Q4 2021 Essential Properties Realty Trust Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to essential properties Realty Trust fourth quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. A brief 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 keypad.

Speaker 1: Good morning ladies and gentlemen and welcome to Essential Property Realities Trust fourth quarter 2021 earnings conference call. At this time all participants are in a listen only mode.

Speaker 1: question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your tele...

Speaker 1: This conference is being recorded and a replay of the call will be available two hours after the completion of the call for the next two weeks. The dial in details for the replay can be found on the screen.

This conference is being recorded and a replay of the call will be available two hours. After the completion of the call out for the next two weeks the dial in details for the replay can be found in today's press released. Additionally, there will be an audio webcast available on essential properties website at www Dot a central properties Dotcom and art.

Speaker 1: Additionally, there will be an audio webcast available on Essential Properties website at www.essentialproperties.com, an archive of which will be available for 90 days. It is now my pleasure to turn the call over to Dan Donlon, Senior Vice President and Head of Capital Markets at Essential Properties.

Five of which will be available for 90 days. It is now my pleasure to turn the call over to Dan Donlan Senior Vice President and head of capital markets at a central properties. Thank you Dan you May go ahead.

Speaker 2: Thank you operator and good morning everyone. We appreciate you joining us today for essential properties fourth quarter 2021 conference call. You're with me today to discuss our operating results or Pima Voidies, our president and CEO , Greg cyber RCOO and Mark Patton RCAFO. During this conference call, we will make certain statements and may be considered for looking statements on our federal securities laws.

Thank you operator, and good morning, everyone. We appreciate you joining us today for our central properties fourth quarter 2021 conference call here with me today to discuss our operating results for people of what he's our president and CEO Gregg Seibert, our CFO and Mark Patten, our CFO . During this conference call. We will make certain statements that may be considered forward looking statements.

Federal Securities laws, the company's actual future results may differ significantly from the matters discussed in these forward looking statements and we may not release revisions to those forward looking statements to reflect changes. After the statements were made factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in yesterday's earnings press release with that Pete. Please go ahead.

Speaker 2: The company's actual future results may differ significantly from the matters discussed in these four looking statements and we may not release revisions to those four looking statements to reflect changes after the statements were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's finds with the SEC and in yesterday's earnings press release. With that, Pete.

Ed.

Thank you Dan.

Speaker 2: Thank you, Dan. And thank you to everyone who is joining us today for your interest in the Central Prop.

And thank you to everyone who is joining us today for your interest in essential properties.

We closed out 2021, and a strong notes with $322 million of investments in the fourth quarter and $974 million invested for the full year.

Speaker 2: We closed out 2021 from a strong note with 322 million of investments in the fourth quarter and 974 million invested for the full year. Both records.

Both records for a central properties.

Speaker 2: positive momentum has continued into the new year with over a 136 million of investments closed here today.

Our positive momentum has continued into the new year with over $136 million of investments closed year to date.

Which coupled with our strong fourth quarter finish.

Speaker 2: which coupled with our strong fourth quarter finish, has led us to increase our 2022 AFFO per share guidance to a range of $1.47 to $1.51.

Let us to increase our 2022 <unk> per share guidance to a range of $1.47.

Two $1.51.

Speaker 2: Using the midpoint and excluding one time fees and COVID related adjustments, this translates to a projected year-over-year earnings growth of 14% in 2022.

Using the mid point and excluding one time fees and Covid related adjustments. This translates to a projected year over year earnings growth of 14% in 2022.

Which follows a 16% year over year growth in 2021, using the same methodology.

Speaker 2: which follows a 16% year over year growth in 2021 using the same methodology.

Speaker 2: As discussed last quarter, while we continue to expect our investment trajectory to moderate in 2022, which our guidance remains predicated on,

As discussed last quarter, while we continue to expect our investment trajectory to moderate in 2020 to which our guidance remains predicated on our current pipeline is robust due to the strengthening of our relationships the vast and diverse nature of the marketplace for the properties leased to unrated and middle market.

Speaker 2: is robust due to the strengthening of our relationships, the vast and diverse nature of the marketplace for the properties leased to unrated and middle market tenants.

Tenants.

Speaker 2: and the continued desire of our operators to expand their footprint amidst strong economic back.

And the continued desire of our operators to expand their footprint and Mr. I'd missed a strong economic backdrop.

Speaker 2: With that in mind, our differentiated focus on capital deployment strategies has insulated us from the increased competition, which is evidenced by our initial cash yields averaging 7.1% in 2020 and 7% in 2021.

With that in mind, our differentiated focus on capital deployment strategies has insulated us from the increased competition, which is evidenced by our initial cash yields averaging seven 1% in 2020 and 7% in 2021.

Speaker 2: Looking at the quarter in more detail, our 322 million of investments had a weighted average cash yield of 6.9%.

Looking at the quarter in more detail, our $322 million of investments had a weighted average cash yield of six 9% weighted.

Speaker 2: weighted average lease term of 16.3 years and weighted average annual red clubs of 1.6.

The weighted average lease term of 16.3 years and weighted average annual.

Comps of one 6%.

More importantly, though 89% of these investments were derived from prior relationships and 96% were direct sale leasebacks on our lease form.

Speaker 2: More importantly though, 89% of these investments were derived from prior relationships and 96% were direct sell lease backs on our lease form.

Turning to the portfolio.

We ended the quarter with investments in 1451 properties leased to 311 tenants operating in 16 distinct industries.

Speaker 2: We ended the quarter with investments in 1,451 properties, leased to 311 tenants operating in 16 distinct industries.

Speaker 2: Our weighted average lease terms that at 14 years with just 5.4% of ABR expiring through 2026.

Our weighted average lease term stood at 14 years with just five 4% of ABR expiring through 2026.

Our weighted average unit level coverage was three seven times, which improved versus last quarter's coverage of three five times.

Speaker 2: Our weighted average unit level coverage was 3.7 times, which improved versus last quarter's coverage of 3.5.

While our traditional credit statistics, which focus on implied credit ratings and unit level coverage experienced solid sequential improvement. This quarter. These statistics remain negatively skewed for industries like theaters and early childhood education, which faced state level shutdown and capacity restrictions.

Speaker 2: While our traditional credit statistics, which focus on implied credit ratings and unit level coverage, experienced solid sequential improvement this quarter, these statistics remain negatively skewed for industries like theaters and early childhood education.

Speaker 2: which faced state level shutdown and capacity restrictions well into spring of 2021 in certain areas of

Well into spring of 2021 and certain areas of the country.

Given that most of our tenants report trailing 12 months financials to us with a one quarter lag we do not expect these statistics to return to pre COVID-19 levels for another couple of quarters.

Speaker 2: Given that most of our tenants report trailing 12 months for the nationals to us with a one quarter lag, we do not expect these statistics to return to pre-COVID levels for another couple of

Looking out to the balance of the year, we continue to believe our strong <unk> growth potential combined with our well covered dividend yield and our commitment to prudently managing our balance sheet and portfolio risks.

Speaker 2: Looking out to the balance of the year, we continue to believe our strong AFFO growth potential combined with our well-covered dividend yield and our commitment to prudently managing our balance sheet and portfolio risks offer investors compelling.

For investors a compelling total return opportunity.

Speaker 2: With that, I'd like to turn the call over to Greg Cyber, our COO, who will take you through the portfolio and investment activity in greater detail.

With that I'd like to turn the call over to Gregg Seibert, our CFO , who will take you through the portfolio and investment activity in greater detail.

Greg.

Speaker 3: Thanks, Pete. As Pete indicated during the fourth quarter, we invested 322 million through 55 separate transactions at a weighted average cash yield of 6.9.

Thanks Pete.

As Pete indicated during the fourth quarter, we invested $322 million through 55 separate transactions at a weighted average cash yield of six 9%.

