lot better about sort of tenant health in the portfolio maybe.
Maybe can you talk about the 5% of tenants that were on cash basis at the end of the year.
Maybe what collections are looking like there Ed and what assumptions do you bake into guidance in terms of collections for those tenants.
Alright. This is Kathy I'll take that one.
So if you look at a bucket of people who were cash on our cash basis. It's.
It's about flat quarter over quarter, maybe just slightly down and for those tenants. They're currently paying about two thirds of certain normal rents.
That's probably a little quicker than we expected to have when we show in our model for it to kind of ramp up over the year.
And as you know two thirds is a little higher than we would've expected. So we're just a bit ahead of where we thought we'd be.
Great helpful. And then just switching over to acquisitions.
And in Dania and little bit interest sort of the manufacturing.
Sort of curious in terms of sourcing deals in that space.
That has that gotten more competitive.
See more people when they come into the space and is that product type b pretty similar to what you know all the other sort of net lease industrial you're teasing out.
Or how do you how do you think that that portfolio or that piece of the business is may be different.
So Tyler I'll it can add to that I'm going to start Ron. This is Mary. So they are manufacturing is very consistent with our profit center.
Asset class. So all of our manufacturing has a P&L attached to them. There are flavors of industrial manufacturing out there that are more logistical on them our costs on a related and that wouldn't be a place where we would play but there's plenty of that as you can imagine with Amazon and other other distribution a lot of distribution going on with online sales and so on so for us.
Our manufacturing is very consistent with our portfolio and I would say on pilot team goes out and the sources that just like they store every other day I'll hit on where we're calling directly on customers and we're working through the broker network as well for a portion of our transactions here. So same approach for us use our contract am.
But it is a profit center pure focus for manufacturing.
Yes, Brian.
Right.
I would just add that you're on.
The other part of your question.
Yeah.
In my earlier comments about you know.
The triple net based on resilient from the pandemic and that you're kind of leaving some cap rate pressure that day.
On the manufacturing side has been a.
Part of that book that theme is kind of consistent across what we're seeing.
Great. Congrats again, thanks, guys.
Thank you.
The next question comes from Handel, St Juste of Mizuho.
Hey, good morning out there.
And then they'll go evolutions.
You're married and also to Greg and Tyler.
First question on square that.
Wanted to ask about the crisp bulk of his involvement in store going forward here, we havent heard his voice at all on this call, but it is a bit odd given his involvement since the founding of the company honestly I'm curious, if that's intentional where perhaps more reflective of what the level of engagement, we should expect with him going forward and can you also update.
On the status on the CFO search.
You bet. This is Mary so Chris is very very much here every day and Chris is really I.
I thought he was the chairman and my remarks. He is actually is obviously as the executive Chairman I'm sure you've seen the 8-K and you've seen.
All of the press releases and he's he's very much engaged on he's had he is actually has it he's an employee of the company and he's on my team. So he is actually very much engaged and we will be working closely with him for share.
And an important part of AR for Us of course, and also I'm. The CFO search so the fee episode on the CFO search is going really well as you know we engaged Russell Reynolds and they've been doing a great job on delivering a slight a very qualified candidates and.
And we feel we feel were on track for the timing to be around mid to late summer as plan, but that being said Kathy is committed to being here for a very smooth transition and.
He and she wouldn't leave us without that so we're in good shape, there and were right on plan.
Alright, thanks for that day.
Also update us on where you are with the backfill of the former loves boxes on how the perhaps the new rents compare versus prior rents I guess, the 60% recoveries in <unk> seems kind of low and so I was curious you know that the mix of assets on the disposition bucket was that skewed by the.
The love boxes at all and I'm also curious if the one two asset sales to help you overall rent collections.
You got it so craig's going on I will tell you. It will give you an update on love annual Hill on just the 60 per cent recovery, which was not impacted by loved and it was just a quarter point. So he'll he'll talk about that you want to start with love correct. Sure. So you know what I can what I can tell you.
About about love is we had 1919 properties at the beginning of the quarter. They are still in bankruptcy.
We are receiving some rent as the locations are being liquidated.
We have pending resolutions on all but.
But seven of our locations.
With the majority of those resolutions will be re let to large furniture retailers.
But.
The remaining seven were marketing those aggressively.
The furniture space is doing really well and we really like the core footprint of the low locations you know when they were open they were.
Trending to art van sales and we're making money. So this isn't that loves was not an industry issue.
And we're pretty optimistic.
But we're going to have some good resolutions on.
On the site in regards to the to the mix on the dispositions.
No.
We do.
For the quarter was higher than normal.
Again, it was driven by pent up demand from buyers the property the property sales were across many of our asset classes primarily street.
Strategic as we rebalance the portfolio cash.
Restaurants were slightly on outsized portion of the mix.
But the you know.
