Q1 2021 Netstreit Corp Earnings Call
Greetings and welcome to the net Street Corp, first quarter 2021 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keep.
Pat please.
Please note. This conference is being recorded I will now turn the call over to Amy Odd. Please go ahead.
We thank you for joining us for net strength first quarter 2021 earnings conference call. In addition to the press release distributed yesterday after market close we posted a supplemental package and an updated investor presentation. Both can be found in the Investor Relations section of the company's website at Www Dot net Street dotcom.
On today's call management's remarks, and answers to your questions may contain forward looking statements as defined in the private Securities Litigation Reform Act of 1995.
Forward looking statements address matters that are subject to risks and uncertainties that may cause actual results could differ from those discussed today on.
More information about these risk factors, we encourage you to review our form 10-K for the year ended December 31, 2020, and other SEC filings.
All forward looking statements are made as of the date hereof and the strength of assumes no obligation to update any forward looking statements on the future.
In addition, certain financial information presented on this call includes non-GAAP financial measures. Please refer to on our earnings release and supplemental package flow definition, GAAP conciliation and an explanation of why we believe such non-GAAP financial measures are useful to investors.
Today's conference call is hosted by net streets, Chief Executive Officer, Mark Manheimer, and Chief Financial Officer, Andy Blocher, They will make some prepared remarks, and then we will open the call for your questions now I will turn the call over to Mark.
Good morning, everyone and thank you for joining us today for net Street's first quarter 2021 earnings call. We were pleased to be here with you today.
Start with our portfolio metrics and recent acquisitions activity and then take a moment to discuss our pipeline and continued focus on external growth in light of our recent transformative equity raise.
Andy will then provide more detail on our first quarter results and balance sheet.
He will also update you on our expanded outlook, including <unk> guidance for 2021.
We will then open the call for questions at the end of our prepared remarks.
As of March 31, 2021, our portfolio contains 235 leases comprising of $4 4 million square feet in 39 states with a diversified tenant roster of 16 tenants in 23 industries.
Weighted average lease term is 10, one years, we are 100% occupied with no lease expirations until 2023 and less than 2% from ABR expiring before 2025.
Based on a B R. Our tendency is 70% investment grade with an additional 11% classified as investment grade profile and 89% of our industry exposure is what we refer to as defensive.
We continue to focus on well positioned tenants, who have strong balance sheets and great access to capital and on physical locations that are integral to the tenant's ability to generate cash flow.
Finally, let me remind you that we do not on or intend to on theater Health club, where early childhood education tenant as these tenants typically have weaker credit profiles and real estate that is often cost prohibitive.
To efficiently adapt to other use.
Our strategic approach to portfolio construction has resulted in strong collections through COVID-19.
Through this April we have collected 100% of rents for each of the past eight months.
This steady operational performance has allowed us to focus on our external growth plan.
In the first quarter all of our acquisitions were either with investment grade tenants or with tenants with investment grade profile.
We completed $88 $2 million of acquisitions at an initial cash capitalization rate of six 7%.
And a weighted average lease term of eight eight years.
Subsequent to quarter end, we extended two of these leases that have increased the weighted average lease term from 8.8 years to nine six years with an impact of only six basis points to the quarter's going in cash cap rate.
We also provided $1 $3 million of funding towards an estimated $4 $4 million development project for an investment grade tenant that is expected to be completed in the next few quarters.
We also acquired two more O'reilly auto parts stores in new England at a six 9% cap rate with more than 10, and a half years of lease term as an add on transaction to a portfolio done in 2020.
These are good examples of our ability to extend leases as part of our acquisitions and grow our opportunity set through through providing development capital for our target tenants.
Our multi pronged acquisitions approach allows us to sift through a broad opportunity set and pursue where we see the best risk adjusted returns with a highest quality tenants in all retail throughout the country.
The different approaches have allowed us to add several new tenants to our portfolio, including Marshalls natural grocers raw stores at Wawa.
We look ahead, our pipeline continues to grow in size and we are excited about our ability to execute on our external growth strategy.
Earlier in the month, we raised our acquisitions guidance to $360 million from $320 million.