Speaker 3: These investments were made in 12 different industries, with 70% of our activity coming from grocery, auto service, equipment rental and sales, early childhood education and casual dining.

These investments were made in 12 different industries with 70% of our activity coming from grocery auto service equipment rental and sales early childhood education and casual dining.

Speaker 3: The weighted average lease term of our investments this quarter was 16.3 years. The weighted average annual rent escalation was 1.6%. The weighted average unit level coverage was 3.0 times. And the average unit investment per property was 3.5.

The weighted average lease term of our investments this quarter was 16.3 years the weighted average annual rent escalation was one 6%.

Weighted average unit level coverage was 3.0 times and the average unit investment per property was $3 million.

Consistent with our investment strategy, 96% of our quarterly investments for originated through direct sale leasebacks, which are subject to our lease for them with ongoing financial reporting requirements and 59% contain master lease provisions.

Speaker 3: Consistent with our investment strategy, 96% of our quarterly investments were originated through direct sale lease backs, which are subject to our lease form with ongoing financial reporting requirements, and 59% contained master lease.

Speaker 3: With that in mind, we continue to believe that our ability to process and close numerous small-sized sale lease backs of granular properties with existing relationships is a strong comparative advantage that produces attractive, risk-adjusted returns each quarter.

With that in mind, we continue to believe that our ability to process and closed numerous small sized sale leasebacks of granular properties with existing relationships is a strong comparative advantage that produces attractive risk adjusted returns each quarter.

Speaker 3: From an industry perspective, early childhood education remains our largest industry at 14.6% of ABR. Closely followed by quick service restaurants at 12.4%, medical dental at 11.9%, and car washes at 11.

From an industry perspective early childhood education.

Our largest industry at 14, 6% of ABR.

Closely followed by quick service restaurants at $12 four per cent medical dental at 11, 9% and car washes at 11%.

Speaker 3: We continue to view these four business segments as tier one industries for essential properties, and therefore they are elected to our remain our highest concentration industries for this foreseeable future.

We continue to view these four business segments as tier one industries for a central properties and therefore, they're likely to remain our highest concentration of industries for this foreseeable future.

Speaker 3: Of note, we continue to selectively invest in proven operators of profitable locations in both the entertainment and casual dining industries, which expect to generate higher revenues and profits this year as the economy fully reopens this.

Of note, we continue to selectively invest in proven operators I've profitable locations in both the entertainment and casual dining industries, which expect to generate higher revenues and profits. This year as the economy fully reopens in the spring.

From a tenant concentration perspective, no tenant represented more than three 3% of our ABR at quarter end and our top 10 accounts for just 19, 7% of ABR.

Speaker 3: From a tenant concentration perspective, no tenant represented more than 3.3% of our ABR at quarter end, and our top 10 accounts for just 19.7% of ABR. As noted in the past, tenant diversity is an important risk mitigation tool and differentiator for essential properties.

Noted in the past tenant diversity is an important risk mitigation tool and differentiator for our central properties.

Speaker 3: by focusing on large, unrated credits and middle market business.

Focusing on large unrated credits and middle market businesses, we invest in a significantly greater opportunity set.

Speaker 3: We invest in a significantly greater opportunity set in strategies concentrated on publicly traded companies and investment-grade rated credit.

Strategy's concentrated on publicly traded companies and investment grade rated credits.

Speaker 3: In addition, this enables us to procure a more attractive basis in the real estate we acquire at rents that are closer to.

In addition, this enables us to procure a more attractive basis and their real estate, we acquire at rents that are closer to market.

Speaker 3: In terms of dispositions, we sold two properties this quarter for four million in that process.

In terms of dispositions that we sold two properties this quarter for 4 million in net proceeds when excluding transaction costs and property sold subject to tenant buyback options, we achieved a 6% weighted average cash yield on those dispositions as.

Speaker 3: When excluding transaction costs and property sold to tenant buyback options, we achieved a 6% weighted average cash yield on those.

Speaker 3: As we mentioned in the past, only liquid properties is an important aspect of our investment.

As we mentioned in the past only liquid properties is an important aspect of our investment discipline as it allows us to proactively manage industry tenants and unit level risk within the portfolio.

Speaker 3: as it allows us to proactively manage industry, tenants, and unit level risk within the portfolio.

With that I'd like to turn the call over to Mark Patten, Our CFO , who will take you through the financials and balance sheet. Thanks.

Speaker 3: With that, I'd like to turn the call over to Mark Patton, our CFO , who will take you through the financials and balance sheets. Thanks.

Thanks, Greg and good morning, everyone.

Speaker 4: Speed note of the fourth quarter was a record quarter for us, which closed out a record year. Net income was $30 million in the quarter and just over $96 million for the full year.

As Pete noted the fourth quarter was a record quarter for us which closed out a record year.

Net income was $30 million in the quarter and just over $96 million for the full year.

Speaker 4: Our nominal FFO totaled $48 million for the quarter or $39 cents per fully diluted share and $162 million for the full year or $1.38 per fully diluted share. That's an increase of 56% and 28% respect.

Our nominal F F O totaled $48 million for the quarter were 39 cents per fully diluted share and $162 million for the full year.

Or $1 38 per fully diluted share, that's an increase of 56% and 28% respectively.

Speaker 4: Our nominal AFFO total 45 million for the quarter, that's up $17 million over 2020, which on a fully diluted per share basis was 37 cents, and increased to 37% versus Q4 2020.

Our nominal F O totaled $45 million for the quarter, that's up $17 million over 'twenty, 'twenty, which on a fully diluted per share basis was 37 cents, an increase of 37% versus Q4 2020.

Our nominal episode totaled $158 million for the full year up $51 million over 'twenty, 'twenty, which on a fully diluted per share basis was $1 34, that's an increase of 21% versus 2020.

Speaker 4: Our nominal AFFO totaled $158 million for the full year. Up 51 million dollars over 2020, which on a fully diluted per share basis was a $1.34. That's an increase of 21% versus 2020.

Speaker 4: Some of the notable elements of our reported operating results for the fourth quarter of 2021 and the full year include the following.

Some of the notable elements of our reported operating results for the fourth quarter of 2021 and the full year include the following.

Speaker 4: Other revenue for the fourth quarter included approximately a million dollars of prepayment fees we were paid in connection with the early pay off of approximately 92 million dollars of principal in our loan portfolio. You should not expect this revenue.

Other revenue for the fourth quarter included approximately $1 million of prepayment fees. We were paid in connection with the early payoff of approximately $92 million of principal in our loan portfolio you.

You should not expect this revenue to be a recurring item.

Speaker 4: We did exclude this fee and come from our calculation of annualized adjusted EBITDARI, which is presented in our supplemental disclosure.

We did exclude this fee income from our calculation of annualized adjusted EBITDA free which is presented in our supplemental disclosure.

Speaker 4: Our property operating expenses in the fourth quarter till $1.82 million are highest quarter this year. This was largely due to increased

Our property operating expenses in the fourth quarter totaled $182 million, our highest quarter of this year.

This was largely due to increased reimbursable expenses.

Speaker 4: Our operating expense, expense net of reimbursable expenses, was approximately 800,000 for the quarter. The lowest it's been all year.

Our operating expense expense net of Reimbursable expenses was approximately 800000 for the quarter the lowest it's been all year.

The majority of the change in our total G&A in Q4, 2021 versus Q4 2020 was due to a reversal of our bonus accrual in Q4, 2020, which was reflective of the challenging year that was 2020 in contrast, with a record year in 2020 one.

Speaker 4: The majority of the change in our total GNA in Q4 2021 versus Q4 2020 was due to a reversal of our bonus accrual in Q4 2020, which was reflective of the challenging year that was 2020 in contrast with our record year in 2021.

