Q1 2022 Spirit Realty Capital Inc Earnings Call
Greetings and welcome to the Spirit Realty Capital's first quarter 2022 earnings conference call.
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A question and answer session.
A question and answer session will follow the formal presentation.
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Please go ahead Sir.
Thank you operator, and thank you everyone for joining us for spirits first quarter 2022 earnings call.
Renting of today's call will be President and Chief Executive Officer, Jackson, Shay and Chief 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 from those currently anticipated due to a number of factors.
For you to the Safe Harbor statement in our most recent filing 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 exhibits furnished to the SEC under form 8-K.
To conclude our earnings release supplemental information and Investor presentation.
These material materials are also available on the Investor Relations page of our website.
For our prepared remarks, I'm now pleased to introduce Mr. Jackson Shack Jackson.
Thank you Pierre and good morning, everyone.
As I've stated in the past spirit is great tenants the pristine balance sheet.
Our fully integrated asset management and acquisition platform. It is producing results.
Our underwriting approach focused on industry relevance.
In depth credit analysis, and real estate fundamentals.
Allows us to pursue a wider opportunity set which we believe generates more value for our stockholders.
If you look on page 13 of our Investor presentation.
You'll see that our strategy is being validated.
With many of our recently acquired tenants going public being acquired receiving credit upgrades or recapitalizing their balance sheets.
Our intensive underwriting capabilities has consistently allowed us to identify opportunities.
That are underappreciated or mispriced in the market.
Resulting in strong yields and asset value accretion over time.
The most recent example of this success is the main event.
During the first quarter, we added three main events.
Raising them to our number seven tenant.
Just a few weeks ago, Dave <unk> Buster's.
A number 72 tenants.
Announced plans to acquire main event.
With main event CEO , assuming leadership of the combined entity.
We view made events absorption into a strong public tenant it's a significant credit upgrade.
That will result in further cap rate compression for one of our largest tenants.
Making this merger yet another example of our ability.
So identify and underwrite strong operators and relevant industries that will continue to improve.
During the quarter we.
We deployed $511 4 million in investment capital.
Weighted average cash capitalization rate.
$6 four 2%.
Including the acquisition of 41 properties across 29 transactions.
Approximately 62% of this transaction volume was relationship driven.
72% of the acquired rents well from publicly listed tenants.
We expanded our relationships with our top 20 tenants, including lifetime Bj's wholesale and main event.
We also continued to increase our industrial exposure.
Which accounted for 37% of our first quarter acquisition volume.
With a mix of 66% distribution, 29% manufacturing and 5% flex.
Our industrial exposure now stands at 19, 8%.
A 120 basis point increase over last quarter.
As you can see on page 14 of our Investor presentation.
Since the spin off we added $4 3 billion of assets.
Comprised of 54% retail.
33% industrial 9% other.
4% office.
Our retained portfolio largely included public retail tenants.
That fit our strategy.
At quarter end, our ABR was $623 3 million, surpassing one of the key milestones identified at our 2019 Investor day.
Reaching a pre spin off rent of $600 million.
Given the strong performance of our tenants coupled with the strength of our real estate and leases.
We have seen increased demand for our properties.
To capitalize on that demand, we are increasing our disposition guidance from $100 million.
So a range of $200 million to $300 million.
We expect these dispositions will generate attractive returns and be accretive to our <unk> per share growth.
While reducing exposure to office flat leases and.
And certain tenant concentrations.
The increase just position plan combined with our outstanding forward equity and Upsized credit facility places us in a very strong liquidity position.
To achieve our acquisition guidance and benefit from the impact of capital market disruptions.
Capitalized market participants.
One disruption, we're paying close attention to is the impact of higher borrowing spreads for asset backed debt.
Which is negatively impacting private and at least acquirers irr's and ability to push aggressive pricing.
This dynamic helped spirit in two important ways first.
It heightens, the importance of relationships and certainty of execution.
Which AIDS us as a trusted well capitalized counterpart that follows through on our commitments.
Second it allows us to be more competitive on opportunities.
As risk as being more fairly priced today, just a few months ago.
Based on what we're seeing today I anticipate that in the back half of the year.
We will be able to find investment opportunities 25 to 50 basis points higher.
Where they have priced over the last few quarters.
Finally, before I turn the call over to Mike I want to highlight our ESG accomplishments as laid out in our first sustainability report.
89 member team is making meaningful impacts to the community.
Through our women's leadership Council D I think green young professionals.
The spirit one committees.
Most recently.
Our employees supported the humanitarian relief efforts in the Ukraine.
Joining 25000 in total to UNICEF world Central kitchen, and doctors without borders.
Which spirit match dollar for dollar.
Our company has developed a great culture that attracts and retains talent.
Notably we have had no voluntary departures this year set.