And to fund that effort. We subsequently completed a transformational well oversubscribed equity offering that allowed us to reload our balance sheet with approximately $194 million of additional dry powder.
We view this offering is a milestone for net street, given its expected impact on our future growth.
We continue to review a wide breadth of opportunities, including investments in stabilized assets blend and extend opportunities.
Lease back transactions and development projects.
We will continue to target the same industries and a similar mix of investment grade and high quality tenants that currently make up our portfolio.
We do expect to continue to grow the portfolio, but we are also focused on diversification as well as enhancing the overall quality of our portfolio.
Finally, we expect that cap rates and lease terms will be generally consistent with what you've seen from us over the past few quarters.
We are truly excited by the opportunity ahead of us as we know that execution on our external growth efforts should result in extremely attractive earnings per share growth given our size.
As I mentioned previously, but it bears repeating our track record of 100% rent collection for the past eight months means that we have not been distracted by chasing rents or workouts with problem tenants. We remain focused and have diligently built a strong pipeline of acquisitions.
Over the past 16 months, we've raised over $600 million of equity capital in three separate transactions with our $1 44, a offering alright, our IPO and our most recent follow on.
We have historically deployed each capital raise efficiently and accretively.
With the completion of our recent follow on offering we remain laser focused on growth. We will continue to keep you updated on our progress on.
I'll now turn the call over to Andy to discuss the balance sheet and our capital markets activities Andy.
Thanks, Mark and thank you for your time with us.
We begin with our results for the first quarter 2021.
Yesterday in our press release, we reported net income of Tucson Corp, with over 22 cents.
Oh 23 cents per diluted share from the first quarter.
Please note that these per share results reflect that'd be on the acquisitions completed during the first quarter for an average of only 13 days during the quarter.
As of March 31, 2021 day in place portfolio was generating $48 million of annualized base rent or ABR, which reflects the effect of acquisitions completed in the first quarter.
Turning to our balance sheet and capital markets activity.
As of March 31st we had $13 $7 million of cash from $13 million drawn on our $250 million bottom line.
We have no debt maturities until the maturity of our revolver in December 2023, which is subject to a one year extension option, which would match the December 2024, and maturity of our fully drawn $175 million term loan.
Our net debt to annualized adjusted EBITDA ratio was four seven times at quarter.
Subsequent to quarter end, we completed our first follow on offering.
Offering saw significant oversubscription by investors, which resulted in the upsides.
The offering by 20%.
We raised $194 3 million in proceeds net of operating expenses, including the exercise in full on the underwriter's option to purchase additional shares.
We view this equity raise as a pivotal moment for the company as this will serve to further fund our growth.
In addition, this will take us through to our one year anniversary since our IPO last August at which point, we expect we will further expand the capital choices available to us.
We intend to utilize the proceeds from acquisition and to repay our revolver.
Pro forma for the offering at March 31st 2021, we would have $195 million of cash on our fully undrawn $250 million revolver.
We would like to thank our entire bank group for their support and execution.
We're also very proud of our entire team for their hard work that positioned us for this milestone offering.
With respect to dividends earlier this week the board declared a <unk> 20 regular quarterly cash dividend to be payable on June 15 to shareholders of record on June 1st, reflecting an annualized dividend rate of 80 cents per share.
Now, let me take a few minutes to discuss our outlook.
We are introducing full year 2021 guidance in the range of 95 to 99 cents.
This guidance reflects the impact from a recent follow on offering and as previously disclosed we now expect to complete $360 million of acquisitions. This year net of disposition up from original guidance of 321.
We still see this as back end weighted in each quarter and at cap rates consistent with our recent activity.
We continue to expect our G&A to be in the range of $11 million to $12 million with an additional noncash compensation expense of $3 million to $4 million.
We expect our cash interest expense, including unused line of credit fees of three to three and a half million dollars and an additional $600000 of noncash deferred financing fee amortization.
We expect to incur state and franchise taxes in the range of two to $300000 and lastly, we expect fully diluted weighted average shares outstanding to be in the range of 38 to 39 billion for the year.
To wrap up we're very pleased with our strong first quarter on liquidity, but beyond that we believe our recent equity operating with a very key stats on her.
As we seek to achieve certain important public company milestones such as index.
