Q1 2021 Broadstone Net Lease Inc Earnings Call
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Yeah.
Hello, and welcome to broad stone net leases first quarter 2021 earnings conference call. My name is Andrew and I will be your operator today. Please note that today's call is being recorded if you require operator assistance. Please press Star then zero.
Now I'll turn the call over to Mike Caruso, Senior Vice President of corporate Finance and Investor Relations at broad Stone. Please go ahead.
Thank you for joining us today for broad stone net lease as first quarter 2021 earnings call on.
On today's call you will hear from our CEO Christian <unk> and our CFO of Orion Albano.
Before we begin we want to remind everyone that the following presentation contains forward looking statements which of course.
Subject to risks and uncertainties, including but not limited to those related to the ongoing COVID-19 pandemic.
Should one or more of these risks or uncertainties materialize actual results may differ materially.
We caution you not to place undue reliance on these forward looking statements and refer you to our SEC filings, including our form 10-K for the year ended December 31, 2020 for more detailed discussion of the risk factors that may cause such differences any forward looking statements provided during this conference call.
Only made as of the date of this call.
I will now turn the call over to our CEO, Chris Donaghey.
Thank you, Mike and welcome to everyone, joining our Q1 2021 earnings call.
As always on would first like to which our listeners continued good health and safety.
And reflecting on the times since our IPO I'm incredibly proud of our team how they have executed our strategy manage the portfolio and the results they've delivered.
Our diversified strategy has produced predictable results.
It's significant downside protection during this rapidly changing economic environment.
Our best in class geographic.
Pretty type and tenant diversification has yielded rent collections among the best in the net lease space over the past year.
In the first quarter of 2021 was no exception.
Our portfolio operating metrics continued to reflect pre pandemic levels of.
The trend that has continued for several quarters.
During the first quarter, we collected 99 eight per cent of rent in the portfolio was 99, 7% leased as of quarter end.
All of deferral of an abatement periods of concluded and we are currently scheduled to receive less than $500000 of remaining deferred rent, which is immaterial in comparison to our annualized base rent of more than $302 million.
With the widespread vaccine distribution efforts well underway significant reductions in the case counts across the country and all of them for tenants currently open for business. We believe our normalized pre pandemic operating profile of exhibited during Q1 should continue throughout 2021.
While most of our tenants have seen limited disruption over the past 12 months, we expect macroeconomic tailwind to continue to strengthen for certain property types more directly impacted by the pandemic named.
Namely casual dining.
In the areas of the country that may experience a slower recovery, we believe that our granular diversification will continue to provide downside protection and position us for continued success.
What we love about our diversified strategy is that it not only provides for a differentiated advantage during challenging economic environment, but it also positions us to excel and be nimble during periods of growth.
It is no surprise is the net lease space has returned to the external growth.
Going on a temporary pandemic induced pause during 2020.
An increase in capital pursuing net lease opportunities coupled with the Pandemics creation of house and have not asset types as a resulted in the competitive acquisition environment in 2021.
Fight heightened levels of competition, our flexible capital allocation strategy.
Can you translate into a robust pipeline of attractive acquisition opportunities are.
Our diversified approach to investing gives us flexibility and allows us to selectively pursue attractive risk adjusted opportunities across the variety of asset types. Despite changes in the sector specific dynamics.
We've embraced the strategic flexibility throughout our 15 years of operating history, and our investment activity during Q1, 2021 was no different.
During the first quarter, we closed five transactions comprising 28 properties for a total investment of $87 $3 million.
The weighted average going in cash cap rate for acquisitions completed during the quarter was $6 four per cent.
The leases include 1.4% weighted average rent escalations and a 15.3 year weighted average remaining lease term.
Although we've seen heightened competition in some of our core property types, such as industrial and quick service restaurants, we were able to source and close the acquisitions that possess the risk adjusted profiles complimentary to our existing portfolio.
Acquisitions completed during the quarter were more heavily weighted towards the luck of retail and health care property types, which we believe is a testament to the benefits of our diversified acquisition strategy.