Speaker 4: For the full year, we were basically flat year over year on total GNA, but notably while non-cash.com compensation was up, we generated significant efficiencies in some of our third-party service in tourists relief.

For the full year, we were basically flat year over year on total G&A, but notably while noncash stock compensation was up we generated significant efficiencies in some of our third party service relationships.

Speaker 4: Most importantly, our GNA continues to rationalize against our increasing scale. And you should expect our cash-based to GNA as a percentage of total revenue.

Most importantly, our G&A continues to rationalize against our increasing scale and you should expect our cash basis G&A as a percentage of total revenue, which was just seven 2% for Q4 2021 .

Speaker 4: just 7.2% for Q4 2021 versus 8.2% for Q4 2020.

Eight 2% for Q4 2020.

To trend down favorably.

Speaker 4: Turning to our balance sheet, the elements out highlight are the following.

Turning to our balance sheet. The elements I'll highlight are the following with a strong close to 2021 by our underwriting investment in closing teams are income producing gross assets grew to $3 4 billion at year end.

Speaker 4: Strong close to 2021 by our underwriting investment in closing teams are in producing gross assets grew to 3.4 billion a year in.

From an equity perspective, our ATM program continued to provide an efficient capital source generating $93 million of gross proceeds during the fourth quarter and 276 million of gross proceeds during all of 2021 .

Speaker 4: From an equity perspective, our ATM program continued to provide an efficient capital source, generating $93 million of gross proceeds during the fourth quarter, and 276 million of gross proceeds during all of 2021.

Speaker 4: Importantly, you'll know in our release last night that we amended our credit facility last week, which among other things increased the capacity under the revolver at $600 million.

Importantly, you'll note in our release last night that we amended our credit facility last week, which among other things increased the capacity under the revolver to $600 million.

Speaker 4: increased the accordion to $600 million, reduce the applicable margin across all levels of the leverage grid by 20 bases.

Kris the accordion to $600 million reduced the applicable margin across all levels of the leverage grid by 20 basis points and reduced the credit ratings grid should we opt into that grid in the future.

Speaker 4: and reduce the credit ratings grid, should we opt into that grid in the future. We also extend the revolver.

We also extended our revolver maturity to 2026.

Speaker 4: I'll also mention that in the coming weeks we expect to complete the repricing of our 7 year term loan into a 5 year term loan.

I'll also mention that in the coming weeks, we expect to complete the repricing of our seven year term loan into a five year term loan.

Speaker 4: that will extend the maturity into early 2027.

That will extend the maturity into early 'twenty 'twenty seven the repricing should benefit our cost of this debt by 30 basis points.

Speaker 4: The repricing should benefit our cost of this debt by 30 base.

As Pete noted our balance sheet remains strong with our net debt to annualized adjusted EBITDA free equaling four seven times at year end.

Speaker 4: Pete noted, our balance sheet remains strong, with our net debt to annualize adjusted EBITDAI, equalling 4.7 times at URI.

Speaker 4: Our total liquidity was $316 million a year end, which obviously improved by $200 million with the upsizing of our revolve.

Our total liquidity was $316 million at year end, which obviously improved by $200 million with the upsizing of our revolver.

Our balance sheet liquidity position remains highly supportive of our investment pipeline Lastly, I'll reiterate pizza important note that our current investment pipeline, our portfolio outlook and our strong performance in 2021 , particularly during the fourth quarter and now continuing into the first quarter of 2022.

Speaker 4: Our balance sheet liquidity position remains highly supportive of our investment pipeline. Lastly, I'll reiterate Pete's important note that our current investment pipeline, our portfolio outlook, and our strong performance in 2021.

Speaker 4: Particularly during the fourth quarter and now continuing into the first quarter of 2022

Speaker 4: Provided us with the basis to increase our 2022 AFFO for share guidance to a range of $1.47 to $1.51.

But it is with the basis to increase our 2022 <unk> per share guidance to a range of $1 47 to $1 51, which as Pete noted implies a 14% year over year growth at the midpoint, excluding the loan prepayment fee revenue in the Q2 adjustment related to the tenants we brought back on accrual accounting.

Speaker 4: The speed noted implies a 14% year over year growth at the midpoint.

Speaker 4: including the lone prepayment fee revenue and the Q2 adjustment related to the tenants we brought back on a cruel accounting.

With that I'll turn the call back over to Pete.

Thanks Mark.

Speaker 2: Thanks Mark. We encourage that the operating environment and our well-positioned balance sheet have allowed us to capitalize on and create an investment opportunities, which are the program.

We are encouraged that the operating environment, and our well positioned balance sheet have allowed us to capitalize on accretive investment opportunities, which are the predominant driver of our earnings growth.

Speaker 2: More importantly, we believe our disciplined and differentiated investment strategy has created an incredibly resilient, net-least portfolio that should continue to generate attractive, risk-adjusted returns as we grow into the future. With that operator...

More importantly, we believe our disciplined and differentiated investment strategy has created an incredibly resilient net lease portfolio that should continue to generate attractive risk adjusted returns as we grow into the future.

With that operator, please open the call for questions.

Speaker 1: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tunnel indicate your light is in the question, Q. You may press...

Thank you we will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he 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.

Speaker 1: participants using speaker equipment, and maybe not necessary to pick up your hands at before pressing the star key. One moment please, will we pull for questions? Our first question is from the line of

Starkey one moment, please while we poll for questions.

Our first question is from the line of Nate Crossett with bearing Baird. Please proceed with your question.

Hey, good morning, guys.

Just wanted you to maybe get.

Speaker 5: Just wanted to maybe get your thoughts on kind of the word moderate. I think you've used it a couple of times now. You know, maybe you can just help us kind of quantify what that means. You know, what's causing it? Is it just more competition?

<unk> your thoughts on kind of the word moderate I think you've used it a couple of times now yeah. Maybe you can just help us kind of quantify.

What that means I'm.

You know, what's causing it is it is it just more competition.

Speaker 5: And then I just had a question on pricing, maybe you can give us a little call around what's kind of underwritten in your guidance for cap rates.

And then I just had a question on pricing.

Maybe you can give us a little color on what's kind of underwriting in your guidance for cap rates.

Yeah, sure Hey, Nate listen moderate has a clear definition to it I would say that.

Speaker 2: Yes, sure. A-nates. You know, this is moderate, it has a clear definition to it. I would say that, you know, we've been using the word moderate, really in connection to a heightened level. And clearly you see that heightened level is in our fourth quarter print.

Monitor we've been using the word moderate really in connection to our heightened level and clearly you see that heightened level in our fourth quarter print them generally we've tried to point people to our trailing eight quarter average is a good indicator of what to expect from an investment perspective and and.

Speaker 2: Generally, we've tried to point people to our trailing a quarter average as a good indicator of what to expect from an investment perspective.

Speaker 2: And we think that remains a good data point, you know, roughly, you know, just under 200 million. And so...

We think that that remains a good data point you know roughly.

Just under $200 million and so.

Speaker 2: You know, it's hard to divorce that moderate from the height and level that we were transacting at in the back half of last year and we discussed on the last call why.

You know, it's hard to divorce and moderate from the heightened level that we were transacting at in in the back half of last year and we discussed on our last call why that level is heightened and you know we just expect a more normalized.

Speaker 2: that level is heightened and we just expect.

Speaker 2: a more normalized transaction of market in 2022. All that said, as you can see by our first quarter, we're off to a great start. We got great deals and the pipelines fall. And we remain pretty optimistic about what we're seeing out there.

Transaction or market.

In.

2022, all of that said you know them as you can see by our first quarter, we're off to a great start and we got great deals in the pipeline is full and and.

You know, we we remain pretty optimistic about what we're seeing out there.

Speaker 2: as it pertains to cap rates and, you know,

As it pertains to cap rates and you know.