Investment grade ratings and will have a meaningful impact on our calls.
We take our role as stewards of our investors equity capital very seriously and we are focused on execution, we thank our shareholders for their support.
This concludes our prepared remarks, we'll now open the line for questions.
Operator.
At this time, we will be conducting a question on the answer session. If you would like to ask a question. Please press star one on your telephone keypad a confirmation total indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment it may be necessary.
To pick up your handset before pressing the star keys.
Our first question comes from Nate Crossett with <unk>. Please go ahead.
Hey, good morning, guys.
I was wondering if you could comment on the activity so far in Q2.
You know I think you highlighted some stuff in the operating perspective in terms of.
Well it wasn't under contract and LOI is there anything notable that's different from what you disclosed a few weeks ago.
No I don't think that there's too much no different than what we disclosed but we have continued to add to the pipeline I feel pretty good about where we are for the quarter are obviously, we increased our guidance at the at the end of the first quarter I feel like we're on track to you know to be able to feel pretty good.
About that for the year are you know our line of sight, obviously, there's only kind of 75 to maybe 90 days out and so with what we're seeing now not not even just with whats in the portfolio, but the types of opportunities that we're seeing.
And you know as we mentioned in the prepared remarks, we've got a multi pronged approach whether that be sale leaseback or blend and extends our development and some of those take a little bit more time as a public company to really kind of have a few of those types of transactions done that you know you get a lot of repeat business. So I was thinking a little bit more.
On the on the development side as well as just kind of go on on the blend a blend and extend side. So I'm feeling pretty good about the the volume and quality and pricing that we're seeing from second quarter.
Okay.
And so pricing is pretty consistent over the last three months I mean, we.
We tend to get question debt too.
The fact that you guys are able to get a little bit higher yield than some of your key.
Closest competitors and maybe you can just kind of remind us. What you guys are doing that may be a bit different than peers to kind of achieve that a.
A little bit higher yields on acquisitions.
Yeah no. It's a good question, we get asked that question quite a bit by by investors and I think it has a lot to do with our sites are being a smaller public.
Public REIT not needing to go out and acquire several hundred million dollars of of you know properties every single quarter.
We really try to build out a bell curve of what opportunities fit our criteria that we really want on the portfolio and then what assets are most inefficiently priced and it really kind of build out that bell curve chop off the kind of on the left side of the of the Bell curve, there and try to buy the most inefficiently priced assets.
And only needing to go out and buy $360 million net of dispositions for your allows us to be a little bit more surgical with the assets that we are that we've taken out the portfolio.
Okay I appreciate that.
I could just ask one for Andy it sounds like you'll probably put the ATM in place later this year and I'm just curious how do you view kind of E. T. M funding versus you know overnight follow ons and how should we kind of think about that heading into next year.
Yeah. Thanks, Nate Yeah, Okay, I think that based on the level of acquisitions that we're gonna that we're gonna be executing on a certainty as we look out over time.
A T M based on our current liquidity.
Average day trading volumes that we're seeing you know it would not we would not be able to be solely relying on the ATM. So I think it's just like everything else that we do I think it'll be a balance.
To me the benefits that it provides us better match funding right.
We're not sitting with as we are right now $195 million worth of cash on the balance sheet.
But yeah, I think just similar with what everything.
We're trying to do it that street no, it's just going to be a balance.
Okay. Thank you.
Yeah.
Next question, Greg Mcginniss with Scotia Bank. Please go ahead.
Hey, good morning.
Good morning on somehow now that are buying it appears to actually be going after 10 31 exchanges on property tax gains over a half million dollars and given your comments that most of your competition seems to fall into that category. How do you expect the potential rollback of that hurt impact business.
<unk>.
Yeah, that's a good question.
And yeah, I think there's still a lot of wood to chop for that to become law.
But that you know that being said you're right you know most of the most of our competition arc on 31 type buyers smaller family offices and individuals'. So we're not really competing much with with the larger institution. So yeah, I think it would be reasonable to assume that if they get through all day all of the loopholes that theyre going to have to get through the day.
We moved this little bolt on.
I think you could expect to start to see.
Pricing increase I, you know I do think that you will get a pretty big flight from lobbyists than in the.