During the quarter, we acquired 20 for select retail properties and two transactions for a total investment of $68 $2 million.
The property is primarily include car washes and dollar store sites located in geographically diverse markets leases are subject to a weighted average rent escalation of one one per cent and have a weighted average lease terms of approximately $16 three years.
We're in strong performing sites under long term leases with experienced operators is an exciting addition to the retail segment of our portfolio.
We've also added for health care properties as part of two transactions for a total investment of $19 million during the quarter.
The properties include several plasma collection centers in a newly constructed eyecare facility leased to an existing tenant.
For the leases are subject to the weighted average rent escalation of two per cent and have weighted average lease terms of approximately 11 five years.
We continue to view health care as the unique differentiator for us and we intend to remain focused on adding <unk>.
Attractive assets leased to tenants affiliated with large health systems or significant regional physicians groups.
Expanding on the health care transactions completed during the quarter the acquisition of the newly constructed the eyecare facility demonstrates our ability to work with our existing tenant base to drive new growth opportunities.
Additionally, through our work on the property management side of the business. We also successfully identified and released a previously vacant health care property during Q1 under a new 15 year lease with the same tenant.
Building strong relationships that lead to new acquisition opportunities with existing tenants has been and will continue to be a key strategic focus.
Although the acquisitions, we completed during the first quarter were more heavily weighted towards select retail and health care properties, we continue to source and evaluate opportunities across all of our core property types.
Despite some minor seasonality and volume typical of the first quarter of the year. We are very pleased with our current pipeline and have $206.5 million of additional transactions under our control, which we define as either under contract or executed the letter of intent.
These opportunities are well diversified across industrial health care and select retail assets.
With nearly $300 million of acquisitions either closed during the first quarter or currently under our control and a robust underwriting pipeline of Q2 and second half of 2020, one opportunities I would reiterate our confidence in our full initial full year acquisitions guidance range of $450 million to $550 million right.
And we'll provide a more complete update on our 2021 full year guidance in just a few moments.
During the quarter, we sold eight properties for $23 million and a weighted average cap rate of 7%, representing a $3 5 million dollar gain over our original purchase price.
The sales continued to reflect our disposition strategy focused on risk mitigation and included several non core health care assets and weaker performing casual dining locations.
We continue to closely monitor and assess the long term impacts to segments of the portfolio that had been more directly impacted by the COVID-19, pandemic, namely casual dining and office properties.
Granular tenant diversification long term leases and strong tenant credit affords us the opportunity to patiently assess all available options to preserve and enhance long term shareholder value.
As of March 31, our portfolio include the 660 net lease properties located across 41 U S States and one property in Kinder the.
The portfolio had a weighted average remaining lease term of 10 six years with two 1% in place contractual annual rent escalators.
Occupancy increased 50 basis points quarter over quarter to 99, 7%.
As we successfully re tenant to the three properties during the first quarter.
Leaving only six of our 661 total properties vacant at quarter end.
Our forward lease maturities continue to be negligible and represent just 0.3% of ABR in 2021 and a total of two 7% of ABR through 2023.
Lastly, I'd like to highlight some exciting governance related news that was announced earlier in the quarter.
During Q1, our board of Directors nominated Denise Brooks Williams, and Michael Coke for election to the board at our annual meeting, which will be held this month.
I look forward to welcoming both of them on he used to the board of directors as each brings a wealth of experience in their respective industries.
MS. Brooks Williams currently serves as the senior Vice President and CEO of the North market for the Henry Ford Health system, a leading not for profit health care and medical services provider in Michigan.
He says more than 30 years of experience in the health care industry and will contribute immensely as we seek to expand our health care portfolio.
Mr. Koch is the co founder and current President of Trevino Realty Corporation the pub.
We traded REIT, focusing on infill industrial properties and six major coastal markets and has over 30 years' experience in the industrial real estate sector as well as significant experience as the director and executive of publicly traded Reits.
With that I'll now turn the call over to Ryan to provide additional detail on our Q1 results and our full year 2021 outlook.