Speaker 2: We transact in a pretty narrow band and we're able to hold that band by focusing on prior relationships and direct sale leasebacks where the counterparties are valuing us as a reliable capital provider and we avoid competing purely on cap rates and if you look at over the last year plus we've transacted in a 20 basis point.

You know, we transact in a pretty narrow band and we're able to to hold that ban I focusing on prior relationships and direct sale leasebacks, where I'm. The counterparties are valuing us as a reliable capital provider and we avoid competing purely on cap rates and and you know if you.

Look out over the last.

You know, it's a year plus we've transacted in a 20 basis point.

Cap.

Speaker 2: Caprate range and I would say it's really hard to get any more precise than that and You know in our guidance. There's a range of assumptions

Cap rate range, and I would say, it's really hard to get any more precise than that and you know in our guidance. There is a range of assumptions.

Okay. That's helpful. Maybe just one more on just the loan repayments in the quarter is there any trend that we should be taking away from that and how should we I guess to be thinking about the rest of the loan portfolio that you have.

Speaker 5: Okay, that's helpful. Maybe just warn more on just the loan repayments in the quarter. Is there any trend that we should be taking away from that?

Speaker 5: How should we, I guess, be thinking about the rest of the kind of loan portfolio that you have?

Yeah, you know listen there.

Speaker 2: Yeah, you know, listen, that was sizeable relative to the overall size of our long portfolio. Our current long portfolio is under 200 million. So clearly not material. That 200 million represents a number of loans. Nothing terribly chunky.

That was sizable relative to the overall.

Size of our loan portfolio or our current loan portfolio is under $200 million mm. So clearly not material that 200 million represents a.

A number of loans nothing terribly chunky.

Speaker 2: Some of those loans have prepayment options built into them.

Some of those loans have prepayment.

Prepayment options built into them.

Speaker 2: But I think we don't expect that to come back at us all at once. And as with the fourth quarter, we have ample notice period to prepare for that and manage through that.

But you know I think you know we.

We don't expect that to come back at us all at once and as with the fourth quarter, we have ample notice period to prepare for that and manage through that so.

Speaker 2: You know, it's not material and certainly we have the ability to kind of manage our business to deal with it when those loans come back.

You know, it's not material and certainly we have the ability to kind of manage our business to to deal with it when those loans come back.

Okay. Thanks, guys.

Got it thank you.

Thank you. Our next question comes from the line of Lizzie Joe Aiken with Bank of America. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from the line of Lizzie Joykin with Bank of America. Please proceed with your question.

Speaker 6: Good morning. I was wondering if you could speak more to the tenants and just the properties and provide a little bit more color around that acquired a subsequent to the quarter.

Hi, good morning.

I'm wondering if you could speak more to the tenant.

Just the property and provide a little bit more color around that acquired.

The corner.

Yeah, Lindsay I would say you know it.

Speaker 2: There's, you know, by design, there's nothing terribly notable about our investment activity and it tends to be very radical. You know, we have sourcing activities across all our industries where we have relationships and if you think about, you know, transacting, you know, at a level of 80% plus.

Bye Bye design, there's nothing terribly notable about our investment activity and and it tends to be very ratable.

We have sourcing activities across all our industries, where we're where we have relationships and if you think about transacting at a level of 80% plus.

Speaker 2: prior relationships, you can assume that the deals we're doing are coming from people that we've done deals with and it looks an awful lot like our portfolio and our prior investment activity. So, you know, from a asset complexion is going to be very granular. It's going to be within our 16 core industries. It's going to be, you know, predominantly set leasebacks on our lease form.

Prior relationships you can assume that the deals we're doing are coming from people that we've done deals with and it looks an awful lot like our portfolio and our prior investment activity. So from a asset complexion is going to be very granular, it's gonna be within our 16 core industries. It's.

B you know predominantly sale leasebacks on our lease form.

Speaker 2: with long dated leases and escalations. And there's really nothing distinguishable from our incremental investments from our overall portfolio.

With long dated lease.

Leases and Escalations in.

There's really nothing distinguishable from our incremental investments from our overall portfolio.

Okay, great appreciate that.

Speaker 6: And then just looking historically at your weighted average cash cap rate on acquisitions, it looks like this is the first time you required below a 7% cap rate during the quarter. Can you just talk more to if this was a result of any specific deals bringing this down or how you expect that to trend going forward?

And then just looking historically at your weighted average cash cap rate acquisitions.

The first time required allow a.

Person in cap rate during the quarter can you just talk more here.

And a result of any specific deal, bringing it down or.

How are you.

Two trends going forward.

Yeah, you know as we've said on several of the last quarters. There is a lot of competition.

Speaker 2: Yeah, you know, as we've said on, you know, several last quarters, there's a lot of competition in the market. You know, really I think, you know, as I just had a little earlier, a 20 basis point range over the last year. It's a pretty...

In the market.

You know really I I think you know as I said, a little earlier, a 20 basis point range over the last year, it's a pretty tough.

Speaker 2: tight range, particularly relative to the swings and interest rates and the overall cost of capital. And so we feel really good about our ability to hold cap rates and stay within that range. Certainly, seven is a psychological hurdle, but it's really not material when you think about where we are.

Tight range, particularly relative to the swings in interest rates and the overall cost of capital and so we feel really good about our ability to hold cap rates and stay within that that that range. Certainly seven is a psychological hurdle, but it's it's really not material.

When you think about where we are in and certainly when you translate that into the GAAP cap rate of seven eight you know it.

Speaker 2: And certainly when you translate that into the gap cap rate of 7, 8, it's not material to the business. We hold cap rates by focusing on repeat business with existing relationships and trying to get the best risk adjusted returns we can. And we're confident in our ability to continue to do that going forward.

It's not material to the business.

We hold cap rates by focusing on repeat business with existing relationships and trying to get the best risk adjusted returns, we can and you know we're.

We're confident in our ability to continue to do that going forward.

Yeah.

Okay, Great. That's all for me. Thank you.

Thank you.

Yeah.

Speaker 1: Thank you. Our next question comes from the line of Katie McConnell with city police

Thank you. Our next question comes from the line of Katy Mcconnell with Citi. Please proceed with your question.

Great. Thank you.

Speaker 6: Great, thank you. I just wanted to talk about the acquisition pace a little bit more. Given last quarter, you'd expect your acquisition to moderate back to pre-tandemic levels, but ended up greatly feuding that. First, just wondering if you could provide any more detail on what led to the much stronger quarter. And then aside from your moderating comment, anything else you can share to help frame how you should think about a new normal in terms of a quarterly pace of yield from there.

Just wanted to talk about the acquisition piece, a little bit more given last quarter you'd expect it to moderate back to pre pandemic levels, but ended up greatly exceeding that first just wondering if you could provide any more detail.

A much stronger quarter, and then upside from your moderating Tom and anything else you can share to help frame, how we should think about a new normal in terms of the quarterly pace of the altra.

Yeah listen in and I think.

Speaker 2: the other thing and and i think you know the discussion around moderation was more uh... it a forward look um... embedded in guidance and i think we certainly you know coupled that with a a current outlook that was you know indicative strong pipeline much like we're doing today uh... and and and much like i said you know it's

The discussion around moderation was more a forward look.

Embedded in guidance and I think we certainly.

Coupled that with a a current outlook that was you know indicative of a strong pipeline much like we're doing today.

And much like I said.

Speaker 2: The markets have been really robust. Transaction and activity across the board is at record levels. M&A is at record levels. Our tenants are growing very rapidly and it creates a great opportunity for us to deploy capital.

The markets have been really robust transaction activity across the board as it is at record levels M&A is at record levels. Our tenants are growing very rapidly and it creates a.

A great opportunity for us to deploy capital in.

Speaker 2: And, you know, we're not basing a forward business plan on everything remaining that rosy.

And you know, we're not basing our forward business plan.