Very very different.
Before that becomes law, but yeah, I mean, I think it helps us a little bit on the acquisition side with pricing.
With less competition and then Fortunately, we aren't selling many assets didnt sell anything in this quarter and.
And it really took a deeper nice to the portfolio before we raise money as it is.
As a private company so.
So we don't really need to go out and sell many assets, but it certainly is a helpful avenues to be able to sell into.
The amount that you want to call some of the assets out of the portfolio and sell into a a deeper at 10 31 private market.
Mhm and how much of your acquisitions are sourced from 10 31 sellers.
You know not not very many you know when you really kind of look at you know what what were acquiring theres a lot of deals that we're working with developers. There's a lot of you know kind of where were taking a piece of a shopping center and we partner with a shopping center buyer.
So those are mostly going to be more institutional yeah, you know type sellers are.
So it's really a pretty small percentage of what we're acquiring are but I think you know kind of what you're getting at is there you know there could be a decrease in volume you know if you know just in total you know the numbers of transactions, which I think is true.
But you know if you know certainly if you listen to some of our our peers and you know that's a lot more assets than certainly that we do and that's really only about 25, 30% of what they sell is until the end of the 10 31 market. So I think it'll have an impact on on total transaction volume, but I think maybe it will be a little bit less impacted than maybe some of our peers.
Okay. Thanks, and just last one from me I know you mentioned that you expect kind of volumes and cap rates remain the same pipe.
Pipeline, but as we start to move past the impacts and restrictions of the pandemic have you started to see any changes in cap rates or desirability that may make you Oh, it may make certain tenants or sectors more or less attractive to you.
No.
But we definitely are seeing a lot more transactions happen in areas that were less focused so I think that's healthy for the overall market I think there are some casual dining and in sectors that we're not focused on starting to starting to loosen up a little bit so you're seeing some of those you know transactions happened, but we were you know even before the pandemic.
This has always been the strategy of the company is really focusing on our essential type retailers and also retailers that have very strong balance sheets very strong access to capital.
<unk> are in sectors that are working in retail.
We continue to think that theres going to be a lot of change in retail there was a lot of change pre pandemic, obviously post pandemic debt.
Does expedite had quite a bit.
And you know I think it's really important in retail as that continues to evolve to not only be in sectors that are.
Somewhat cushioned from you know from what's happening in E. Commerce, but then also when there is inevitable change in retail to have the capital to be able to reinvest in your business and adapt to that change and so that was really the day is a thesis going into you know starting you know starting the company in and raising capital as a private company going back to 2019.
That did not change through the pandemic, yeah, we really want to be a source of very consistent cash flows for investors. You know, we're not going to go chase yield and and you know really try to adapt to our our investment thesis based on changes that are going to be cyclical. We you know we're viewing these as you know very long term investments and.
But there's gotta be cyclicality on there was going to be changed and we want to be very well positioned for that change when it comes.
Alright, Thanks, Mark I appreciate the time.
Next question Todd Thomas with Keybanc. Please go ahead.
Hi, Good morning. This is Ravi the idea on the line for Todd Thomas Hope everyone's doing well.
To ask as a result of recent migration trends are there certain markets that you're trying to strengthen your position or trying to expand into.
I'm not really I mean, I do think that you we are seeing more opportunity where there is population growth. So yeah, I think over time, you'll likely see us have more of a concentration and you know in the Sun belt areas of the country.
But we're really viewing them you know the real estate.
They are pretty similar to how retailers look at it on in a market by market basis.
The Denver did the demographics support you know not only the use that we're jumping into it but then also various other uses in the event that we take the property back.
And there just are more healthy.
Growing.
Markets in the southeast and the southwest in the Sun belt area. So I think on the margin you'll see us increased exposure there, but I think over time, we're likely to be in all of the lower 48 are on a very market by market specific underwriting.
Okay. Thanks, and can you comment on development opportunities, whether you see more opportunity there and expect to see more development and sale leaseback opportunities in the future.
Yeah, No. We we are seeing more opportunities in development that was a real focus for our acquisitions team I think they've done a great job of going out and trying to source those those types of opportunities.