The gain and losses and loss over cost is consistent across the three categories.
Of prior quarter.
Quarters.
But to answer your questions.
Yeah, Yeah, no. That's very helpful. Very helpful. Maybe if I could sneak in a follow up just curious I've already talked a little about the rebalancing of the portfolio where expenses today, 64% service 17th.
And the rest of manufacturing and the strong demand in the market. So I'm curious why not take advantage of that a bit here to put more of your imprint on the portfolio, perhaps the re balance a bit more quickly more aggressively than you would have otherwise.
Oh, I'm, sorry, and I'll be talking about rebalancing more towards the net manufacturing side or what no I'm. Just curious overall you know as you think as you look at the portfolio that you are now in charge of about your your your money in the company and thinking about the skew of it and also balancing the demand in the marketplace on the trends that you see in the market.
So overall you know.
Are there any inclination or are you thinking or would you be inclined to be a bit more aggressive on disposition for you to put more of your imprint on the portfolio or if it's going to be more of this.
On the status quo and just curious on what you're thinking here was on the.
Portfolio balance and the demand you're seeing thanks, yeah, Yeah, I know today I think we're going to we're going to keep doing what we've been doing well over the last 10 years.
We are addressing a very important part of the marketplace is so underserved the middle market and larger companies are vital industries on profit. So we're gonna stick very close to profit centers and diversity, which is for which served us really well during the pandemic. So we're going to stick there, but you know a handheld we start there on the industry sort of make themselves right. So.
We were at nearly 40 per start manufacturing in the first quarter of our acquisition. So yes. It does bump around a little bit in terms of you know what where are the opportunities are and you know as they as they come into us. So.
But it's really important to us that we continue to stick to a profit center real estate with our table Stakes and continue to get you know our contracts at lease rates that you know on or above the market placed on with nice escalations and so we can continue to create.
Create great shareholder return so that's going to continue to be our focus it's a really long game on a long runway for us to keep going in the in that space.
The next question is from John Masako of Ladenburg Thalmann.
Good morning, and congratulations Mary.
John.
So let me just.
On top of the dispositions again, a little bit obviously, it seems like restaurants made up a big component of the sales and I was just curious as to what about those restaurant properties made them. Good targets for dispositions just thinking about where we are kind of on the reopening cycle and maybe some of the demand that's been out there for growth.
Operating wise for for casual dining business.
Given some of the stimulus as well just just why are those good assets to dispose of at this current point in time.
This is Craig I'll take that I mean, we.
Dispositions are part of our monitoring process, they're intended to improve the overall health of the entire portfolio. So we're we're we collect financial statements every quarter. We're looking at the trends of financials of our properties that we own.
And the outlook of maybe the markets that they're located in.
Is it an operator.
<unk>.
From a strategic side that we might want to reduce exposure to.
So there's a there's many factors that play into us deciding whether we want to.
Dispose of that particular property and it just so happened that this quarter was heavily heavily heavily weighted or.
Heavily but casual restaurants, where a bigger portion of the mix.
Pretty much timing Jack you wherever you are.
We like the space.
Okay understood.
And then looking at the pipeline today.
Today.
It seems like Jim's entertainment and other kind of maybe more experiential assets are still a relatively small portion of the pipeline.
Is that going to be a long term decision just given some of the uncertainty created by the pandemic or is.
Debt, just given where you kind of deal flow is in it at the current moment in time and you are still very interested in those property types and I guess, maybe as a follow up whats the pricing youre seeing out there on a cap rate basis for those types of assets.
Yeah, Hey, John This is Tyler.
So with regard to the pipeline I would say generally the pipeline is dynamic on our acquisitions team is calling on prospects maintaining relationships and identifying opportunities.
We serve a wide range of industries.
As Mary mentioned earlier, we're a pure play in profit center real estate and the industries that the opportunities are.
<unk> tend to evolve from there so there's not necessarily on the small small fluctuations can be driven by kind of timing, it's not really indicative of anything beyond that but we're definitely optimistic about the overall size and composition of the pipeline.
We have the opportunity to execute on.
With regard to the cap rates.
Can't really go on for the sector specific every deal we do is unique and tailored solutions for it with our customer.
But you know kind of the theme I was saying earlier, we're definitely.
We're out there finding opportunities, but we're also seeing.
Seeing some some increased competition as discussed earlier.
Thank you very much for that.
Sure.
The next question is from Nate Crossett of Bahrenburg.
Hey, Congrats Murray strength.
Okay.
A lot's been asked already but maybe one on average deal size.
How should we maybe expect that to evolve as you guys get larger.
I understand the focus is still on granular transactions, but I'm wondering if as the portfolio gets larger does that make you more flexible in terms of what you can actually look at.
And also I had a question on I think it was mentioned that 30% on the pipeline comes from existing tenants and I was curious if there was any differences in pricing between existing customers and new customers.
