Q4 2021 Spirit Realty Capital Inc Earnings Call
Greetings and.
Welcome to but it is reality capital's fourth quarter 2021 earnings conference call.
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I would now like to turn the conference over to your host fear or his ball SVP of corporate finance and Investor Relations. Thank you and.
But what do you Sir.
Thank you operator, and thank you everyone for joining us for spirits fourth quarter 2021 earnings call.
Presenting on today's call will be president and Chief Executive Officer Jackson shy.
Financial Officer, Michael Hughes, Ken Heimlich, Chief investment officer will be available for Q&A.
Before we get started I would like to remind everyone that this presentation contains forward looking statements.
Although we believe these forward looking statements are based upon reasonable assumptions they are subject to known and unknown risks and uncertainties that could cause actual results to differ materially and that's currently anticipated due to a number of factors.
I refer you to the Safe Harbor statements in our most recent filings with the SEC for a detailed discussion of the risk factors relating to these forward looking statements.
This presentation also contains certain non-GAAP measures.
Reconciliation of non-GAAP financial measures to most directly comparable GAAP measures are included in the exhibit furnished to the SEC under form 8-K, which includes our earnings release supplemental information and Investor presentation.
These materials are also available on the Investor Relations page of our website.
For our prepared remarks I'm now pleased here to do is Mr. Jackson check Jackson.
Thank you Pierre and good morning, everyone.
Over the last few earnings calls I've talked about the quality of our portfolio.
Our balance sheet and our ability to source transactions.
Given what we've achieved in these three areas I believe spirit is well positioned for success in 2022 and beyond.
And the last four years, we've executed on our strategy to create a highly diversified portfolio.
With large sophisticated operators.
Significantly growing our industrial exposure.
During this period, we sold or spun off $3 8 billion of assets contained $4 1 billion at the.
The original portfolio that fit our strategy.
And acquired $3 8 billion of new assets.
This effort has resulted in a high quality stable portfolio.
Low volatility.
At quarter end, our lost rent was virtually zero and.
And we had only four vacant properties.
In addition, the strength of our diverse portfolio has been proven out during the Covid pandemic.
Which caused minimal disruption.
Our rental income.
In fact, the majority of our tenants are performing better today with improved profitability and credit profile.
To help illustrate the transformation of our portfolio and its resulting impact on performance.
We've included several patients in our current investor deck.
That provide additional disclosure, which I hope you won't review and find informative.
Our balance sheet has also continued to strengthen.
Allowing us to transition away from ABS and convertible debt.
Secure a triple B rating from all three major rating agencies.
I've become a cereal investment.
Great Bond issuer.
Today, our portfolio is almost completely unsecured and our debt maturities are well ladder and long dated.
In addition, our low dividend payout ratio allows us to propel earnings growth.
By reinvesting more free cash flow.
Enabling us to grow the dividend consistently.
And sustainably over time.
Yeah.
Finally, with the completion of our recent follow on equity offering.
We remain extremely well capitalized to execute on our growing acquisition pipeline.
Regarding acquisition sourcing.
The goals, we laid out for our acquisition platform have all been achieved.
We are doing exactly what we said we would do.
We have the team and processes in place to source and close transactions.
Which will allow us to drive strong consistent earnings growth.
We built out integrated acquisitions and asset management teams.
Expanding our reach.
And allowing for concerted sourcing efforts.
Our focus on relationship development with our existing tenant base owners and new partners.
In addition, our.
Extensive underwriting capabilities focused on evaluating industry relevance tenant credit strength.
And key real estate attributes allows us to allocate capital across a wider opportunity set.
Which we believe delivers superior diversification.
A better risk adjusted returns.
Our fourth quarter investment activity is emblematic of what our platform can deliver.
As we deployed $487 9 million in capital acquiring 92 properties across 28 transactions.
With a mix of 60% retail 40% industrial.
Most notably 75% of these transactions were sourced through existing relationships.
Which is well above the target we laid out at our Investor day in 2019.
We're also off to a strong start in 2022.
With $179 million of acquisitions completed year to date 2000.
14 transactions.
And with the strongest forward pipeline in my history at Spirit.
We believe our acquisition capability has hit its stride.
And we're seeing the benefits of the relationships, we built without counterparts.
Our teams are in sync and growing and we are leveraging the many technology tools and processes we have developed.
Finally, I want to highlight that the noise is behind us.