On everything remaining that rosy.

And so you know I think that was the context in which we were discussing it I'm really looking out several quarters and expecting a more normalized environment and listen I think with the current volatility in the markets.

Speaker 2: the increasing interest rates, I think a couple quarters from now that will be the right call. As I said a little earlier, we continue to point to our trailing eight quarter average as a good indicator, which is right around 200 million. And clearly as you think about our subsequent activity of over 100 million a quarter today, we feel good about the current pipeline.

The increasing interest rates.

I think a couple of quarters from now that that will.

<unk> be the right call.

As I said, a little earlier, we continue to point to our trailing eight quarter average is a good indicator, which is right around $200 million and clearly as you think about our subsequent.

Activity of <unk>.

Over $100 million quarter to date, and we feel good about the current pipeline.

Yeah.

Speaker 6: and then just share with what the company's latest thoughts are around providing this treat with some sort of more specific acquisition guidance. Now that the pipeline's become much larger and a much more significant driver of the repair share results.

Okay. Thanks, and then just curious what the company's latest thoughts are around providing us with some sort of more specific.

Specific acquisition guidance now that the pipelines become much larger and much more significant.

Hi, Brad the approach you have adults.

Speaker 2: yeah listen our our external growth had been the driver of our uh... per share results largely since coming public uh... you know we we invest in a very uh... discipline and focused way focusing on sale lease backs with with our existing relationship

Yeah listen our our external growth had been the driver of our per share results largely since coming public.

We invest in a very disciplined.

<unk> focused way focusing on sale leasebacks with with our existing relationship and as such we're reliant on our existing relationship on our existing relationships to continue to grow and bring us opportunities and our ability to source new relationships and and.

Speaker 2: And as such, we're reliant on our existing relationships to continue to grow and bring us opportunities. And our ability to source new relationships. And that's much different than competing in a massive auction market that is underserved where you can purely shave 10, 20, 30 basis points to increase your volume.

That's much different than competing in a in a massive auction market that is underserved where you can you know purely shave 10 2030 basis points to increase your bonds. So given the way we deploy capital we've been reluctant to provide investment guidance, because we don't control our relationships and.

Speaker 2: So given the way we deploy capital, we've been reluctant to provide investment guidance because we don't control our relationships and their growth trajectory and finding new relationships to transact with is a long process.

Their growth trajectory.

And you know finding new relationships to transact with us is a long process.

Speaker 2: And so, you know, we give pretty good disclosure looking backwards. And I think that's a good indicator of what to expect going forward. And, you know, we're reluctant to be more specific than that. And be forced to transact purely to hit a number.

And so you know we give pretty good disclosure looking backwards and and I think that's a good indicator of what to expect going forward and you know we're reluctant to be more specific than that.

And before us to to transact.

To hit a number.

Speaker 7: Well, I think the difficulty, though, is like a bill and speaking, you know, you're now on your phone for being public. You're north of four billion with a billion dollars of acquisition. So you're quickly becoming of a big size. Your guidance includes accretion from deals, but if you're not willing to outline the contribution that that represents.

Well I think the difficulty, though pizza Michael Bilerman speaking.

Now on your phone for being public you're north of 4 billion with $1 billion of acquisitions. So you are quickly becoming a big size. Your guidance includes accretion from deals, but if you're not willing to outline the contribution that that.

That represents.

Speaker 7: It doesn't really help because then you don't know what's really driving the numbers. So you've embedded some acquisition accretion but without outlining the amount, the timing, the yield, the impact of loan repayment.

It doesn't really help because then you don't know what's really driving the numbers.

So you've embedded some acquisition accretion, but without outlining the amount and the timing the yields the impact of loan repayments.

Speaker 7: uh... the guidance number doesn't really do much because if you're not going to provide the details of how you get to the number i don't want to rather you not provide a ffo guidance and just give us uh... the assumption

The guidance number doesn't really do much because if you're not going to provide the details of how you get to the number I'd almost rather you not provide <unk> guidance and just give us the assumptions that are built into what you were trying to target or do the reverse say theres no acquisitions in our guidance and we're at a Buck 30.

Speaker 7: uh... that are built into what they're trying to target or do the reverse say there's no acquisitions in our guidance and word of buck thirty uh... but this this level of including accretion in your numbers but not telling the street how you get there is like embedding one-timers uh... into your guidance and you're now you know parking on your four of being a public company

But this this level of including accretion in your numbers, but not telling the street. How you get there is like embedding one timers into your guidance and you're now embarking on your for being a public company.

Why am I now.

Speaker 2: Well, I explain why we wouldn't because we don't want to be forced to transact in a matter inconsistent with our investment thesis, purely to meet a number that we've communicated to the street.

Well I I explained why we wouldnt, because we don't want to be forced to transact.

And in a manner and consistent with with our investment thesis purely to meet a number that we've communicated to the street.

Speaker 8: um... you know but they don't include the accretion in the number right you can't include a creation from transactions that you're not telling the street what the transaction volume is or the yield you can have it both ways you can include the accretion in ff-o and then not tell the street how you're gonna get there so what in the same

But they don't include the accretion and the number right. You cant include accretion from transactions that youre not telling the street, what the transaction volume is or the yield you can't have it. Both ways. You can include the accretion U S. F O and then not tell the street, how youre going to get there.

So what I'm, saying.

Speaker 2: You know listen, we can, we can communicate very clearly to the street about what to expect as it relates without providing specific investment guidance and I think this street has a very good understanding of what to expect from us, you know, and we haven't missed but once since being public and so I think you know there is a good understanding of what to expect and the way and the clarity in which we operate this business.

Listen we we can we will communicate very clearly to the street.

How about what to expect as it relates without providing specific investment guidance and I think the street has a very good understanding of what to expect from US you know and and we haven't missed.

But once since being public and and so I think you know.

There is a good understanding of what to expect and the way in the clarity in which we operate this business.

Speaker 2: We don't control our pipeline. We very rarely have more than 90 days of visibility of what's coming at us. And much like 2Q of 2020, when we shut down investments, given what was going on. And that was the right thing to do. And we weren't performing to a number that was communicated to the street or disappointing relative to that number. Certainly managing the growth that we've communicated we were able to do that. And so...

We don't control our pipeline, we very rarely have more than 90 days of visibility of what's coming at us and you know much like to queue of 'twenty 'twenty. When we shut down investments given what was going on and you know that was the right thing to do and we.

Werent performing to a number that was communicated to the street or disappointing relative to that number certainly managing the growth that we've communicated we were able to do that and so you.

Speaker 2: You know, there's a lot of ways to approach guidance and I respect your opinion on that. We think we provide excellent clarity and predictability and just the way we're gonna...

You know theres, a lot of ways to approach guidance and and I respect your opinion on that you know we think we provide excellent clarity.

And predictability and.

This is the way we were going to operate.

Speaker 7: I haven't heard of you, you're including accretion in your guidance range.

But just I havent heard of you you're including accretion in your guidance range right. So how is that additional clarity by including accretion, but not telling the street, how and what amount is driving that accretion right. Your accretion could just be by buying earlier. So I think if youre going to accretion in your guidance numbers.

Speaker 7: Right, so how is that additional clarity by including accretion, but not telling the street how and what amount is driving that accretion? Right, your accretion could just be by buying earlier.

Speaker 7: So I think if you're going to put the creation in your guidance numbers, you should have to tell people how you are intending to get there or don't include it at all, and then just run it quarterly and let the street come up with their own number. But you're in this, there's missing pieces. And from what we hear from the investment community, it may be good for you, but it's not good for them. So I'll go before.

You sort of have to tell people. How you are intending to get there or don't include it at all and then just run it quarterly and let the street come up with their own number but you are in this.

There's missing pieces.

And from what we hear from the investment community that may be good for you, but it's not good for them so I'll yield the floor.