Thanks, Chris and thank you all for joining us today I'll begin with an update regarding the strength of our balance sheet and liquidity profile as well as some exciting developments that occurred during the first quarter of the year, we are committed to maintaining significant liquidity and financial flexibility as we continue to make progress towards our.
For 2021 growth objectives.
As of March 31, we had approximately $885 million or 98% of available capacity on our revolving credit facility.
Our net debt at quarter end was approximately $1 5 billion, resulting in the net debt to adjusted EBITDA Ari of five point of two five times.
Coupled with limited near term debt maturities, our substantial liquidity allows us to be strategic and accessing the capital markets and positions us well to execute on our growth objectives.
As we discussed during our Q4 earnings call. We received an initial credit rating of Triple B with the stable outlook from S&P in January.
We have already begun to reap the benefits of this credit rating in the form of interest savings as.
As the interest rate on our existing unsecured bank term loans and revolving credit facility were reduced by 25 basis points in February.
The second credit rating further diversifies, our potential available funding sources by providing us access to the investment grade bond market.
In addition, Moody's reaffirmed our <unk> credit rating and updated its outlook from stable to positive during the quarter.
These two actions further validate the strength of our diversified strategy and our commitment to conservative balance sheet management.
On March 12, we amended our $450 million 2026 unsecured term loan reducing the applicable margin by 60 basis points in.
In connection with the amendment, we elected to repay $50 million in the outstanding principal, bringing the outstanding balance to $400 million as of March 31.
The interest rate savings associated with both the S&P credit rating in term loan amendment will have positive impact on our 2021 full year earnings in our cost of debt in future years.
Now turning to our Q1, 2020 one financial results.
We reported <unk> of $49 4 million during the first quarter of the year, representing 31 cents per diluted share.
These results are inline with expectations and represent a one cent or three 3% increase on the per share basis, when compared to Q4 2020.
The increase quarter over quarter was primarily driven by the impact of late Q4 acquisition closings the PA.
Partial quarter of interest savings associated with the S&P rating.
We expect our late quarter acquisition closings in March the repricing of our bank facilities. Following the S&P rating in February and the amendment to the 20 of 26 term loan in March will all serve as tailwind for our upcoming second quarter earnings.
During the quarter, we incurred total G&A expenses of $10 6 million, which includes onetime separation costs associated with the departure of an executive officer during Q1 <unk>.
After adjusting for these onetime costs as well as $9 million of routine stock based compensation expense, we incurred $7 6 million of cash G&A during the quarter, which is slightly better than the low end of our initial guidance range when annualized.
Following the completion of the first quarter of the year, we refined our 2021 <unk> per share guidance upward to reflect our confidence in the strength of our current acquisition pipeline as well as the various expense savings measures achieved during Q1.
For fiscal year 2021.
We expect to report total <unk> per diluted share between $1 28, and $1 30 for which represents an implied growth rate of nine 2% at the midpoint of our annualized Q4 2020 results of $1 20.
This guidance is based on the following key assumptions.
Acquisition volume between 450, and $550 million disposition volume between $50 million on $100 million in.
Total cash G&A between 32 and $35 million.
As we discussed during our Q4 earnings call our per share results for the year are sensitive to both the timing the amount of acquisition disposition and capital markets activity that occur throughout the year.
Finally based on our performance to date and strong acquisition pipeline. We are pleased to announced on our board meeting held on April 30th.
Our board declared a <unk> 25 on a half cent distribution per common share and O P on it.
To holders of record as of June 30th payable on or before July 15th.
The half cent increase represents 2% growth in the quarterly distribution rate per share.
We'll continue to evaluate future increases to our dividend with our board as we continue to grow our earnings base and intend to target a long term <unk> payout ratio of approximately 80%.
With that I will turn it back over to Chris for closing remarks.
Thanks Ryan.
Our team is excited to continue to demonstrate the strategic advantages of our diversified strategy.
Not only as it relates to risk litigation, but also in our ability to grow through accretive acquisitions.
Q1 was another excellent example of the benefits of our approach to net lease investing and portfolio construction.