Instead of completing structural changes or dealing with the impact of COVID-19 .
We're entering a truly clean here.
The solid portfolio strong balance sheet.
Best in class team in place.
This will be the first year for our team to showcase what this platform can do.
And I expect great things to come.
With that I will turn the call over to Mike.
Like.
Thanks, Jackson and good morning.
We had another great quarter F O per share increased to 85 cents compared to 84 since last quarter many of our operational performance metrics improve.
Occupancy ticked up 1% 99, 8%.
Same store sales increased from one 8% to 4%.
Lost rent decreased from 1% to effectively zero portfolio Walt increased 10.4 years.
We also further diversified our portfolio, adding nine new tenants and reducing our top 10, and top 20 tenant concentrations by 1% and 2% respectively.
Our annualized base rent increased by 30 million to $588 million driven by acquisitions and rental increases is just shy of 596 million. We reported in Q1 2018, right before the spin off investments yet.
For the year, we reported <unk> per share of $3.31.
As we have previously mentioned our 2021 results include $7 million of out of period amounts related to the COVID-19 pandemic.
Excluding these amounts our 2021 adjusted <unk> per share is $3 25 sets.
Our deferred rent receivable balance declined by $1 5 million to $15 3 million.
100% of deferred rents contractually owed for the quarter.
Starting in January we have no remaining tenants under deferral arrangement.
Our theater portfolio also continues to perform well and we recognized 700000 right. Our two new theater tenants imagine and book cinemas up from 260000 in the third quarter.
Turning to the balance sheet at quarter end, we had unsold Ford contracts for 56000 shares of common stock.
In January there were follow on offering we entered into additional forward contracts issued $9 4 million shares of common stock.
With expected proceeds of $433 4 million on settlement of all four contracts, we are well capitalized to fund a significant portion of our 2022 acquisition pipeline.
At quarter end, our leverage was five one times and our fixed charge coverage ratio was five seven times.
The upgrade we received from Moodys in October we are now ready to triple B across all three major rating agencies.
We are reaffirming our 2022 guidance previously provided on January 10.
<unk> per share range of $3 50 to $3.58 capital deployment at $1.3 billion to $1.5 billion and dispositions of approximately $100 million.
Yeah, so for sure midpoint of $3.55 plus the growth rate of nine 2% over our normalized 2021 <unk> per share of $3.25.
Given the underlying strength of our portfolio and balance sheet and the visibility we have into our pipeline. We are optimistic about what we can achieve in 2022 and beyond.
With that I will turn the call back over to the operator to open up for questions.
Thank you.
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Thank you.
First question comes from the line of <unk> bin Kim with Twist Securities. Please go ahead.
Thanks, Dan and good morning, everyone.
So you mentioned a very strong forward pipeline for acquisition I was wondering if you could just give some more color on there on some of the larger deals within that pipeline, what the you know what.
Kind of assets they are in the pricing.
Thank you and good morning as Jackson.
Well well just comment just quickly on the transactions we've closed to close to date to 13 this quarter.
Mitch it's pretty much split 50, 50 in terms of percentage between industrial and retail.
And I would say that we generally have sort of a target a balanced for the rest of the pipeline.
Pretty evenly split between industrial and retail.
Still are finding some interesting opportunities within the light manufacturing part of that sector.
Real space.
And I really think it's a function keep them.
Our fully built out team you know, we have four bps and our acquisition team.
We have five officers that Ron.
Different asset management verticals that are also originating transactions. So when you look at the totality of.
But the different people at spirit that are focused on new business. It's a much higher number then.
The best thing, so I think youre seeing the benefit of all of that collectively coming together plus.
Improved relationships with our tenant base.
So I would say like the shape looks great in terms of cap rate, let's say the yep.
R R.
Our business that we've closed to date is.
It's around a six and a half gap right now about $179 million.
<unk>.
We're looking at that as a as a target for this year.
And does that target of six 5% does that maybe you can bracket that with what you're seeing in the macro environment and rising rates, if that six and a half.
You know if there's anything if there's been any repricing.
Trends that you've noticed.
Well I think one of the things that we consciously wanted to do was to have a higher number of transactions.
That's a target per quarter.
We think that first of all we think that there is a portfolio premium right now in terms of cap rate, but what we've seen.
You know with larger what we call defined as portfolio opportunities. There has been more competition I don't know if its better financing that's driving some of this.