Speaker 2: Michael, thank you. Look forward to seeing you in Florida. Yeah.

Hey, Michael Thank you look forward to seeing Florida yeah.

Yeah.

Speaker 1: Thank you. Our next question comes from the line of Keep in Kim with

Thank you. Our next question comes from the line of Keybanc, Ken with Travis. Please proceed with your question.

Speaker 9: Hi, good morning. Just going back to the transaction markets and the pricing environment, given what's happening with race, a lot of times the cap rates that you see today are priced several months before. So what's your best sense of like real time pricing and of race price a little bit higher from here at long rate? How does that casuous work into your mindset about what to pay for us?

Hi, good morning.

Just going back to the transaction market and the pricing environment.

Given what's happening with rates you know all kinds of cap rates that you see today are priced you know several months before so.

What's your best sense of like real time pricing and if rates rise a little bit higher from here at long right.

How does that calculus work into your mindset about what to pay for assets.

Speaker 2: Yeah, listen, Keven, there's certainly a correlation between cap rates and interest rates and cap rates and overall cost of capital that correlation tends to be on a lagging basis.

Yeah.

Listen it keep in theirs.

Certainly a.

Correlation between cap rates and interest rates and cap rates and overall cost of capital that correlation tends to be on a lagging basis.

Speaker 2: And so our ability to move cap rates up, you know, trails the movement and underlying underlying interest rates, you know, when they rise, conversely, you know, we benefit on the way down when rates are declining. But, you know, we try hard to, you know,

And so our ability to move cash.

Cap rates up you know trails the movement in underlying.

Our underlying interest rates when they rise Conversely, we benefit on the way down when rates are declining.

But you know we try hard to.

You know keep keep the correlation static.

And and but it takes a while and you know.

<unk> cut our sellers in and become accustomed to rates and its hard to adjust that and in a competitive market environment, but over time I think it will normalize.

Speaker 9: But you haven't seen not just your deals, but in terms of all the deals that you see and all the participants, have you seen any kind of spot changes in prices?

But you haven't seen not just your deals but in terms of all the deals that you see and all the participants have you seen any kind of spot trends and changes in pricing.

Speaker 2: You know, listen, we focus on our deals and we haven't seen that yet, but we would anticipate it. I would expect, you know, there's crosswinds that are keeping in that, in the broader market, there's new entrance, new competition that's driving cap rates down. So overall, I would expect cap rates to stay flat, which would balance out, you know, the increasing competition against the rising rates.

Listen we focus on our deals in.

We haven't seen that yet.

But we would anticipate it I would expect.

Theres crosswinds that keeping in that and the Mac the broader market. There is new entrants new competition, that's driving cap rates down. So overall I would expect cap rates to stay flat, which would balance out.

The increase in competition against the.

The rising rates.

Okay and just last question for me I'm looking at your lease spreads are you the recovery rate was around 80% for coming 12 months obesity.

Speaker 9: And the last question for me looking at your lease spreads, the recovery rate was around 80% for 12 months of leases. I recognize that it's a small pool of wealth of their size in their company, but any more color around that, and if there's been any kind of obvious common denominator, in terms of what drove that lower recovery rate.

I recognize that it's a small pool relative to the size of their company, but any more color around that and if there's been any kind of obvious common denominator.

In terms of like what drove that lower recovery rate.

Speaker 2: Yeah, listen, it is a small sample set. Generally, given the vintage of our investments, the only assets that are going through are releasing.

Yeah listen it is a small sample set generally you know.

Given the vintage of our investments.

The only assets that are going through a re leasing.

Speaker 2: activity or assets that we take back through distress, through bankruptcy.

Activity are assets that we take back through distress through bankruptcy or through lease termination and those assets are distressed for a reason and that's what you're seeing there.

Speaker 2: or through lease termination and those assets, you know, are distressed for a reason, and that's what you're seeing there. And so generally, you know, I think 80% is pretty positive when you think about.

And so generally you know I think 80% is pretty positive.

Think about.

Speaker 2: you know, our 1400 plus assets and the 48 that we took back.

There are 1400 plus assets in the 48 that we took back.

Speaker 2: that were distressed in our ability to kind of recover, recover rents at a high level.

That were distressed and in our ability to kind of recovery recover rents at a high level.

Okay. Thank you.

Thanks, Kevin.

Thank you. Our next question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from line of Katelyn Burrows with Goldman Sachs. Please proceed with your question.

Speaker 10: Hi, good morning. Maybe just on the credit side, your rent coverage is up again, but I know you've mentioned that rent coverage can vary with tenant industries. So, wondering if you could just go through how you're thinking of your tenant's credit quality right now in which metrics we should be focused on to figure that out.

Hi, Good morning, maybe just on the credit side. Your rent coverage is up again, but I know you've mentioned that rent coverage convey with tenant industries. So wondering if you could just go through how youre thinking of your tenants credit quality right now in which metrics, we should be focused on to figure that out.

Yeah.

You know I I assume you're referring to our credit distribution disclosure on page 11 of our supplement which really shows the unit level coverage as it intersects with the underlying implied credit rating of our tenants in that and that's really how we look at it as really the.

Speaker 2: You know, I assume you're referring to our credit distribution disclosure on page 11 of our supplement.

Speaker 2: which really shows the unit level coverage as it intersects with the underlying implied credit rating of our tenants. And that's really how we look at it. Is really the intersection of where a unit is not covering its rent adequately and where that subperforming unit is not supported by a very strong.

Are aware a unit is not covering its rent adequately and and where that sub performing unit is not supported by a very strong.

Speaker 2: corporate credit. And then, you know, really we take the third lens of trying to understand what is our real state basis relative to market and really sizing that risk. Overall, you know, I always like to start with the fact that, you know, we only have one vacant property that the portfolios is essentially fully leased.

Corporate credit and then really we take the third lens of trying to understand what is a real estate basis relative to market and and really sizing that risk overall, you know I always like to start with the fact that we only have one vacant property. The portfolios is essentially fully leased.

Speaker 2: and everyone is current and paying and doing well. So those numbers are really on a lagging basis as I disclose on the call. We expect those coverages and those buckets to mitigate over time. So portfolio is in great shape. Our tenants are doing well and we feel really good about the overall credit risk in the portfolio.

And everyone is current and paying and doing well and so those numbers are really on the <unk>.

Legging basis as I disclosed on the call.

Yeah.

We expect those those.

Coverages in those buckets to mitigate over time, so portfolio is in great shape, our tenants are doing well and we feel really good about the overall credit risk in the portfolio.

Speaker 10: Great, and yeah, just to follow up there, could you just go through what guidance assumes for credit events or impact in 22 and maybe how that compares to the actual and 21 or historically?

Great and just a follow up there could you just go through what guidance assumes for credit events or impact in 'twenty, two and maybe how that compares to the actual in 'twenty one are historically.

Yeah.

Speaker 2: Yeah, you know, when we do our guidance, we sit down and we look at the portfolio and try to bake in where we see specific credit.

When we do our guidance, we sit down and we look at the portfolio and try to bake in where we see specific credit risks.

Risks.

Speaker 2: We look at our historic recovery rate on assets and like a specific assumption, as it relates to individual tenants and what we would qualify as known potential credit issues. And then we also on top of that layer in another generic credit loss assumption into the model to make sure we're appropriately reserved.

Look at our historical recovery rate.

You know on assets and make a specific assumption.

As it relates to individual tenants and what we would qualify as known potential credit issues and then we also on top of that layer in another generic.

Credit loss assumption.

Into the model to make sure we're appropriately.

Appropriately reserved.

Could you quantify any pieces of those here.

Not so much.

Not so much [laughter], it's you know I listen I know historically you know the asset class has has about a 30 to 50 basis point credit loss per annum.