Promotions.
And a few former spirit employees recently rejoined.
And as I've said before we have one of the best teams in place functioning at a very high level.
Well equipped to move quickly to uncover the best risk adjusted return opportunities.
With that I'll pass the call over to Mike Mike.
Thanks Jackson good morning.
We had a very strong start to the year, our annualized base rent increased by $35 2 million compared to last quarter with $30 3 million driven by net acquisitions and $4 9 million driven by organic rent growth.
We originated $112 7 million dollar loan this quarter and recognized interest income of 319000, do we expect to increase to a little over 500000 next quarter.
Also during the quarter, we received 875000 of rent from the new theater leases.
It was 275000 was recognized as base cash rent is reflected in our ABR with the remaining 600000 recognized those contingent or variable rent.
Our cash interest expense increased by 1 million from last quarter to $24 2 million.
Cash G&A increased by $1 1 million.
The G&A increase was driven by internal promotions and new hires predominantly in our acquisitions asset management credit and closing departments as well as employer taxes on bonus payments and stock grant vesting that occurs during the first quarter.
For the year, we expect cash G&A, it will be approximately $40 million to $43 million.
For the second quarter in a row, we had virtually no loss rent and our deferred rent receivable balance declined by $2 3 million to $13 million.
Our occupancy remains at 99, 8% with four same store sales of 2.1% and a portfolio of Walter pinpoint for years.
Due to the strong portfolio performance, coupled with accretive acquisitions are asked to vote per share increased to 88 cents compared to 85 since last quarter.
Turning to the balance sheet and.
In January we completed a follow on offering entering into forward contracts to issue nine 4 million shares of common stock.
During the quarter, we issued $6 6 million shares to settle certain forward contracts generating net proceeds of $299 8 million.
As of quarter end, we have unsold word contracts for $3 1 million shares.
Were just 5.2 times or five times inclusive of all remaining forward equity contracts outstanding.
And our fixed charge coverage ratio of five eight times.
In March we closed on a $1.2 billion revolving credit facility amending our previous $800 million facility, which includes an accordion feature to increase capacity to $1 7 billion and matures in 2026.
Notably our pricing grid improved meaningfully there's 77 five basis points over an adjusted sofa rate versus 90 basis points over one month, LIBOR and our facilities the tightened by five basis points.
We ended the quarter with total corporate liquidity of $846 6 million, including unused lying capacity cash no outstanding forward equity.
Turning to guidance given the first quarter capital deployment results and the visibility we have into the second quarter, we are increasing our acquisition guidance to approximately 1.5 billion.
Jackson mentioned, we're also increasing our disposition guidance to 200 to 300 million to take advantage of the strong demand we're seeing for assets.
We are maintaining our <unk> per share range of $3 52 to $3.58.
Again, we've had a very strong start to the year with our low leverage increased disposition plan expanded line of credit and outstanding for equity we were in a great position to execute on our strategy.
With that I will turn the call over the operator to open it up for Q&A operator.
Thank you Bob.
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Our first question.
Hum.
Yes.
Hey, good morning, guys.
Just a question on the guidance I guess you know per share was maintained is it just a function of.
Higher dispose offsetting.
Higher acquisition volumes I, just want to make sure there's nothing else in there that.
I guess, preventing the guidance from being raised.
And then maybe you can just comment on what you're seeing in terms of pricing and what your outlook is and I know you mentioned that the leverage buyers have pulled back a little bit. So I appreciate your comments there.
Yeah, and they all start with the guidance question I mean first of all I guess good to point out that we did come out with the year with pretty robust guidance you know at nine 2% <unk> per share growth at the midpoint. So I think we put Florida pretty good number there.
Are the highest in the space.
And we put that guidance out in January obviously, the interest rate environment was a little different I keep in mind that was actually we raised guidance in January the first time, we put out this guidance is back in 2019, if you remember.
And interest rates have certainly gone up the curve is higher we are borrowing money to find acquisitions.
So that's not really dispositions that are affecting guidance those are going to be accretive. So it's really just the forward curve that we're looking at and our model is certainly peeled off some of the other good things that we've done on operations on your capital deployment I'd say, probably the impact was about four cents to our forecast on the rise in rates.
Another way, we would be increasing guidance had not gotten too aggressive so.
So we're happy we can maintain a very aggressive guide.
Where we are but it's just really is education back out to you that we're seeing.
That's just you know keeping our numbers where they are.
And NATO I'll take the question.
Yeah.
My comments on the cap rates rising.
Yeah, I think if you sort of look around between rate hikes, and what's going on in Ukraine with the Russian crisis.
I had a pretty profound impact in the fixed income market. So if you look at mortgage C. M. B S SaaS b loans.