Acquisition side, but we have seen a portfolio premium out there.
I think up to 50 bps on.
From a cap rate. So we've had more success doing one off transactions more repeat business with existing tenants and so that is going to be a core part of our strategy going forward, we talked about it last quarter.
And as luck with their tool transactions closed in terms of the old terms into the first quarter Award exceeding you know what we did prior to last quarter in terms of average transaction count per quarter.
We are still evaluating portfolios and my guess is we'll end up doing something hopefully this year in terms of portfolio activity, but right now where we think that we can drive better risk adjusted returns.
Higher frequency.
Transaction.
Tiffany.
Acquisition effort.
And how about that second part of the question meeting is.
Given the rising rate environment.
How are you thinking or how are other investors thinking about pricing.
SAP environment.
Well you know it's interesting on the on the raising right rate environment on the one hand.
We're seeing what we're seeing in our portfolio from sort of unprecedented credit improvement I E.
Top line business is better or are there other better control of their margins and bottom line profitability.
And so I think what we're starting to see more interest in our tenant base wanting to expand expand facilities expand unit growth.
That's perfect for what would you want to do it right because we want to be on the other end of that transaction financing provided capital for those people.
Well, we haven't seen yet is increasing cap rates.
I know that rates are.
Right.
Presumably in time, maybe that'll start to translate but so far with this kind of raising rate.
Rate environment, and the private market, we haven't seen a.
Our net increase in cap rates if anything.
Decrease across depending on what industry sector Youre looking at.
Okay. Thank you.
Yeah.
Thank you.
Thank you. The next question comes from the line of Joshua <unk> with Bank of America. Please go ahead.
Okay.
Doing well.
I saw that.
Lifetime fitness.
A sale lease back just curious if you guys have.
Any color.
Color on that transaction or do you look at it.
It might be more deal flow coming from them.
Well, Josh I like what we well, we don't like to comment on existing transactions aren't working on but what I can tell you is we like lifetime, we'd like to do more.
Relative to their press release I want to talk to you about an LOI being signed so.
Generally.
People people, but announced that.
Otherwise, you're typically not binding but that being said I'll say that we are very interested in doing more like that.
We expect to do more this year with them.
Okay.
That's good color and then sorry, if I missed it but did you say what you've done year to date on the acquisition side.
Yeah.
<unk> prepared comments, we talked about.
79 million close to the first quarter.
And that comprises 32 separate transactions.
And obviously I mentioned that are.
Our pipeline is as strong as I've seen it since I've been at spirit.
I E. It's very large.
And obviously, we're well funded to execute that.
I'm glad we were able to.
Access the equity markets to kind of buttoned up everything so we've got the capital to execute on our pipeline right now.
Okay Awesome I appreciate the time.
Yes.
Okay. Thanks, Thanks, and thanks for joining.
Yeah.
Thank you.
The next question comes from the line of Greg, Greg Mcgeeney with Scotia Bank.
Please go ahead.
Hey, good morning.
So given the sustained high inflation do you have any ability to negotiate for higher escalators or more capped CPI leases in this environment, what I'm trying to determine is whether the.
The high inflation today may create an opportunity for greater long term growth.
Yeah.
Hi, great. Good morning, Yeah look I think that.
So the answer is.
I think categorically, yes, as it relates to our existing tenants.
Hum.
Can tell you that the level of.
Conversation.
Turning to increase as as our tenants something getting stronger post COVID-19 .
There's obviously been a lot of stimulus a lot of top line growth.
Anytime a tenant wants to do something new.
We look at that as an excuse me, we look at that as an opportunity where.
We have an existing master lease.
To provide capital and hopefully it attracted demand been attractive to us.
Sometimes that conversation includes.
Extending the existing lease maturity of our current nationally sometimes.
Includes different economic terms, sometimes it includes we create a new master lease.
So I think yes.
If if there is an opportunity to improve that.
<unk> or take advantage of it.
Place generic trends relative to our C. P I.
We have that ability, especially with our existing tenants as they look to.
Execute some of their growth needs and like I said, it's some of them may include new units. Some include more M&A activity. Some are looking at expanding new.
New additions to some especially on the industrial side to some of your existing facilities or manufacturing.
Part of that conversation.
Improvement I think it only gets progress that's more.
Things continue to improve and the economy.