I'm encouraged by our normalized operating profile exhibited during the first quarter and feel confident that we have positioned ourselves to create meaningful shareholder value in both the near and long term.
This concludes our prepared remarks, thank you for your time and attention this afternoon.
Operator, you can now open the line for questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
If at any time of your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from John Kim with BMO capital markets. Please go ahead.
Thanks, Good afternoon.
There was.
On M&A.
Action, which indicated in the industrial sector of sub five cap rate for net lease industrial assets can you just describe what you're seeing as far as assets that youre looking at an industrial.
For the cap rates are today versus where they were maybe a few months ago.
Sure. Thanks, John.
Yeah definitely saw that transaction and understood where pricing was for that I would say you know for US we are working on a number of industrial transactions in frankly with our diversified approach. We're looking at a spectrum of cap rates and so probably just going more broadly for a second.
Definitely are seeing and working on industrial acquisitions in the low 6% cap rate range.
We're still seeing some good opportunities with TERP respect of term there and maybe the 10 to 15 year range and net annual bumps being north of one five per cent.
Certainly things have traded past that range as well for.
For certain of our instances and we were not as inclined to follow that just keeping the risking risk reward trade off there and whatnot.
And then maybe just to carry that through since pricing is always a popular discussion point.
Health care side seen our opportunity set probably in the mid 6% cap rate zone there.
They're having maybe a little bit of of shorter lease term say seven to 10 of in years in that zone still strong annual rent escalations and that wanted the half to two per cent or greater zone, and then on the select retail side, maybe mid to upper sixes.
For term longer term.
Correspondingly potentially lower annual rent increases as well.
But that's sort of the broad spectrum of what we're seeing but for sure of the industrial segment would be on the lower end of the going in cap rate range.
So when you heard about the transaction last night of this morning, and then also discussion that in.
In the market.
Theyre seeing cap rates in the mid fours debt does that surprise you.
I would say there are certain transactions that we've seen go that low as well I think it just depends on facts and circumstances and the tenant credit profile and the whole host of other factors in the lease term as well so I would probably characterize more of the.
The transactions going in the 5% zone, but the mid for I guess it doesn't strike me as is completely off the mark at the same time.
I think it depends on whether you're talking about investment grade tenants or non investment grade tenants as well and to my knowledge. The Fedex component of that portfolio is heavily investment grade, which could drive that in the.
Then theres, a pretty diversified mix of tenants.
Underneath of of the Fedex piece as well so.
Theres, probably a facts and circumstances that drove some of that pricing as well.
Okay, and Chris on the $265 million of.
Assets you have under control can you provide some more color on your typical.
Closing rate when you have something on your line of letters of intent or on your contract.
The timing of closing and as long as the asset mix.
Sure maybe I'll start backwards going forward I'd say the asset mix are in that $206 million is a pretty nicely balanced of.
Mixed between industrial a couple of healthcare transactions and then a couple of select retail transactions as well probably the only thing that isn't in there as of Q S. Our assets right now.
So you know pretty pretty healthy balance across the board there and obviously evolving by the day I.
I would characterize from a timing perspective.
I would say the vast majority of it or the bulk of it at least we would expect to be Q2 closings subject of course to ongoing diligence. There are certain things that will be of Q3, our acquisition within that number as well, but at the same time, we're also working on transactions.
And that could be Q2, closers that haven't been awarded yet as well, so but bulk of it would still be anticipated for Q2 subject to our diligence efforts wrapping up and then.
On the closing front, John one of the things we talked a lot about or are in the early days of the IPO and I think still holds true today as we tend to overload of our front end efforts on diligence and really wanting to stand behind all of the LOI is on contracts we sign so.
That doesn't mean, we're for change in this process, but it probably means we have a pretty elevated closure rate of around.
Around Oh.
What we actually reported out there and I think that's why we were feeling of confidence in being able to talk to you about those numbers today.
Okay, Great I just had one of my question.
During the quarter you eliminated the CIO role at the company how does that impact your.
Investment decision process and is there any impact to G&A because of this.