Triple H C M. B S. All that stuff has gapped out meaningfully since the beginning of the year as compared to a.
Year end last year, So for instance, like AAA.
See MBS spreads for like a 75% LTV loan or probably a 180 basis points wider today than where they were at the end of last year.
If you look at a.
Larger financings like something larger like over 1.5 billion in secured lending right now I mean that that is really probably you start paying pretty meaningful premiums over sofer, he get financings and in that kind of range. So all that said is there's a lot of pressure.
Sure on.
People that are looking to finance in the mortgage market today commercial mortgage market. So like 5% is probably 5% plus is like the new new for people that want to borrow there. So I think what that's doing is it's having obviously a reduction in potential bidders I think some people are just sitting it out right now to see where prices.
Subtle.
What we're seeing is you know some deals are coming back around that didn't perform.
And of course, we're the way, we fund ourselves using bank term loans and unsecured bonds.
Secured bonds are not that great right now as you know, but there is some opportunity in the bank market and has not largely widened.
Across the board like all these other.
Our fixed income opportunities, where we could borrow.
So bottom line is that in my mind is having a real impact on pricing.
Thank you.
If I were just to do rough guess, probably had a 5% to 10% impact.
And prices today, and so when we look at our pipeline, which I can address it later, but.
We're sort of factoring that into our strategy as it relates to investment in the back half of this year.
Okay. That's very helpful. I'll leave it there thank you.
Thank you Sydney.
Christian.
Greg why don't.
Yep.
Hey, good morning.
Hi, Jackson, I guess say Ah, we will give you that opportunity to talk a bit more about the investment pipeline.
Did you guys are seeing and maybe why theirs.
A potential expectation for a bit of a slowdown versus the strong pipeline of 11 million you were able to achieve in Q1.
Okay. Thanks, so I'll take that.
I guess you know what I, maybe help you think about it is if you go back to.
Our last quarterly call, we talked about this concept that there were portfolio premiums out there like hard to compete because the financing was so aggressive and that was.
It was just putting a lot of pressure on cap rates for us and so we made a pivot as you know in the fourth quarter of 2021, We said Hey, we're gonna start buying Granularly, we're going to focus on 30 transactions small to control cap rate. So we thought we'd have a better chance of accomplishing what we wanted to accomplish.
And that largely flips as you can see is what we saw in the first quarter of this year, you know high number of transactions $500 million.
If you look on our 10-Q in note six on where we have purchase or capital commitments.
Outstanding you know, there's 300 million sitting there. So you know you do the math you know half of our expected pipeline is already spoken for it because it's all granular very small and probably largely looks the same as what we just did in the first quarter.
What we're seeing in our pipeline going forward in the third and fourth quarter is.
Probably pricing near 7%.
That's our target.
So when we look at investment.
Performance in the year, you know, we don't kind of look at it on a quarter by quarter basis with target in annual production.
Production and we talked about six 5%.
Earlier in the year I think it's gonna be higher when we get all said and done for this year, but it'll be closer to somewhere in the six 5% to 7% range for the entire one 5 billion.
So I think that's one of the benefits of kind of the only what we did was we raised capital efficiently earlier. This year equity obviously, we've got it match funded for the pipeline that we've got committed.
Between our $100 million of free cash flow.
$40 million of unused equity plus our dispositions that we've got targeted.
We're largely trying to basically say, we can fund ourselves the rest of the year without going back to the equity markets.
Now you didn't ask but I'll, it'll probably come up on dispose.
We we've made a decision a deep as the quarter progressed through the first quarter that we wanted to be able to self fund ourselves. So when we put that guidance out there of two to 300 million you should expect that we have a lot more property for sale.
We are being very opportunistic and very price driven so like a five cap asset is the equivalent of us issuing stock at $55 a share.
So we're not going to solve we're not going to sell all those assets were very price conscious, but theres a.
There's there's good property being marketed right now, but in the home improvement and industrial restaurant grocery area and you know, we'll see where we get you know it's a it's not portfolio sales thats, one off and you know Theres still 10 31 buyers out there there are still people buying it all equity.
So that that was kind of the logic there.
Okay. Thank you and then my last.
One last thing on your question.
As I mentioned.
I think I wouldn't be surprised in the third and fourth quarter. If you saw.
The number of transactions that we closed start to look more similar to what we did like in previous quarters. I mean, we're really focusing on more yield so that probably means maybe there's a larger transaction than there are two.
Maybe not as many are really focused on good credit really high risk adjusted returns that's kind of what we're focused on.
We obviously know how to do it we've done that in the past.
Right, Sir Thanks Jackson.
And Mike.
In regards to the the 520 million on the line of credit potential capacity there for another one to.
$2 billion.
Do you anticipate raising unsecured notes or maybe something in the bank market as mentioned in a prior answer and if so what rate feels achievable.