Okay, and maybe along the same lines could you touch on the increase in the core same store sales to two 4%.
This quarter from one 8% last quarter and what impact is that does that have on results. You know is that something that is flowing through to the guidance range was there an offset there just in.
And could it potentially keep going up with sustained inflation.
Yeah, Michael I'll, let Mike take that club pick the question.
Yeah, no it's definitely ramped up yeah, it's driven by by a lot of factors I mean, CPI as part of that would you have 60% releases tied to CPI and lot of those do you have caps, but you're kind of getting into the cap range and we've been doing a lot of industrial industrial does have higher rent escalators than retail. So we've been enjoying some increases there and you do have some.
Leases that you know they have bumps every five years. So when you have some of those leases hitting your kind of 12 month.
Period.
Per cent bump every five so those also add to that.
And then we do have some tenants that we renegotiated a new lease to stay and we got bumps there like some of our new theater leases have some pretty big escalators.
Over the next 24 months, they're also hitting that number. So yeah. We're pleased where that number is going I think as we continue to add in more industrial in the portfolio.
You know you'll see that number continue to be strong I think 2.4% pretty strong I don't know if that's can be sustainable forever, but we'll we'll certainly see.
Good for the next 12 months, though we're happy with it.
And Mike just to follow up on the on the theaters real quick you spoke about the the rent increase from last quarter or is that just is that due to percent rent deals or is that just some timing related items.
No I mean on our nuclear offers that we put in where do you turn it you know they they are ramping up to a higher base rent level, you know as as they stabilize again, we talked about.
We did those would ultimately gets you about $5 2 million of base rent over about 24 month period, and so those are continuing to kind of hit step up levels overtime to base rent. So we don't put percentage rent into our sports Angeles sales number that only thing was base rent.
As they hit the dust.
<unk> metrics.
Escaped us over time their base rent is going to step up to a normalized base rent over 24 months.
And we're seeing that I mentioned that the rent to go out from last quarter and so you'll continue to see that growth from those operators over the next 24 months.
Alright, Thanks, Mike.
Okay.
Yeah.
Thank you. The next question comes from the line of Rob Stevenson with Janney.
Please go ahead.
Hey, Good morning, guys was there anything abnormal or the pull down the cap rate in the fourth quarter. I mean was it industrial assets with a ground lease was there anything else abnormally low there or is that just where the markets moved down to the sort of six month quarter, seven and a quarter range on your numbers.
Hey, good morning, Robert Jackson.
Well when you look at cap rates for us in a quarter you really if you could focus on the mix of what were buying that really drives a lot of what the cap rate and result is so in the fourth quarter.
We had 21%.
All of our acquisition business and the car wash.
Industry as you know the car washes are they tend to be low sub six cap rates.
We had 40% of our acquisition business in the industrial area.
On the lower end of cap rates in terms of our range.
And also there was some auto service in there. So I really think that when you look at those cap rates. It's it's a it's it has a lot to do with the mix of what of what we're acquiring now as I mentioned in my earlier comment I think on one of the questions.
The cap rate for the business that we closed this is already higher than that and then that's a function of like I said the mix right.
So.
I Wouldnt take too much out of just one particular quarter, whether the cap rates lower high because we're really.
We really look to try to target overall.
Cap rate target for the year, so in any given quarter, depending on the mix of business that we're closing with our tenants.
Is going to shift.
Okay, and then how are you guys thinking.
Thinking about you know the 100 million of disposition guidance in relation to the acquisition guidance. I mean, you guys have very little vacant asset. So presumably the vast majority of that 100 million of expected sales. This year is gonna be income producing property you guys did sub four 5% on the 2021 .
At least dispositions.
Is there any thought there given how low that cost of capital is for you to increasing that to 150 $200 million to fund.
The acquisition pipeline as you go forward.
I think obviously, we've got equity capital per day with the with the recent raise that we did in January .
But I'd say like that disposition number it is just that target number its probably going to happen later in the calendar year for us.
And I'd say, it's just a mix of both.
<unk> opportunistic sales as well as you.
Sales that we think are a good for risk mitigation for us.
Hum.
Yeah.
Well, we've got our funding to date put in place so I think for a call.
<unk> what was that number.
That's $100 million placeholder right now like I said it'll be later in the year.
On the disposition front.
Okay. Thanks, guys appreciate the time with them some of them.
Okay great.