Speaker 2: not so much. It's, you know, listen, historically, you know, the asset class has about a 30 to 50 basis point credit laws per annum. If you look back and that's the asset class and certainly I think, you know, we're more conservative than that.

If you look back and that's the asset class.

And certainly I think we're more conservative than that.

Got it Okay, and then maybe last one on the equity issuance side looks like leverage is now at four seven times like you mentioned you've been pretty active with your ATM. How are you guys thinking about ATM issuance this year versus doing a larger follow on deal.

Speaker 10: Got it. Okay. And then maybe last one on the equity issuance side looks like leverage is now at 4.7 times. Like you mentioned, you've been pretty active with your ATM. How are you guys thinking about ATM issuance this year versus doing larger fall on deal?

I mean I think.

Speaker 4: I mean, I think what you'll see us do is what we've done in the past. We've been pretty measured about it. We do like the ATEM. It's a very efficient execution for us, but oftentimes we've used the follow-on as a way to kind of mean our capital needs, and that's probably how we'll approach it in the future.

I think what you'll see US do is what we've done in the past, where we've been pretty measured about it we do like the ATM, it's a very efficient.

Execution for us, but oftentimes we've used the follow on is a way to kind of meet our capital needs and that's probably how we'll approach it in the future.

Okay. Thank you.

Thank you. Our next question comes from the line of John Masako with Ladenburg Thalmann. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from the line of John massaka with laddenberg felman. Please proceed with your question, good morning.

Good morning.

Good morning, John .

What kind of a detailed question on the <unk>.

Speaker 11: Activation at KV stuff with a quarter end. What was either the kind of the specific or rough cap rate on the $128 million of investment to close?

Acquisition activity subsequent to quarter end, what was either the kind of a specific or a rough cap rate on the on the $128 million of investments you closed.

Speaker 2: I would say it's rough cap rate is generally consistent with prior quarters.

I would say, it's rough cap rate is generally consistent with prior quarters.

Speaker 11: Okay, so basically nothing, definitely divergent from what you didn't pour to you.

Okay, So basically nothing.

From what you did for Q.

No.

And then.

Speaker 11: And then kind of bigger picture, notice the couple of new car wash tenants entering the kind of top tenant list. We've been hearing some stuff around relatively tight pricing or car wash assets.

A bigger picture noticed a couple of new car wash tenants entering the kind of top tenant list.

You know we've been hearing some stuff around relatively tight pricing or carwash asset.

Speaker 11: particularly some of the larger operators in the industry. What are you seeing from pricing perspective on those investments, I mean especially given your overall car wash exposure went down, so you probably have some opportunity maybe to add to that from a portfolio misperceptive, just any color there would be helpful.

Particularly for the larger kind of operators in the industry. What are you seeing from a pricing perspective on those investments I mean, especially given your overall carwash exposure went down. So you probably have some opportunity maybe to add to that from a portfolio mix perspective, just any color there would be helpful.

Yeah.

Yeah listen you know the the amount of capital chasing Carwash is in the current market is astounding and it's it's it's you know that's both from a business and a real estate perspective, I think there's a increasing appreciation of the asset class and the durability of the cash flows.

Speaker 2: The amount of capital chasing car washes in the current market is astounding. And that's both from a business and a real estate perspective. I think there's an increasing appreciation of the asset class and the durability of the cash flows.

Speaker 2: And you can assume our decrease in exposure in the car wash space.

And you can assume our decrease in exposure and the Carwash space.

Speaker 2: is not for a lack of transaction activities, but for a gap from where we're willing to buy the assets versus where sellers are willing to sell the asset.

<unk> is not for a lack of transaction activities, but for a.

A gap from where were willing to buy the assets versus where sellers are willing to sell the assets.

Speaker 2: That said, we have good relationships in the space. We've been a trusted partner and capital provider to the space and we continue to find incremental investment activity in the space that meets our underwriting parameters. But it's becoming an increasing struggle.

That said, we have good relationships in the space, we've been a trusted partner and capital provider to the space and we continue to find incremental investment activity in the space that meets our underwriting parameters.

But it's it's becoming an increasing struggle.

Okay and then.

You know in terms of I understand we kind of compare guidance versus four Q results. You know, obviously, you're going to have the prepayment income probably on a go forward basis.

Speaker 11: you know in terms of understand we gotta compare guidance versus 4Q results you know obviously you're not gonna have the pre-payment income probably a go for basis

Speaker 11: Outside of the other kind of typical factors right access and volume yield, down to capital markets activity, is there anything else we should be aware of that maybe is either one time in 4Q that won't translate out into the guidance number or that might be additive to guidance next year versus kind of what you did in 2021?

Outside of the other kind of typical factors very accession volume yield kind of capital markets activity is there anything else, we should be aware of there may be as either one time in fourth Q that won't translate out into.

The guidance number or that might be additive to the.

Guidance next year versus kind of what you did in <unk> and 2021 .

Especially I'd Miss your guidance yet.

Speaker 11: I bet you're guiding me. Yeah, no, I mean, listen, I think those are the big drivers or what we buy and how we capitalize it. And I think the rest is really certainly noise within the guidance range. So there's nothing unusual in there that you should be aware of. OK, that's it for me.

Yeah, No I mean listen I think those are the big drivers are.

What we buy and how we capitalize it and.

I think the rest is really certainly noise within the guidance range. So there's nothing.

Unusual in there that you should be aware of.

Okay. That's it for me thank you very much.

Thanks, John .

Thank you. Our next question comes from the line of <unk> <unk> with Credit Suisse. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from the line of Omatawa, Ocasada, with credit Swiss. Please proceed with your question.

Hi, yes, good afternoon.

Speaker 12: Yes, good afternoon. The question around the early childhood schools, is it going to cure us to give us a sense of the outlook of that business, given everything that's to kind of going on with vaccine mandates, mass mandates, books for teachers and for children, and kind of what you're seeing demand-wise and how the general health of that industry.

Quick question around the early childhood.

Our schools just kind of curious if you could give us a sense of the outlook of that business.

Given everything that's been kind of going on with you know.

Vaccine 90.

Last Monday, both for teachers and children and kind of what you're seeing demand wise.

How the general health of that industry.

Speaker 2: Yeah, those guys are doing very well considering all that. And, you know, we expected only to get better as those things...

Yeah, those guys are doing very well considering all of that.

And we expect it only to get better as as those things.

Speaker 2: you know mitigate going forward. And if you think about...

Mitigate going forward and if you think about some of our lower covering asset. Some of are still recovering assets. You know as we said on the call clearly the early childhood.

Speaker 2: Some of our lower covering assets, some of our still recovering assets, you know, as we said on the call, you know, clearly the early childhood bucket is in that space. But it's a great industry. There's great demand for it. And our guys are currently doing well and we only expect them to do better going forward.

Bucket is in that space, but.

It's a good it's a great industry, there's great demand for it and our guys are currently doing well and we only expect them to do better going forward.

Gotcha and then also in regards to the leases.

Speaker 12: Gotcha. And then also in regards to your details, and I think you mentioned earlier on that the rent bombs were like 1.6%. Are those fixed bombs, or do you kind of benefit at any point from kind of high inflation and need to kind of resetting to very high CPI type numbers?

And I think you mentioned earlier on that the rent bumps are like one 6%.

It bumps or do you kind of benefit not any point from you know kind of high inflation and just kind of resetting.

So very high.

T I type numbers.

Speaker 2: uh... you know unfortunately don't that's not standard in the market and to extent that uh... you know we were demanding pure cp i uh... escalators it it wouldn't be competitive to the market so generally we have fixed bump

Unfortunately, we don't that's not standard in the market and to the extent that.

We were demanding pure CPI.

Escalators, it wouldnt be competitive to the markets. So generally we have fixed bumps.

Speaker 2: which from our perspective is a good thing in that, you know, over time.