Yeah, I mean, well, we'll see I mean, right now as the bond market is still a bit disrupted. So I mean, I wouldn't go out and issue bonds today, but you know that market I mean, if you look at it can be it can move up and down pretty quickly. So it's too early to tell I think if the bond markets you know more favorable we'd look at that at the bank bargains more favorable we'll look at that nice thing about being in investment grade issuers, we have options.
For different pockets of capital.
So you know as we get later in the year, we do have a nice size revolver now so that gives US time and you know I think one thing you should expect from this team as you've seen I think talking time against we're pretty opportunistic about when we issue to get good pricing.
And we'll pick our spot and we'll pick the right.
You know the right Avenue to go to.
To maximize our cost capital. So it's still too early to tell but I think there'll be options to choose throughout the year.
Alright, thank you.
Thank you.
Thank you.
Sure Michael.
Yeah.
Yeah.
Good morning, Thanks, a lot for taking my question you acquiring a lot of different markets with varying cap rates and given rising interest rates and steady cap rates, you're seeing fewer bidders in.
The lower cap rate products, given the smaller spread and gifts.
Given that for sure I'd have you think of acquisition allocation going forward.
Oh look I mean, I can tell you if we have some experience just in our disposition effort. Because these are these are high quality properties that are that we have in the market.
I would say, it's certainly from what we can tell right now.
Like I'm not sure sellers have really kind of woken up to this is the real real so like if you're a you know our bread and butter is like a single B rated credit you know $500 million of revenues preferably public that stuff got really aggressive in the back half of last year.
I can tell you right now for us to do stuff in that zone, it's it's a higher cap rate.
And.
And so I'm not sure everyone sort of.
Come to that realization yet so it always takes time between buyers and sellers.
But you know some of the things that we're putting out there are really really high quality and well it'll be interesting to see if we can demonstrate low cap rates for what I'll call a trophy like properties and some of the areas that we're looking at.
And I think the number of bidders I would say.
I think for larger transactions larger being portfolio.
Feel like those.
Those got really sought after last year and the fact that some of these deals are coming back around and they are coming around to people like us that can just stroke, a check and then figure out how to finance. It later.
I think that's that's probably going to help companies like ourselves right now so I don't know if that's a trend for the rest of the year or not but I think there is some price discovery happening out there in the market today.
If you talk to brokers they'll probably tell you that if they're being honest.
That's helpful and I don't know if we've fully explored.
The detailed view of the acquisition pipeline, but can you provide a little bit more color on that and just kind of with within that you know you do play in the late warehouse space you know.
Clearly Amazon's comments are not completely comparable to what you're doing but at the same sort of arena like are you seeing any changes in tenant demand and acquisitions in the industrial in the industrial space that you look at it.
I mean, we we I don't think we're changing what I'll call our lines of trade that we invest in you know we like golf courses have been able to find it unfortunately that suit us.
We like industrial light manufacturing.
We we like certain asps certain retail non discretionary service retail.
Opportunities like auto service is still a big focus.
Yeah, you'll probably see us slowdown in car washes for the time being but there are other things that we see that are interesting for us we get an interesting deal and that was related to a defense.
Sector player that was interesting we'd like to do more in that area for are they they.
Fuel tanks incredible bladders for military use obviously people need that kind of stuff right. Now. So you know there are things that we feel like we can.
Execute on especially given how strong our current pipe pipeline, yes, it's very identified so what we've instructed our teams to do is hey, we want yield when they get paid for risk.
That might mean that we can't do a relationship deal if it's not in the right zone for us might take a pass.
I'm being.
So yeah, I'd say, it's not a huge changes to.
The mix of business, but just more.
You know more driven towards yield is what we're focused on right now.
Thank you very much.
Sure.
Thank you ladies and gentlemen.
Okay.
Good question.
And then one now.
The next question.
Nelson Jpmorgan.
Thank you I guess, Mike you talked about some of the financing options and what's available to you, but just trying to understand you have an 80 515 split right now fixed floating so do you want that to be.
Yes on the floating side or how do you think about that just longer term.
Yeah, I mean, we're comfortable with that split today I think it could rise even more if we term something out stay in the bank market. For example, you guys swapped out to fix but for now I think you know having the floating component would be the revolver, having that grow is in the short term is not a concern for us today.
Okay and then just.
Multi currency line can you just talk about just your.
Geographic by box and how to how to read that.
Yeah, I mean look one thing that we've always said, we we have a wide opportunity set when we plan our wives sandbox, we look at every day and you know.
I think when I think about the company over the next four or five years and when you put in your revolver in place. That's really the idea is that for the next four or five years of growth of the company.
You want to set that up to handle whatever opportunities arise and we're not actively pursuing international today.