Thank you. The next question comes from the line of Hindu just with Mizuho. Please go ahead.
[laughter] close enough well thank you.
Good morning, guys.
Well exactly I guess last question for you so.
Your five year anniversary as CEO is coming up here in May and.
And you outlined earlier in the call out of the the initial goals that you set out and you've achieved here in regard to the portfolio.
Proving the quality that the spin transaction and.
And then more recently you know your 600 million dollar annual revenue, you're talking you're getting close to that too. So I guess I'm curious have you kind of think about the next five years or even just more broadly how you're thinking about priorities for where spirit and any particular goals or any any guidelines that you're thinking about it may be willing to share.
Thanks, Heather and good morning.
That's a great question.
As I think about the last five years.
You know we.
In my prepared comments, we talked about.
Assets that we sold $3 8 billion and $4 1 billion that we've acquired.
During that period of time, if you if you look at 2009 cool total return total shareholder returns to date.
It's sort of close to 56% so.
Second highest.
Net lease group.
And if you look at our relative multiple compared to our peers.
Since 2019.
Turning to compressed I mean, it's taken longer quite honestly for that multiple could compress relative to our peer group I think in 2019 the.
The differential with our multiple was like five four times.
550.
540 basis points difference between our multiple in our peer group.
Continued to decline.
Now in 2022 year to date.
Finally sub three times that of like two 290 basis points, what what I'd like to see in the next five years is.
Is to really close that gap.
And I really believe that we have performed we've done everything.
With with a lot of complexity around it in terms of having to deal with certain tenant assets and industries and done a great job. So what I'd like to see US go get.
How does get appreciation for what the team is doing how were performing.
Everything is is really set up well that's sort of part of his comments for 2022 and beyond this is a very very sustainable platform that we built and we think we can perform in a competitive environment.
Thank you and I think we've been able to prove that over the last few years. So I.
I suspect that you'll see us be very consistent going forward.
Terms of execution on.
On the acquisition front and asset management firm.
But that's what I'd like to see really close that gap relative to our peer peer group.
Oh Malcolm Moore.
Got it understood and I guess.
But curious of any any more thoughts on how youre going to do that right. I think you you you mentioned consistency in execution and you certainly have done a fair amount of that.
Any other particular items, which you think are maybe either underappreciated or you think maybe you need to focus on.
The drive that multiple down.
Hello.
Recall it it's been difficult for investors sort of seemed like every year over the last five years we've had.
Some story, whether it's COVID-19 or spin off.
Shopko, It's just spent a lot and in spite of all that I mean, if you kind of look at some of those investor pages that we put out some really good the team did a great job, but if you look on page 14, the cut what we've acquired since that time that $4 billion.
That's a it's a remarkable list of top 20 tenants in them.
Yeah, I wish we could have done more industrial.
Obviously, there was a significant part of what we did but I would say that.
Every quarter that we can.
<unk> sort of punch up really good numbers exceed guidance or beat guidance.
It's going to benefit this company.
Because it is very repeatable they take a lot of drama to do this now.
And what that wasn't the case.
Two years ago.
Its more its much more pressure on the organization to accomplish.
Accomplish corporate restructuring moves as well as acquire property and rebuilt the team. So all of that's done and I think that's what investors need to fine.
Good companies to invest in that that can provide growth and economic opportunity in.
Our total shareholder return has been very very good historically and I think they can only get better. So I think it's still a good entry point for investors.
As they come through and look at these pages see what we've done.
No that's great. Thank you for that.
Got to ask you about you mentioned, you're evaluating portfolios and hope to do something I guess, maybe you could talk a bit more about that maybe the type of opportunities in categories that would be of interest.
Sizing.
I wonder if they'll be in the retail or light manufacturing sectors, you're focusing on or would you be looking outside of those.
And then any color on portfolios that are out there in the market are you seeing more and certainly the competitive forces as well thanks.
Yeah, well I'd say one of the things that I really like about what we do as you know we've got a wide opportunity set that we.
Or so.
And I think our team and our technology tools allow us to.
So really size up these different opportunities pretty very quickly without taking a lot of.
Bandwidth of hours out of the organization. So at any given time, we can evaluate multiple portfolios perfect quickly besides up how's that.
How that relates to what kind of impact that has kind of what I'll, what I'll call on our organic growth that happens just from our day to day blocking and tackling one of the nice things about being able to drive a lot of existing activity out of your existing tenant base, we've got a much longer runway in terms of our visibility.