Oh sure. So it hasn't really changed our investment process at all of the only thing that has us a little bit different as we've expanded our investment committee to include some of our senior Vice presidents of our sector, leading experts and on the a M and P. M side and whatnot, we haven't made any corresponding adjustments to G&A.
We would anticipate continuing to look at adding some personnel to the investments team over the course of the year and so didn't really make any.
The adjustments on the on the G&A guidance there at the same time I'd also point out that our.
Acquisitions team today is larger than when we did the IPO, we had added a few folks.
The in the subsequent quarter, so feel really good about where they're performing and I think it shows through in the and the forward pipeline that I just talked about.
Great. Thank you.
Okay.
The next question comes from Anthony Pallone of.
J P Morgan.
Please go ahead.
Great. Thank you I may have missed this but did you comment on the yields on your pipeline overall in terms of about $206 million and also just.
Contractual rent bumps given the first quarter think of sort of on the rider side versus your portfolio average.
I'm, sorry would you repeat the second piece of Tony I, just couldn't hear you for one second yeah that the.
The contractual bumps trading in the first quarter, they were a little bit inside of where your portfolio average generally is.
Yeah, I'm sorry, thank you.
So in terms of the the yields for the.
100 control of assets is kind of exactly what I, what I said from a underwriting perspective. So it's that's probably of that six to seven that probably was the 6% to 7% cap rate range and you know having of waiting.
For an individual property type drive where some of those yields fall I didn't we didn't talk about the specific weightings there.
In terms of the annual rent bumps I would say that there is a range that's fairly characteristic of the property types of of underwriting but.
Of the medical and industrial is still being in the 2% zone, 1.5% to 2% zone, depending on on each individual transaction.
Okay, and just you're out in the market looking at transactions are there any particular types of of.
Bidders that youre going up against more frequently are not better cutting you out of certain areas or any trends on that side in terms of who's showing up to transact.
Varies by asset class.
Some of the.
More retail oriented peers in the space with <unk>.
Certainly the interested in some of the the select retail assets, we are doing and we have seen them in the.
And then the last six months or so being being competitors.
On the medical side or the health care side.
It varies again, having a more niche focus there we tend to see more private buyers and the little bit more private equity oriented buyer there and then on the industrial side again, you see certain net lease Reits being active there and they've stayed fairly consistent.
A few more institutional buyers as well so I don't think the competition landscape has changed I think it just varies by product type of and we've seen that hanging pretty consistently over the last quarter.
Okay and last question just.
On the art van boxes are.
I think you mentioned the vacant or the occupancy pickup related to make the health care in the quarter. So does that leave you still with the with some art van to backfill or whats the update there.
Sort of yes, and no. So we highlighted the the the health care box acquisition, because it was a really nice tied together with both continuing to grow with that tenant as as they looked at build to suit opportunities plus the leasing some of our space, we did lease to art van boxes during the quarter as well.
Which accounted for a good of which accounted for the other two.
Sites are re leasing this quarter and so then that leaves us with just fairly odd for the two very small assets left I think it's around 10% of the original ABR portfolio.
On our ABR of the art van portfolio, and where we've been looking at selling Norwood. She knows so more progress on that front. So eight of 10 have been re leased at this point.
Great. Thank you.
Thank you.
The next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.
Hi, Good afternoon on I was wondering maybe if you could just go through you talked about the expected cap rates for the different categories going forward, but even without industrial on the cap rate in <unk> was relatively lower so just wondering if you could go through kind of what contributed to the cap rates for the.
<unk> in the first quarter.
The expectation for that to pick up going forward.
Sure Yeah, So I think again fairly.
It's always a of facts and circumstances relative to any acquisition, we do and so trying to give some degree of a general framework was what I was searching for their Caitlin.
During the quarter, there was a pretty pretty good band of of.
Cap rates as well I think one of the lower cap rate transactions. We did was was the tradeoff was having a new 20 year master lease with the leading car wash operator, so that maybe.
Maybe you took that cap rate a little bit lower than.
Then you might have expected for a select retail asset and so that was a component of it but otherwise I think most of the entire quarter was fairly well boxed in the.