Bigger company and if we find the right opportunity I would not take international off the table in the future.
So you know when Youre doing it it's it's a free option to put that in there and it was just going to go ahead and just you know you're at to be able to handle that kind of capacity you should an opportunity arise in the future.
Okay got it and then.
Just last one I had.
You're ramping up the dispositions and it sounds like there is an opportunity to.
Several things in the fives, perhaps and does that give.
To give you any appetite to revisit the stock and at these levels from a buyback point of view.
And so I'd say stay on the buyback we've done that before.
We feel we always will look at it but.
Probably not I mean, I think we are better.
And I don't know Hugh if you if you look at that there's a table we put it in the team put in titled underwriting value. You know it goes through examples of different tenants that we've acquired where they they were upgraded or if there was an M&A or refinancing or recap.
Yeah, really solid real estate solid industries.
20%, it's 20% of our a b R. But the real story is it's a third of the $4 3 billion. That's been acquired by this team since we got them all down here.
So I mean, I think we make more money for shareholders doing that than just the one time you know bike start back we've done that before I'd rather.
This is a great time to be investing honestly right now for companies like ourselves.
There's a couple of other people private that have a lot of money to buy back.
Access to unique capital.
We're supposed to be investing now in my opinion, that's what we're supposed to do if you want to buy back stock you can always do that but I think that doesn't really create really long term sustained value I'd, rather I'd read the laser chips down in credits.
Because you were actually getting paid for risks appropriately.
Continue to unearth those unique.
Credit opportunities, which we time and time again Joe.
And we have a good track record of it. So I think it's kind of it's it's under appreciate it to be honest with you, but we're just going to keep doing it until.
Find something else to do.
Okay I appreciate the answer.
Thank you.
Christian.
Vincent and Kent.
Good morning, guys Jackson.
So you talked about the upgrades and recaps and specifically main event being bought by Dave and Busters, how much does that change the value of a main event asset in the market I mean, obviously walton location and other factors are important here, but is there a tangible value creation that you can point to let's say 25 basis points or whatever from a cap rate perspective from some sort of combination.
This.
I remember like can take that but I would tell you. One thing is I mean today, it's very hard because we're in a really unusual.
Period end.
In the World right now just in terms of what's going on in the markets.
But can't you should talk about the liquidity profile what happens.
Like to our main event or.
Sure.
I'd start out by saying the mere fact that you've gone from a.
Private tenants to the large well known publicly traded tenant right off the bat, yes. We believe if we were in a situation where we wanted to.
Dispose of any of our main events.
You would see cap rate compression today versus where it would have been prior to the transaction that was announced is it.
25, 50 75 basis points.
I don't know like Jackson said, there's there is.
Still some price discovery going on but there is no question in our mind that yes, there's that transaction would result in cap rate compression for main event assets.
Okay, and then you guys talked about demand and pricing is the key driver in the increased disposition guidance, but how much of this is also the attractiveness of dispositions as a funding costs given the rise in interest rates.
If the 10 year was still $1 50 would you still be increasing the dispositions or given the impact on the market and asset pricing et cetera.
Would that be different.
This also a desire to cycle out of certain assets and tenants as well.
I would tell you was like for from my personal standpoint.
It's interesting because she asked if if there were no change to our cost of capital a year if rates were still low one of the things that was kind of interesting for me as it relates to our pipeline process acquisition pipeline process.
Is I think sometimes we can get a little bit.
Isolated from the market I mean, we're constantly buying we're constantly doing things.
Well, we're not really selling so.
One thing that really struck me last year was.
You know go back to the third quarter you know it was kind of late with the exception of club Corp. The reason why it was we were just getting blown away by bidders coming over the top you you'd start to get into a process. You think you have something someone knocks you out by 5% to 10% and we're just we're not even close to that price. So I felt like you know what.
We need to be kind of buying and selling and then maybe we're selling in smaller amounts just so we kind of have a good feel for where the buying with a buyer market really is.
So I'd say, if there were no change in the treasury, we'd still be selling it just be a lot less but we'd still just to kind of be in the Florida understand market dynamics.
I would say when we ramped it up it was really just I just wanted to have.
Not be people hold on to go back to the equity markets I didn't know when we started this it would be where we are today I'm glad we started this exercise in pretty robustly candidly I wish I did it in the fourth quarter, but at least we started.
So.
But I think you'll see us always selling.
Premium assets, I think you're always going to see us to a small degree because I kind of want to know where the market really is.
It's one thing when you are buying in competing instead, another one you're actually selling sort of a better feel for things.
Okay, and you said that you had more you should be putting out more than a two to 300 million out there. Yeah. I mean, if you get good pricing are you comfortable going up to three to 500 million of dispositions, depending on what the redeployment opportunities are for you.