On our acquisition.
The pipeline for the year so at any given time when we look at our portfolio. We can really evaluate if that's really accretive not just from a property ranking standpoint, but accretive to what we're doing relative to our pipeline relative to our capital, but we havent place.
So that I think is a real advantage, we did not have that ability three years ago to do that the way we can do it today.
So I can tell you at any given time, we're looking at multiple portfolios right now on that on that basis as it relates to specifics like I said, we have a wide opportunity base that we're looking at and if we feel like we're getting good risk adjusted returns.
Well, we'll go for them.
Okay.
Uh huh.
And I'd say that there's a lot of stuff out there theres big and small as you know there's been some notable bigger portfolios that have recently closed and that's very very attractive cap rates and I think a lot of that's related to.
NASA and.
On the debt side.
For private buyers.
Okay. That's helpful. Thank you for the time.
Sure. Thank you thanks a lot.
Thank you. The next question comes from the line of Ronald Camden with Morgan Stanley . Please go ahead.
Thanks for your time, Hey, just going back to sort of the acquisitions questions. I think you touched on maybe seeing opportunities and light industrial I was just curious if you can comment on on one just what youre seeing in terms of cap rates and cap rate compression and number two competition are.
Are you seeing more sort of private equity come into the space or.
Or not.
Thanks.
Hi, Brian Good morning.
Hum.
I think looked at it is competitive and it's not just private equity funds, but you know we've seen examples of Pam.
Family Office, that's for instance.
Being competitive in some of these smaller.
Portfolio opportunities out there.
And.
For us what's really important to us.
And can you share a minute on this is is we have a very very wide acquisition funnel that we were reviewing I don't I won't give you the stats, but it is a large acquisition funnel that we review.
Every week on multiple basis, I don't know, Ken if you want to share any thoughts on just the pipeline and the funnel and everything else what we're looking at.
Yeah. We're you know we're not seeing what I will tell you is there there's not a shortage of opportunities to look at especially when you talk about well, we have a pretty wide funnel.
Both on the what you would call industrial and the retail side.
We have a we have you know every week, we have two pipelines where were.
Parsing through.
A lot of opportunities we spend some of that time, we spend in our pipeline is simply calibration on what's going on out in the <unk>.
The marketplace what type of opportunities are available, but I, what I would tell you is.
The universe of opportunities has done nothing but grow the last couple of years, it's not a static level of opportunities. So we spend a lot of time.
Reviewing everything that's out there.
Great. Thank you.
Thank you.
Thank you. The next question comes from the line of Brad Heffern with RBC capital markets. Please go ahead.
Yeah.
Hey, everyone I think most things have been asked I just have a couple of modeling questions.
On the theater AVR for the new tenants is what what's in the current ABR just that 700000 times four and then you know.
As kind of they pay more rent over the next 24 months that'll that'll just gradually move up to that 5.2 number.
Yeah, Yeah, that's right I mean.
Next.
We expect that to get to about two <unk> on the on the incremental the new theater operators, we expect that to get a little over $2 million.
This year.
Two and a half million of things, we were expecting to get through this year.
Relative to the.
$5 2 million, you know kind of stabilized number so that's what's built into our model.
Okay.
Okay got it and then any commentary on how we should assume the settlement of the forward equity is it just sort of ratable with the acquisitions for the year.
Yeah, Yeah, we we we tend to find.
Do you think about funding acquisitions, yeah, it's about 50% equity, 40% debt about 10% free cash flow.
So yeah radically will bring that down.
As we close acquisitions.
Okay. Thank you.
Uh huh.
Thank you. The next question comes from the line of John .
Michelle with Ladenburg Thalmann. Please go ahead.
Good morning.
Yeah.
I know you talked a bit about I know you've talked a bunch about targeted property types, but.
What kind of cap rate differential youre seeing on kind of the manufacturing industrial assets versus.
Our traditional retail properties if any.
But I think that what it.
If you're if you're comparing different retail debate.
It's a big universe right. So if we're talking about.
Car washes.
With some of the public car wash operators.
But those are those are very aggressive cap rates as you know seamless.
<unk>.
And I would say probably cap rates, maybe inside of some of the industrial opportunities that we're looking at.
No for us when we're looking at our industrial business.