Mid six zone.
Yeah.
Got it Okay, and then for the on transactions in the quarter I think you said that they were on.
Four of five just wondering if you could go through how those first source mix of existing tenants or otherwise.
Yeah, absolutely so.
So the health care deal I highlighted which had the really seen here on the acquisition during the quarter was obviously an existing tenant that we have.
Known and have done repeat transactions with.
One of the retail opportunities was.
Through regular way brokerage and then one of the other select retail the that had a good chunk of dollar stores than it was with the developer that we have worked with.
Hum on multiple transactions over the years as well so that was the repeat develop a relationship there.
Got it okay.
On.
No I'd just say just the take away is as you know.
The way I think about it is that our existing tenant base our existing portfolio.
The relationships on either of the developer of direct side, we have plus the brokerage network are all important to us and we're.
Trying to pull from each one of those and certainly ebbs and flows at different times, but that's the principal set of deal sourcing we're looking at.
Yes that makes sense and then maybe moving on to the dividend the increase it.
It was a lot of sooner than we were expecting so just wondering if you could go through the decision to increase the dividend now versus waiting a little bit and what factors for taking into consideration.
Sure so absolutely.
I think in Ryan's welcome to jump in here with me as well.
We're obviously looking to be in the 80% zone for a payout ratio component.
Considerations that we check through it the board discussion, where obviously the performance of the portfolio and being.
Fairly.
Completely back to normal at this point in pretty much every circumstance and seen good I'm good.
Good collections trends and not having any tenant issues to speak of.
Certainly the acquisition of pace, increasing and the confidence we had and where the pipeline was going and hopefully you saw that through.
The the discussions we've had today so far also factoring in the term loan savings that Ryan highlighted that wasn't in our initial guidance and so wanted to.
We enjoyed some significant benefits from that and so all of those factors together where.
You know what it gave us the confidence and felt like it was the right time to make up the first adjustment upward.
The next question comes from Chris Lucas with capital one. Please go ahead.
Hey, just a quick one for me Ryan on the guidance. We provided of course it was some of the assumptions.
The fourth quarter earnings call.
Noted that the G&A would be between 32 on $35 million.
I guess I'm, just trying to make sure that I understand how that number relates to the first quarter result, which included severance and that you had some accelerated.
Vesting as well so it came in the hot.
Just curious if the shall we be thinking about the the.
The aggregate number or should we be adjusted out for the sort of onetime items in the first quarter to get to that sort of 32 to 35 number.
Sure.
The way that I'm thinking about it right now if I look at that 32 to.
The $34 million.
I'd say that is I think I've also stated before let's say call it about $8 million give or take of cash G&A on a run rate basis on a comparable basis I'd call. This quarter about seven 6 million in the way that I'm thinking about that as you know the.
$10 1 million of total G&A.
<unk> out for some of the onetime related items on severance and then some acceleration of stock based comp associated with that same departure and then.
As well as our regular routine stock based comp being adjusted out brings you basically from the the $10 six down to the seven six which is really the comparable number to our guidance.
Great Thats all I had thank you.
The next question comes from Michael Gorman with BTG. Please go ahead.
Yes, thanks, good afternoon.
Chris Sorry, if I missed it but could you just.
Talk a little bit about the office portfolio, and how youre thinking about it strategically and what kind of deal flow on competition Youre seeing in the marketplace, obviously with the announced transaction activity last week, there's going to be of strategic spinoff dedicated to the office space. We've seen one or two peers talk about disposing of their office portfolio some interest.
How youre thinking about it and what kind of investment opportunities you're seeing in the market right now.
Sure I think first and foremost.
We've been.
Pretty pretty hard on the on a hard pause with respect to office.
We continue to monitor the existing portfolio, which performance wise has been strong and we've seen the diversity of utilization amongst the tenants as they continue to think through there there.
Returned to work component and it's a pretty active dialogue with the tenant base there.
And I've said on a couple of different calls before the term in the credit and the and the duration of the term we have gives us a lot of opportunity to be patient and thoughtful so not actively pursuing any.