Yeah, Yeah forget, though yeah for sure I mean, it would have it would inform us on how we attack the third and fourth quarter like I said, we've already we've kind of already funded.
One half of our $1 5 billion English.
Like I said, we have free cash flow.
Unused 140 million of equity we raised proceeds just buzz. So we sold more we ended up by more I mean, as you know in terms of kind of increasing that spread.
Okay very helpful. Thanks, guys.
Sure.
Okay.
Yeah.
The next question.
Okay go ahead.
Alright, thanks, good morning.
But I think I'll step back and think about how your company has.
Progressed over the years.
You guys have done a lot.
Things in your earnings are up your leverage looks fine.
Yet your stock price continues to trade at a pretty big discount I know, that's something you always highlight.
And then combine that with you know your your past Jackson of Green kind of smart creative M&A spin off type of transactions you know just given the current situation or holiday things out.
Does that spark other.
Kind of creative juices in your mind to do something different with spirit here.
Well I would tell you keeping a it's a good question we we.
We talked about at the board quite a bit.
It's not just now, but we actually talk about.
Strategy and.
What's the best thing we can do.
In some ways.
Personally I think theres going be some amazing investment opportunities. This year I hope that's my hope is not a great strategy, but I believe that there will be as the year progresses, just because it's so difficult.
Given what's going on in the fixed income market.
So in some ways you hate to like just step out of the room. When you have that opportunity and we did all of this is a company heavy lifting like.
One of the things.
If you think back to Investor Day, I remember you were there right December 2019, we said hey, we're going to do $3 to three.
$3.32 to $3 52 in 2022 we said that back in December 2019.
Now when you think about what happened Covid lockdowns market volatility.
So what we're doing more than 352, that's our guidance at least.
So we totally did what we said in spite of having a.
Not so great cost of capital.
So there you go.
I hope that people will look at us and say Hey look I'm you know look on this we have this little chart that says strong growth is a reasonable price there's nothing public net lease peers on that page that we put out there. We're number two in 2022 <unk> per share growth. We're number two in the last three year T. A S. R.
Out of the nine.
Our <unk> growth from 2019 at 2022 is number three.
And yet if you look at our 'twenty, two or multiple well number nine or at the back half.
Totally it doesn't make sense. So in some ways. Yeah, you know should we do something different strategically always can do that always available portfolios.
Portfolio is as tight and clean, but theres this amazing opportunity to make money right now so you hate to get off that side.
I know you guys got a right more do stuff because we we know what we're doing we're performing but sometimes we're sort of not getting a fair shake right now out there.
So I appreciate you asking the question that but to answer your question, Yes, we do look at it all the time, but if there weren't this.
Like right now like there's less competition, you can actually really make some money now so like why why jump off right now.
Please drop off at a premium.
Got it all my only question. Thank you.
Yeah.
The next question.
Candidates.
Bob Please go ahead.
Hey, Yeah. Good morning, guys I wanted to dig in a little bit deeper into the asset we like recycling spread are used to shoot look into arbitrage pricing of larger deals versus small and then Conversely are you also looking to buy ahead of credit improvement, which you have in the past, but also at the same time looking to set up sell ahead or credit weakness.
Yeah.
I mean, we I mean, you want to try that one again.
Yeah, Yeah, well on the on the dispose.
One thing I would say is I think some folks tend to think of it as.
Either it's an opportunistic or to risk mitigate and what I would tell you is they're not mutually exclusive.
We have some of the assets that we do have in the disposal plan, we view as both opportunistic and risk mitigate.
Whether it's a flat lease.
Short term.
But theres a lot of different characteristics.
Each one of those assets has something about it that we we feel it just makes sense to go ahead and put it into Disbro plan.
But you know so that's of course those dispose we feel are going to be accretive.
And when you think about that or are we talking like a 25 basis point spread if the can you give us maybe a ballpark range when we model this out.
Well I mean.
I hate to give it well I mean, it was like just just.
If it's accretive let's just say.
150 to 200 basis points spread right now.
So when we think so.
Sell out or we invested yeah, I don't think that's a fair ratio.
Yeah, that's a lot when I thought we used to.
Of that.
Yeah, I mean look I've looked like.
Went through that last answer was keep it and look where we're ranked number nine out of nine peers, but the weakest.
Equity multiple so we got to figure out other ways to portfolio is worth a lot more than that guys. So we're just gonna what's going to keep doing.
Good spreads and eventually hopefully people wake up and see that this is sustainable.
Okay, and then one quick one on the balance sheet.
Beginning of the year there was some potential thoughts about taking out the preferred is that still the game plan this year.
I think we'll have to see that's going to be T. V. D. I mean, it certainly will have that often come in November but yeah, well, we'll see if that's a good use of capital at that time.