When we were first getting going in and initially you know public we had on a few of those opportunities. They really do take a lot of nurturing those relationships. It takes to get them going and then you really get a lot of repeat business. Once you. Once you do a few and now we're starting to get a lot more attraction.
With with a lot of those you know repeat sellers. So we're you know we're very encouraged by that so I do think you'll see a little bit of an uptick on the margin as it relates to development.
You know, we've always been somewhat no not a sale leaseback, but thinking that that's probably not going to be on area that we're gonna have a lot of success, usually there's a those are cash driven events, where you might have a private equity firm buying a retailer and you know trying to pull as much cash out of the real estate is again and write a smaller equity check.
Oh, that's not a great equation for us and how we look at corporate credit. So we have not really focused too much on that but we are seeing even more opportunity. There. In fact, you know part of our pipeline does have a sale leaseback in there with an investment grade retailer. That's looking to really grow. So I think you are seeing a little bit more opportunity.
With investment grade and high quality retailers are mainly because they are the ones that are growing and some of them like to use the real estate as a as an avenue for funding.
For funding their growth.
Thank you I appreciate the time.
Next question with the tie with Jefferies. Please go ahead.
Hi, Good morning can you remind us on how you plan on managing leverage going forward and you know what are the what.
Okay.
I'm sorry, yeah, Yeah, what are the drivers.
Drivers and you know is there anything preventing you from operating at a higher level.
Well, Brett so right now we're at zero.
But yeah, I think look you know win.
When Mark and I were building out the story.
Tried to draw on our experience you know our targeted leverage is four and a half to five and a half times.
We think that that's a reasonable level right you know.
So from our perspective, you know could we you know.
On the portfolio could certainly support higher leverage but within the public company.
Space, We believe that we're in a half day, five and a half times is.
On appropriately.
Sure.
Got it and then how does your investment sourcing pipeline broken out does it loosely mirror your 70% I G. 11% am I G. Like I'm just wondering if there's a ratio how much you have to source in order to execute on those categories.
Yeah.
Not beholden to that are really much of that although with our focus on what gets through investment Committee.
We're going to be between two thirds and three quarters, it's been remarkably consistent for the investment grade bucket.
We would like to continue to grow the investment grade profile, a bucket a little bit more in line and we've been doing a little bit more of that over the past couple of quarters and think that you know looking forward to the pipeline. You know there are certainly more and more of those types of assets are you know that that.
That will be acquiring we view that as very similar risk with maybe a little bit more a return. So we certainly like to grow that AR and then on the margin will look at your you know double b minus to double B plus a sub investment grade bucket, where we really like the the operator are there one or two of those.
Types of opportunities in there, but really not doing much in in the fourth bucket of your non investment grade profile kind of smaller operator without a rating.
Now that being said I think you know quick service restaurants has been maybe the one sector where.
Where we may look to push on that a little bit just because we think those are that those assets are incredibly fungible incredibly resilient and various different economic cycles and have really proven that proven out over the past couple of cycles and so I think you may see some of that over time, there's not really much of that in the in the pipeline right now, but we are starting to see a.
A little bit more opportunity there as well.
Yeah.
Just one last one.
Given recently raised net investment volume can you discuss how your acquisition team has evolved over the past year and you know what do you think they are capable of in terms of you know how much can they actually deliver in terms of volume.
Yeah, No I think significantly more than what we're doing you know right now we're very focused on pricing and really trying to cut off that that side of the bell curve of what's the most inefficiently priced assets I think we can maybe get a little bit more into that bell curve I think you'd see a little bit of degradation on cap rate maybe 10.
20 basis points at the most.
If we were to double the amount of acquisitions that we're doing yeah. I think the team has really bought into our approach and has really been very creative in terms of how we've gotten in front of a lot of opportunities and then you know like I mentioned earlier earlier, a lot of the development side and doing some <unk>.
On expenses with some retailers with now that we've done a couple everyone's pretty comfortable with the process and kind of what the least amendment to need to look like if it's a blend and extend and so the repeat business. There I think should get easier overtime and certainly you're starting to see that are in the pipeline.
Line, but I think you know with the team that we currently have.