It really starts first obviously with real estate industry credit, it's a whole confluence.
Discussions with our teams to try to figure out.
Whereas where we can be compatible with a particular.
Operator, especially on the 95 light manufacturing industrial side.
So I would say that.
Cap rate wise.
All the industrial space would be slightly lower on average to our overall the way we look at industrial it's hard to put a cap rate differential to it like I said, because he's got very different.
Cap rates within each of these different verticals.
Washes or lower let's say health and fitness home.
Home decor, there's going to be a little wider.
The warehouse clubs.
B.
Probably even lower than the core so so it really depends on the mix of things. So that's that's where we spend a lot of time trying to balance that mix.
Different.
And this difference sub industries within these larger two food groups that we're looking at trying to balance that.
Trying to generate that positive spread to our weighted average cost to capital.
Okay.
And then moving on to the in place portfolio.
What is your kind of remainder of the year and the long term outlook for credit loss, obviously four basis points and a really strong number and it sounds like the color from tenants is positive.
But what is kind of maybe being roughly assumed in guidance and even beyond 2022.
Yeah, Yeah, I mean, it's it's sub 1% like we're obviously not modeling perfection. Yeah. That's my biggest fear today is that you know when you're you've hit.
Oh, there's no place to go but down so we do have.
Our assumption is it's a little less than 1% and we used to model, 1%. So it's it's a sub 1%.
But you know it's it's all kind of identified it's just a placeholder for what you don't know.
And if we do better than that then obviously that would drive our numbers higher.
Are you still there.
It seems like we have.
Laughter line.
From a participant.
So okay, we will move on to the next question now.
Before that.
If you would like to ask a question ladies and gentlemen, Please press star one on your telephone keypad.
Thank you.
Our next question comes from the line of Linda Tsai with Jefferies.
Please go ahead.
Yeah, I'm, just going back to some earlier comments when you say, there's a 50 basis points portfolio premium in the market. These days, how big does the deal size has to be for you to see that.
Well, that's that's where kind of just a very hot place overall average but.
I would say.
Things that are north of 100.
Jim.
Yeah.
<unk> 2 billion.
That that range.
I, just don't like to build on opportunities could get really attractive in the marketplace and obviously.
So there's a confluence of private equity firms as well as public companies that can pursue something and that sort of scale. When you get down to the 100 million range.
When you bring all kinds of other different type of parties to the table, there's there's family offices that private equity firms.
Companies like ourselves.
That can be very competitive there so.
We're seeing that that premium across the board.
Yeah look at ranges 35 to 50 basis points at any given time.
But it is competitive in these portfolio.
We've seen that today.
Thanks for that and then you discussed having improved relationships with tenants. Yeah. You know how do you define that and what's driven this change.
Okay.
Well firstly.
It's been something that we've really focused on.
<unk> gotten to this company.
And you can see it in some of those charts that we put out where.
At <unk>.
Acquisition related to where we have existing relationships, if we put that in the investor deck.
Out there.
It's something that's really important for us I can tell you that as part of our year end process.
Specially with our asset management team.
Really important to Ken where we really focus on trying to have repeat business because I think that's where.
So what we will have a competitive advantage sure anybody can buy an asset and get phenomenal, but when you can be in that really into my conversation with an existing tenant where they need something from you or.
What they may need money. They maybe have changed it believes they may be changed for the property.
Complexion, so what they own.
Gives you an advantage and a seat at the table and we think that will over time drive better returns that way as well as just trying to find new tenants and new opportunities. So I can tell you it's getting better it's a really important part of what we're doing.
I'm spending my my own personal time with what the teams are trying to talk about how to improve.
Our new.
Our new business effort as it relates to our just one kind of plays but that's not the only area for growth for us, but it's important.
Thank you.
Great. Thank you.
Thank you.
Ladies and gentlemen, we have reached the end of question and answer session and I would like to turn the call back to Jackson Qi for closing remarks, Oh, what do you. So thank you.
Thank you very much I appreciate everyone taking interest in hearing.
Our story I think the results speak for themselves, but I'd just leave you with a couple of comments that you know our team or our portfolio and our balance sheet or are just poised to really have an excellent 2022 and beyond so look forward to more quarters like this and I appreciate your interest.
Yeah.
Thank you just going to take you off for a base conference. Thank you.
May disconnect your lines at this time, thank you for your participation.
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Team's audio.
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Yeah.