Okay. Thanks for the time everyone.
Thanks.
Thank you.
Question Josh.
Joshua.
Bank of America.
Yeah. Good morning, everyone Jackson I'm curious what your guidance assumes as far as a cap rate I believe last quarter I think you said.
Six and a half, but it sounds like maybe you're speaking to.
Acquiring 7% yields going forward.
I mean, I think we'll leave.
I think you should assume that we're going to we're going to target trying to it.
And the year overall somewhere in the range of six 5% to 7%, it's just going to be a function of the weighted average of what we're able to do in in the third and fourth quarter. So I mean, if you Wanna be safe set 675.
Crazy target for the year.
Okay.
We think and we think we can accomplish that.
Or close to it.
Okay awesome. Thanks for that color and then on <unk> just curious on the 2023 exploration it looks like.
9% of ABR is growing.
What's your visibility there on renewing those leases or what your expectations are.
Sure Hey, Josh This is Ken <unk> for.
For 2023, we actually think it's going to be pretty much. What we've historically done I think are going to look at our renewal rates and are.
And the 90% range as.
As well as recapture in the mid 90%.
For what it's worth you know 2022 is interesting our right now our recapture is tracking.
Meaningfully higher than our historical average somewhere in the range of 110% so.
We've always had a.
A great plan in place of attacking renewals as early as possible.
So that's what we're seeing right now in the headlights.
Thanks, Ken I appreciate that.
Thank you.
Keep in mind, if you would.
To ask a question.
And then one no.
Christian.
Jackson. Please go ahead.
Hey, good morning, guys.
Right.
Can you talk a bit about maybe break down the pricing amongst the major asset types acquired in the first quarter, the industrial versus the retail and the other and within the other I noticed our data centers was included there I'm not sure. If this is your first investment in data centers, maybe you could talk more about.
What do you perceive the opportunity there to be and how much more exposure you might be comfortable getting to there.
Sure I mean, not that property that was in that category was southwest Airlines backup logistics center, which is up in Mckinney, Texas.
It's obviously a mission critical gotta have backup data center backup logistics Center flight control logistics backup.
For major airlines and they happen to be obviously theres a major hub here in <unk>.
In Dallas, So we like that opportunity up where we're not really focused on data centers that have very unique.
Good location good market Super sticky mission critical and we thought it is at a good price relative to yield so.
Yeah.
Okay, and then maybe some now.
And then and then in terms of Yeah, and then in terms of like industrial retail split.
Like we don't I'll.
Just give you a kind of a breakdown we did a lot better on the industrial cap rate this past quarter.
Versus retail and yep.
Maybe some of that's some of the lifetime fitness and things like that that are part of that first quarter, but we did we were able to outperform on a cap rate basis.
By 100 basis points on industrial versus retail in the first quarter.
Got it okay. That's helpful.
And maybe Colorado, if you'd mentioned anything in the second quarter here or anything you have perhaps under contractor that you bought already any color or comment.
To provide an.
What's already kind of been a maybe.
<unk> here in early second quarter any any color on.
Maybe ask the types of if that includes any any portfolios. Thanks.
I feel like the first the second quarter is going to look largely similar to the first quarter.
In rough scale rough mix rough cap rate or just.
Generally and it's pretty much already identified I can tell you.
So right now what we're focused on is really third quarter already.
Okay.
Okay Fair enough and then I guess, one more and maybe it's a fair question to ask but I'm curious you know why 25 to 50 basis points, perhaps presentation for the cap rate move in the back half of the year, maybe that has to do with come up with what you already have a COO.
Agreeing upon in terms of cap rates and under negotiation, but obviously the move in rates.
Far far more significant so maybe perhaps help us understand how you know 25, you're thinking there on the 25 to 50 basis points.
I mean, it's just what we're seeing.
Right now I mean, we have we were pricing deals every week, we're evaluating deals every week and the things that are coming into our pipeline now are just they're just wider for the same kind of things that we were looking at before.
And I just think that's just a function of I.
I think it's a function of as I said earlier of what's happening in the debt markets.
We we unfortunately.
Yeah, I wish we had more luxury just to stop take a pause or.
Our private equity brother in law do this family offices. They can stop yeah. They will have to do stuff.
We put these earnings guidance out there we have to kind of keep investing.
Sometimes it's not a bad idea just to slow down a little bit, but we don't have that luxury but what I can tell you is we're putting that number out there because it's things that we're seeing that we're getting on the economy.
Getting under under agreement right now in terms of just like for like things that are wider and cap rate.
Bruce.
Wonderful Okay. Thanks, Jackson. So you guys are I guess.
Yeah.
Yeah, Yeah definitely look forward to it.
Thank you.
The next question.
No.
Moving currently.