You know I think doubling our acquisitions volume is just pretty achievable. If we were to double I think we may look to maybe add a little bit more help on the clothing side and asset management side. So maybe one person on on each side, there, but I think where we've really built the business for scale.
At the senior levels and the acquisitions team to really be able to scale the business without adding much G&A. So really happy with the progress that the that the acquisitions team has made developing relationships and really getting into more and more repeat business because I think that's going to be more and more important as we grow the portfolio.
Yeah.
Thanks.
Next question, Hi, Ben Kim with Truest. Please go ahead.
And good morning.
So as you become a bigger company.
Oh choir.
What kind of benefits do you think you can see from chemical deal access or visibility I know you guys have a long history of doing this anyway.
This is the size of the company, but just curious on kind of pent up consumer benefit from AC.
Yeah, no. It's it's a good question.
That we anticipated campaigning on maybe a little bit more gradually over time as we build out relationships and you know you really build out the reputation and people think of you a little bit more oh, sorry, if theyre looking to sell something.
And you know that's come a little bit more quickly than I than I, probably would've would've thought.
We're still not going to be very competitive for the for the much larger portfolios, we've seen a number of.
Those types of opportunities come our way.
But those are typically going to be very broadly marketed and very competitive and we're just not going to get there on pricing and you know on almost all of those situations.
We're going on I don't think much will change other than you know as we continue to build out relationships and get more and more repeat business I think that kind of feeds on it is on itself, but I think we're a long ways away from really competing on the on the larger transactions.
So how would you describe.
The deals that you're looking at today like how much is repeat business that over kind of directly done with tenants versus more broadly appropriate type of deals and is there actually the COVID-19.
Pricing benefit.
Yeah, No I mean, it's you know I certainly have seen a lot of peers get into you know what's brokered what's not brokered all of ours kind of have an element of it being in the gray area. So you know it take for instance, if we're buying a blend and extend opportunity we find a shorter term lease and then we you know that's that's widely marketed but it's a she.
Order term leases, where that doesn't have as much interest from from a lot of Iris, we'll tie that up and then go back to our retail relationship and get that lease extended yeah before we close or right. After we close them and so that to me is a situation where we've created our own deal. So technically I guess, there's a broker involved but.
And so we don't really think of it that way, but that being said, there's some element of repeat business and almost everything that we're buying maybe 80% of what we're buying in the second quarter.
Okay. Thank you.
Thank you.
Next question Katy Mcconnell with Citi. Please go ahead.
Hi, Thanks, good morning.
If you were able to double your acquisition volume at some point next few cash what do you anticipate would be the next of equity versus debt.
Sunday on track with machine learning from it.
Yeah.
I'm, sorry can you say that again.
Checking on me.
Yeah, I can hear you.
Okay. So I'll just ask it if he weighs on the double your acquisition volume in the future. What do you anticipate would be the next on equity makes debt funding going forward.
Yeah, I mean look I think that you know if you can.
Do the math and you assume.
Oh.
The impact on NOI associated potential increase in G&A and what that means from an EBITDA perspective.
Rough math, it probably looks like something like two thirds equity or debt.
Rough numbers.
Okay.
Okay, and then can you just update us on how you're thinking it out on the timing of acquisitions that they remain debt this year.
The potential ramp.
Yeah.
Yeah sure I mean, I think we're gonna be pretty consistent.
You know, we did about $90 million from first quarter with no dispositions. We may have a few dispositions here in.
In the second quarter with a little bit more active more active and so I think we'll likely be pretty consistent with around $90 million net.
Net of dispositions each quarter.
Yeah, and KD one thing that.
Katy one thing just while we have you are you know we did note that are on average in the first quarter acquisitions. Those acquisitions were only on the balance sheet for 13 days in the quarter right. So you.
You know when we talked about back end loading, we're certainly working to try to improve that but.
Based on the size of the company that could have a meaningful impact to absolutely I thought that with any given quarter on for the year.
Okay.
Yeah.
Thanks, Kenny our next question comes from Todd Stender with Wells Fargo. Please go ahead.
I think so maybe just sticking with you Andy on that last question. When you layer in the oversubscribed equity offering where does that leave your expectation for debt funding I guess that is the sourcing changed here now a bigger company the size pricing.