New office acquisitions at this moment, it's certainly possible that we could see one in a diversified portfolio or something so I don't want to draw of completely bright line there for you.
For us.
There hasnt been.
We at least from of pipeline perspective of huge amount of new office opportunities that of have would've fit our traditional box but.
Certainly followed the spin off and I think we're just in the wait and see and continue to engage with our tenant base before making any any further pronouncements, one way or the other there.
Probably persist for another quarter. So it would be my guess.
Okay, great. Thanks, that's helpful.
The problem.
The next question comes from Ronald Camden with Morgan Stanley. Please go ahead.
Hey, just the first one I have was just when you're taking a step back and looking at the having the benefit of of being involved in different asset classes.
We're sort of the best risk adjusted return for the incremental dollar.
Your mind today, and maybe how does that change for versus six to 12 months ago. So said another way.
There are sub sector or for an industry or anywhere that you really see an opportunity.
Today versus call it six to 12 months ago. Thanks.
Yeah, absolutely I think you know.
The the spectrum I walked through to me have has.
Some interesting puts and takes to it so while you might be giving up or having a slightly lower going in industrial cap rate you are still.
Able to acquire some assets that are long term and strategic in nature have a good long term lease and have good.
Annual bumps associated with them and just maybe the contrast, it on the spectrum.
Feel good about the investments, we're making on the select retail side with a little bit of a higher cap rate and again, the long term, but maybe given up a little bit on the annual bumps. So it's just weighing those things against each other.
And thinking about where we are most effective.
So to US we're honestly balance in each one of those and then against individual tenant financial considerations and how strong of a tenant they are and how what's their profile on the background. So.
I think you've seen the for what we're trying to communicate the here is is that we have the benefit to to move amongst these asset classes as as the conditions change and so we've been doing a little bit of that during the first quarter with the health care. It was a little bit more health care and a little bit more select retail.
Even though the portfolio is or excuse me. The pipeline is diversified going into Q2, we are still continuing to look at health care and some of the select reach opportunities because we are seeing the nice complement of what's going on in the industrial side and to US that's sort of the bigger that's sort of the bigger picture is being able to to flex between those situations and be thoughtful on all of them.
Great and if I could just follow up on on sort of the health care space.
Kevin sort of if it's an asset class where a lot of your competitors.
You don't have a lot of it don't have a lot of exposure to maybe can you just can you just talk about.
When you take a step back and looking at.
Sort of the health care opportunity why do you think that most of your competitors have not looked at it.
Just you guys are nice you guys have built the platform.
Whats the opportunity there that you think others may be missing.
Yeah, No. It's an interesting question. Thank.
Thank you.
It's been something that we've been in for goodness 15 years now it's you know even before I got to the company and to me it's a.
A spot where we've been able to carve out of a niche that has been really differentiate it and we've been we've been following it for a long time.
You know for us.
I think it's such a significant part of the economy that.
As the only continues to grow and has continued to provide new product and frankly, the interplay between the hospital systems and some of the larger regional physicians groups have also been pretty dynamic and we've been able to to acquire on both of those I think it does require some expertise and some getting up the learning curve and that's a never ending process for us.
As we continue to think about growing our team and using our experience there and you know frankly, we took a step on another step forward to continue to expand our views on that by.
Asking to needs to join the board. She is of great background with 30 years and the Henry Ford Health system in her views on on.
On.
On real estate health care as it's been.
The aligned with what we've thought of from the space and fascinating to think about where it could be going as well so I.
I think it's been a really good differentiator for us in the Triple net lease model works as well as it does in other components there so.
We've we continue to favor I didn't want to do more there.
Great All my questions. Thank you.
Thank you Ron.
This concludes our question and answer session I would like to turn the conference back over to Chris <unk> for any closing remarks.
Thank you all for joining US today, we are again continuing to be very grateful for all of your support.
And are appreciative for all of our investors.
We wish you a excellent summer we're very excited about our pipeline and we'll be excited to be back in front of you.
Come August with the Q2 call and just give you the next update along the way.
Good afternoon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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