Which from our perspective is a good thing and that over.

Over time, our tenants prop.

Speaker 2: Our tenants profitability sales and profitability grows faster than I rent, such that these assets season favorably and into a higher level coverage as we get further and further from our initial credit underwriting. So tends to be fixed. CPI is not standard in the industry.

Profitability sales and profitability grows faster than I rent such that these assets season favorably and into a higher level coverage as we get further and further from.

Our initial credit underwriting so tends to be fixed CPI is not standard in the industry and we would not expect to get outsized rent growth in a in an inflationary environment.

Speaker 2: You know, we would not expect to get outsized rent growth in an inflationary environment. Great.

Great. Thank you.

Thank you.

Thank you. Our next question comes from the line of Sheila Mcgrath with Evercore. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from the line of Sheila McGrath with Evercore. Please proceed with your question.

Speaker 13: I guess morning, Pete, there were some interesting changes to the top 10 tenant list of few new entries, drivers edge, mammoth holdings, white water express, and you added more with equipment share. Just wondered if you could comment on some of the new.

I guess good morning piece, there was some interesting changes to the top 10 tenant list a few new entries drivers edge Mammoth Holdings Whitewater Express and you added more with equipment share just wondering if you could comment on some of the new.

Speaker 13: tenants to the top 10, you know, about their business and if there's opportunity continue to grow with those tenants.

Tenants to the top 10, you know about their business and if there's opportunity to continue to grow with those tenants.

Sure. Thanks Sheila.

Speaker 2: Sure, thanks Sheila. You know, we tend to have a lot of churn in our top 10, specifically, you know, the bottom five as we...

We have we tend to have a lot of churn in our top 10, specifically the bottom five.

As we.

Speaker 2: as we do more business with those tenants and driver's-edge is a great example of that.

As we do more business with with those tenants and drivers edge is a great example of that.

Speaker 2: as is white water. We've been transacting, driver's edge, which is a GB auto. When you do an 80% follow on business, you can, we're growing with our tenants. And that's why you see them grow into the top 10 and then fall out as we grow with others. So we like to think and we like to hope there's growth opportunity with all our tenants. But...

As as whitewater.

We've been transacting drivers edge wishes GB auto.

When you're doing 80% follow on business. You can you can you know we're growing with our tenants in and Thats why you see them grow into the top 10, and then <unk>.

Paul out as we grow with others and so.

We like to think and we'd like to hope, there's there's growth opportunity with all our tenants but.

Speaker 2: You know, clearly that's what you see with top 10.

You know clearly that's what you see with top 10, and Whitewater Whitewater has been a rapidly growing.

Speaker 2: and white water. White water has been a rapidly growing car wash chain that has done a great job and we've been fortunate to be able to do continuing transactions with them.

Carwash chain that has done a great job and we've been fortunate to be able to do continuing transactions with them.

Speaker 2: What's interesting with mammoth holdings, which is another car wash operator, they actually bought a smaller car wash operator that we had been doing business with. So they merged into our top 10, which creates a more sizable credit worthy tenant for us. And that happens from time to time as well.

What's interesting with Mammoth holdings, which is another carwash operator, they actually bought.

A smaller carwash operator that we had been doing business with so they merged into our top 10.

Which creates a more sizable credit worthy tenant for us and.

That happens from time to time.

As well and so.

Speaker 2: You know, our relationships are where we look to get our growth and you know, the bigger the relationships, the they tend to be the bigger growers and create the opportunities.

Our relationships are where we'd look to get our growth.

The bigger relationships.

Tend to be the bigger growers and create the opportunities.

Okay, great. Thank you.

Thanks Sheila.

As a reminder, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad. Our next question comes from the line of Greg Mcginniss with Scotiabank. Please proceed with your question.

Speaker 1: As a reminder ladies and gentlemen, if you would like to ask a question, please press star one on your telephone.

Speaker 1: Our next question comes from the line of Greg McGuinness with Scotiabank. Please proceed with your question.

Hey, good morning, everyone. Just a couple quick ones here going back to the question on escalators I understand keeping all of them at least till the atypical for the industry.

Speaker 7: Good morning, everyone. Just a couple of quick ones here. Going back to the question, I'm pass gliders. I understand you, Kevin. We said they're atypical for the industry, but are you able to secure higher fixed left gliders to the inflationary environment? And you'd be then circling here in the sweater and your term inflation could lead to a longer term.

Are you able to secure higher.

It's been an inflationary environment.

And circling hearings, whether near term Inflations led me to a longer term.

Right.

Yeah, I would kind of layer my commentary around cap rates on top of that.

Speaker 2: Yeah, I would, you know, kind of layer my commentary around cap rates on top of that, you know, when particularly, you know, coupled with the fact that, you know, 80% of what we're doing is follow on business and repeat business where loses have already been struck. And so, you know, when we're doing a deal, we very much look at the entire economic package as do our tenants and

When particularly coupled with the fact that 80% of what we're doing is follow on business and repeat business, where the leases have already been struck.

And so you know when we're doing the deal we very much look at the entire economic package as do our tenants and.

Speaker 2: you know, to the extent that we're, you know, trying to get outsized escalators. It's going to, you know, one, potentially make us uncompetitive and to create pressure on the initial cap rates. So I don't see an opportunity to really, you know, push that in the current environment, but, you know, rest the shared we're trying to get the best economic deal that we can for our shareholders and well, we win the business.

To the extent that were true.

Get outsized escalators, it's gonna one potentially make us uncompetitive and to create pressure on the initial cap rates.

So.

I don't see an opportunity to really push that in the current environment, but rest assured we're trying to get the best economic deal that we can for our shareholders.

Well, we win the business.

Speaker 7: All right, great to see you. And then Mark, I want to touch on the Unsecured Dept look that real quick. I really expect the company could raise that today and do you anticipate a need to access the Unsecured Dept.

Alright.

And then Mark I wanted to touch on the unsecured debt.

Real quick or do you expect the company could raise debt today and do you anticipate a need to access the unsecured debt market. This year.

Speaker 4: I guess I'd say first I certainly think we could access it today. Whether we would or not is obviously not something I'd comment on but

I guess I'd say first I, certainly think we could access it today, whether we would or not is obviously not something I'd comment on but.

Speaker 4: The way we think about the unsecured debt market is now that we executed our first inaugural offering last June . We like that market. We think it's a very efficient market. So I think we'd be inclined to utilize that market to the extent that we need to include this year at some point.

The way, we think about the unsecured debt market is now that we are.

Executed our first our inaugural offering last June .

We like that market, we think it's a very efficient market. So I think we'd be.

Inclined to utilize that market to the extent, we need to too.

To include this year at some point.

And in terms of rate, where do you think your base.

You know look at 10 years been pretty volatile as you know so.

Speaker 4: you know look at ten years been pretty volatile you know so uh... that's a bit of a mixed uh... mixed bag but uh... you know look i think if i was to arrange it would probably be you know mid to high threes

That's a bit of a mixed a mixed bag, but you know look I think if I was to try.

A range it would probably be mid to high threes.

Okay. Thank you I appreciate the clarity.

Yes.

Thank you. This concludes our question and answer session I'd like to turn the floor back over to Pete for closing comments.

Speaker 1: Thank you. This concludes our question and answer session. I'd like to turn the floor back over to Pete for closing time.

Great well. Thank you all for your participation today.

Speaker 2: Great, well thank you all for your participation today. You know, we were happy to report a great quarter and really a great year. And we have a great outlook and a strong start to the year that we're excited about. So thank you for your time today and we look forward to engaging with you in the future.

We were happy to report a great quarter and really a great year.

And we have a great outlook and a strong start to the year that we're excited about.

So thank you for your time today, and we look forward to engaging with you in the future.

Take care.

Speaker 1: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.