How did that really transform how youre looking at your pricing probably just from the debt side.
Yeah. Thanks, I mean from a from the debt side I don't know that it had a material impact you know who are.
As we talked about previously you know look we've got to fully draw on $175 million term on outstanding as of right. This moment, we have zero balance on you know the $250 million credit facility. Obviously the term on that is fully hedged you know through its maturity date in December of 2024.
So I think it'll be a bit before we start.
Yeah kind of generating sales.
This weekend debt that we can term out.
Through private placements, so on and so forth I think that's probably 12 to 18 months into the future based on our.
Patients with the banks, we think that there are a number of things that both the insurance companies or the principal players the private placement market.
So the rating agencies would be positive.
What we do which is you know obviously, we all focus on on quality investment grade on the bus.
From grade profile tenants. So we think that those are net positives and negatives as we see it as you know we need to continue to improve our diversification.
Hmm.
You would need to continue to improve our diversification.
And.
Right. So I don't know that theres a bit on I've been a material change where we were last time, we talked we were talking about.
Seven year private placements and you know kind of on the high twos in club here in Buffalo Threes.
But those are still.
Pretty good points for people.
Got it thank you and probably for Mark when you're looking at the cap rate on the quarter can you bifurcate. If you can with investment grade properties went for collectively if you had a six seven.
The average cap rate what is the investment grade go for it and then I guess the other third that was either below investment grade or not rated.
Yeah, I mean, there's not it's not a huge difference theres, maybe a 30 or 40 basis point difference on the only assets that we acquired in the quarter were either investment grade or investment grade profile. So theres, maybe a 30 40 basis point difference on average between those two buckets.
Okay got it last one.
When you look at the average lease term, it's not that far off from your average, but your insight and nine years now how short did you go on any leases, maybe just kind of speak to your.
Your appetite for anything in the short to medium term category.
Yeah, sure and we did extend a couple of leases.
You know here on April so that ended up being more like 9.6 years spent eight eight.
But that being said, we will look at some shorter term leases, where we have in fact, there was one in particular that was about three two or three and so that was one where we had a conversation with a tenant they are committed to the site long term it reported sales where they performed very well on the rents are below market. So we feel like we're not really taking you know very much risk.
So we will in some cases.
<unk> go that low prefer to have a little bit more a little bit more term and most and that conversation was driven off of us wanting to extend the lease early that particular tenants just doesn't do that.
But we were able to get comfortable that a that they are likely to stay there long term and be even if they don't that we're that we'd be able to reposition the box and potentially increase the rent. So those are situations, where we'll do shorter term leases.
And then yeah, I mean, so nine six probably a little bit shorter than what we typically would like I do think you can expect I can only speak to the second quarter I do expect that to be a little bit longer term on average for the for the quarter.
Great. Thank you.
Yeah.
Next question, Michael Gorman with B T. I G. Please go ahead.
Yeah. Thanks, Good morning, Mark you talked about some of your acquisition strategy working with shopping center owners for potential parcels of their centers, obviously, we saw some pretty visible transactions.
In the public space about a quarter ago are you seeing increased interest from shopping center owners to look at their properties for potential I don't I don't know if I want to call it breakup value, but to look at potential on potentially unlocking value in their centers.
Ah yes.
I think we've seen a little bit more interest from the sellers and quite frankly, we're seeing more interest from the buyers of multi tenant retail so you're seeing some cap rate compression there Ah yeah, and I think you're starting to see a lot of those a lot of those buyers come back. So some of those situations you know quite frankly, I've gotten a little bit more competitive so there's a little bit less of that in the second quarter although.
Our volumes higher and Theres, a little bit less of that are you know that we're that we're looking to do but yeah.
I think that's a a strategy that that makes sense you know Fortunately for US. We've got you know five or six different groups that we look to partner with they all have a different approach to our two.
What they're looking for someone a little bit more value add and want to put a lot of money into our properties to reposition it from a you know are satisfied with.
On the coupon in and keeping the cash flow coming on where we're just focused on a getting a strong retailer that is otherwise, sometimes it's difficult to get our hands on.