If this is Mary so hey, Nate in terms of the granularity on the on the on we're going to stick pretty much to that and we can in this marketplace.
And in our opportunity set but I would say you know, we're gonna where do we look at everything we're gonna be open to everything I mean were $10 billion, we can do large transactions.
But we're going to you know most likely stay pretty granular and even if you look at for the portfolio here on the other tend to be pretty granular at the end of the day.
When you Peel it all back so, but we're we're definitely you know.
We're going to stick to our mainly for our knitting, there and things will average out, but we're going to we're going to look at everything to.
And I would say in terms of the pipeline the third of our business, Yeah, I think you're asking about.
The difference in cap rates on existing customers versus new I would say no I think it's generally every every transaction, we do with its unique and tailored for specific to the fundamentals of the transaction.
Okay.
Okay.
Thank you.
Hmm.
The next question is from Christopher Lucas with capital one.
Good morning out there Mary congratulations.
I guess just two.
Two quick questions well, maybe not so quick book.
Kind of at a point in the cycle and we're seeing it on the numbers, we're p/e activity picking up for breakthrough.
On a monthly.
On the announcement this morning debt at home was going to be taken private by a p/e from when I think about your business I'm just curious as to how you think about how p/e impacts the business as it relates to opportunity.
Having a more active environment is that a positive for you or negative for you as you think about your transaction opportunity set.
Yeah, Hey, this is Mary I'll take it and Craig can add if he if he if I've missed something here, but you know we actually do business with a lot of PE firms and we we we find them almost always can be additive you know they almost add value they almost always add value to our customers. They're on good exit strategy for customers.
That are building.
For their businesses brick by brick and then path P E come in and help them they've been really they've actually been good during COVID-19 in terms of stepping up and supporting the business since they've been in and that's what we've seen and again, we're in the middle market and larger spaces, and but I would say overall.
When we underwrite and the Ah.
Company or even it went into P firms involved I mean, we're looking at all the metrics in terms of ensuring things on overlap earned and so on and that's it.
The healthy transaction, where we're picking our spots and a really big market place with only 522 customers. After 10 years you can tell we've been really selective so we'll pick our spots, but overall on that isn't there piece on a really great.
Our partner and part of our customer a good customer for us.
Yeah.
Okay, great. Thank you for that and then I just had a.
So it's a pretty quick question I hope.
Socgen field, just can you give us an update on where that is on whether or not it was flushed through.
For the quarter or there are some overhang coming into second quarter.
So this is Craig.
They are out of bankruptcy and its been resolved with.
All of our properties being retained.
Okay.
Great.
The next question comes from Linda Tsai of Jefferies.
Hello, and congratulations Mary.
Linda.
I just had one quick one weighted property costs go down a bit in the quarter and how does that trend going forward.
Hi, This is Cathy we we expected property cost to be able to trend back towards normal. If you recall from pre pandemic days normal is sort of ranging between say eight to 12 basis points of the cost of our.
Our portfolio, that's kind of what you see on an annual basis and were down to 14 basis points. So we would expect that as the pandemic starts to past here that we'll have less and less property costs that we're picking up.
Yeah.
Thanks, that's all I had.
Yeah.
Expenses.
And the last question will be a follow up from Sheila Mcgrath of Evercore ISI.
Yes, I was wondering on because your unsecured bonds are over collateral collateralized versus other Reits in terms of the larger on a <unk> pool.
Could this be an inflection point, where the rating agencies give you more credit for this larger unencumbered pool, just given you've been more cycle tested managing through the pandemic.
Alright, it's Kathy I'll kick that American out if she wants but.
I think.
With store, having been a public after the great recession, we haven't really been.
Tested in some People's minds, and I think the pandemic has certainly attest that nobody expected to have to face, but the portfolio perform really well on I think that I think that is going to weigh in.
And their thoughts as far as as far as ratings go on things like that yeah, I agree yeah, I agree with her Sheila with Kathy and we're we're we're definitely working with the rating agencies and Kathy from contact with them. All the time and you know we're we're working on that.
Great. Thank you.
Thank you.
And this concludes our question and answer session I would now like to turn the conference back over to Mary for you to walk for any closing remarks.
Thank you operator, and thank you all for participating in our call today and for your interest in store in closing I'd like to just reiterate how excited we are about our outlook for 2021 and the next chapter for store with the COVID-19 impact diminishing. We are now at an important inflection point, where we are very well positioned to continue to scale the company.
We look forward to leveraging our proven business model and the outstanding team, we have to address the huge market opportunity and to deliver attractive returns to our shareholders.
We also look forward to seeing many of you at NAREIT in June and as always please do not hesitate to reach out if we can answer any additional questions have a great day.
Okay.
Thank you. The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines have a great day.
Okay.
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