With a you know with a good lease and in a location that we think theyre going to stay on long term, but then also on the other key piece that we don't talk much about is that the rest of the center needs to be very healthy and it still continued to be a long term traffic driver for you know forever tenants at those locations, but yeah. I mean, I think there you know there was you know just like you mentioned.
There was one in particular.
You know a group coming in more aggressively there.
I take on that is yeah, that's really they've got one specific approach.
There are a lot of shopping centers that that trade and get marketed so I think it's unlikely that we're going to run into that particular buyer.
Buyer and I think they were using that as much as an avenue to bring on some net leased assets, which obviously are.
More and more attractive with the with the news that you saw yesterday.
But yeah I think that's yeah.
Strategy that makes sense for us, but we are seeing a little bit more competition for.
For the for the multi tenant retail buyers, so that that cap rate compression and Ah is making it maybe a little bit more difficult for us to do a lot of volume in that particular with that particular strategy, which as you know I think the benefit for US is we've got you know five or six different approaches for how we're looking at acquisitions in some situations, we're going to see a lot in one area on a little bit less in other areas and allows us.
To continue to fuel the machine and continue to buy accretive opportunities and sift through where we're going to get our best best risk on a risk adjusted returns.
Okay. That's helpful. Thanks, and then when you're when you're looking at acquisitions.
Tenants, who maybe are in more of an omni channel space, but they're doing a good job with it how do you change your underwriting or as you as you look at the tenants are you getting increased visibility in terms of what kind of E. Commerce volume is flowing through that specific location or you're looking for specific real estate attributes, whether it's clear heights and cash.
Yes.
So if it's a if it's a tenant like maybe you know as an example, like a walmart or are there different things youre looking at to see how critical that location is to their omni channel strategy.
Yeah, no. It's a it's a really good question and to me I think it speaks to yeah, the evolution of retail and making sure that we're.
Focusing on that and understanding it and it's you know it and even for Walmart is a good example, each market is very different for them, where they need to have a you know kind of more of the.
Buy online and pick up in store and.
And that's a more critical on pizza in some markets than it is in others best buy is certainly one that they've really changed the way that they're thinking about their their you know their footprint how much they need is distribution.
You know I think the clear heights, and things like that matter, a little bit less as long as they have the ability to kind of load on the back but they are reconfiguring their stores quite a bit best buy in particular, so they've kind of like went from you know very large there's even tried to very small.
Best buy you know.
So that was kind of a footprint that was too small so they've kind of move back up a little bit, but they don't want to have the really big location, So really making sure that we're talking to the tenant understanding that particular location. How they think about it is as important as it is to you know not.
Not just have one blanket approach of saying, Okay. We need to have you know clear heights of 30 feet on the back end. So they can you know stores store a lot of products. So that people can pick it up in store, sometimes that isn't the strategy. There are you know that there are some areas, where they kind of focus on having the hub and spoke approach. So you know really making sure that we're understanding what the strategies.
And then also understanding that that's probably going to change and so you know what can we do with the box in the event that we get it back is a critical piece of our underwriting.
Okay. Thank you and then one last one Andy I apologize if it missed it but maybe could you just talk about how the board thinking about dividend policy here.
Obviously I think you know just looking at the guidance range Youre on track with the current payout for kind of low eighty's.
Should we think about as the company is in its kind of major growth phase that that payout will trend down or will the will the dividend growth kind of keep pace with the with the <unk> growth from here as the company expands.
Yeah.
We've stated.
Throughout our process, whether it was during the 144 day at the IPO and the follow on you kind of a two thirds to three quarters.
Right, we think that that's the right balance of returning dividends to shareholders.
Satisfying our REIT tax obligations, but also making sure that we are retaining free cash flow.
So you know if you go out over the course of the year I think that you know based on the numbers that you talked about you know we're probably.
The ultimate decision with respect to the dividend as the boards right, we certainly propose something.
But I would think that we'd be in a position, where we should be able to start.
Start thinking about potentially increasing the dividend.
In 2022.
Okay.
Excellent thanks, everybody.
Thanks, Mike I'd like to turn the floor over to Mark for closing remarks.
Well. Thank you everyone for joining us today, we look forward to continuing to discuss our progress on the future take care.
This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
Okay.
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