Hey, just two quick ones and we've touched on some of these already but if I can just go back to the guidance I think you just sort of mentioned that sort of the interest rate assumptions.
You know obviously have changed with the rate move and I was just wondering if you could sort of help us build back for you know what that what that interest rate assumption is dead on the negative side and what was the positive offsets that got you back to even if that makes sense just trying to get a sense of the two or three moving pieces.
As both to the guide into the bad that got you back to even.
Yeah, I mean, you know when we set our guidance in January obviously, we are we use the forward curve back then that did incorporate.
Hawkish fed stance today.
We find in the short term a lot of acquisitions using our revolver. That's pilots over so as we look forward with the projected fed news that directly impacts that borrowing rate so that that would be the negative.
And then obviously the pauses art, we had pretty strong acquisition volume in both the fourth quarter and the first quarter. So remember what we do in the fourth quarter of 'twenty. One you don't close all of that.
At the very beginning of course, so some of that earnings does bleed into an affect your growth rate in.
So in 'twenty, two and then of course, we had strong acquisition volume.
In Q1, and then so that that that large volume.
It really has a big impact.
It's your after so much more than say what you do in fourth quarter of 'twenty, two that really starts to affect 'twenty three and then finally, we've got a really clean operations. Yeah. We obviously project some loss right and we haven't had any so those are the good guys that are offsetting.
The higher rates.
Alright, thanks, a ton of sense.
If I could just a piggy back on the dispositions I think your comments are really interesting.
Yeah, I think you mentioned that.
You're going to be putting on more on the market than just the amount that you put out I think I heard office in the opening comments just trying to get a sense of what are what is being put out of the market is it all of the office is there some industrials or some retail.
Are you putting out in the market and bidding right now or is it all the above.
Thanks.
Look I think when we when we put these pool when we came up with this constructed.
His position plan.
It included office, not all office very select very specific.
It included industrial it included home improvement.
Included grocery.
Things that had good Walt or had really.
High real estate value associated with them I mean, there was a lot of thought it wasn't just is just putting things out there and there was a lot of thought given to what brokers worked on what and so that's all kind of happening out there and hopefully next quarter, we'll come back and say Hey, This is what we did.
And obviously with the mind towards looking at as a potential equity source for us.
Great and if I could just ask one more just switching back to tenant health.
Well the occupancy is very high flat you know lost rents is negligible.
Just can you update us what are you hearing from tenants in terms of either pain points from supply chains for inflation.
Just what's the path that youre getting from them because the numbers look pretty strong, but just trying to get a forward look.
Yeah.
Maybe maybe I'm going to answer that question, but just give me a minute to cover a point.
What people have to understand about this company spirit.
Is just go back to 2017, right, we had a spin off and get rid of a lot of properties.
That we believed needed to get rid of we got rid of and we're successful doing that that were acquired by other management teams.
We started with $3 9 billion right now post spin off good high quality properties retail credits.
We acquired $4 3 billion since that period over 30% were industrial properties.
A third of them are related to this kind of unique.
Credit upgrades that occurred within that $4 3 billion.
So what did you end up with if you look at 2017 to where we are today. We have this little chart on page in the deck. If you look at public tenants per Senate public tenants as a percentage of our ABR industrial as a percentage of our a b are our top 10 concentration are investment grade tenancy.
Reimburse property expenses loss trend all of that stuff is going positive like I E getting better.
And meaningfully better you can see it.
So when we come back and talk to you about tenant health and.
That's great.
Or kind of watch list right now those meetings are a pretty non eventful.
Because we've been able to really pump so much intention on our investment process.
Now to answer your question Ron on where we have concern I guess, we talked about this every week.
One is credit.
I would say labor has been more manageable from a lot of our tenants that was a huge issue at the beginning of the kind of when when the reopening started to happen. After the Covid Lockdowns labor was a major major issue a lot of our tenants seem to be able to deal with it but it doesn't come up to be.
An issue they've they've managed around supply chains.
Things are surprisingly good.
Say it but.
But that doesn't mean, we don't lose sleep so.
I I look at our.
Our public tenants are obviously very sophisticated that's over 50% of our ABR.
Yeah, we're looking at our private equity portfolio, because a lot of those guys or are working with floating rate debt in some cases and I'm looking at lending. So we do focus on those tenants, but right now they're all performing part of it is because of the industries that they're in the way the credit was underwritten and the nature of the real estate or the or the lease structure.
No.
The results are not by accident. It's just that's just my point, so and we feel really good about.
You know whenever I kind of curve balls are coming down in terms of the future recession or whatever right rate changes.
Hmm.
Great. Thanks, so much appreciate that.
Thank you.
Oh final question John Walker.
Please go ahead.
Good morning.
You touched on it a little bit in the last question, but.
Can we talk a lot about the impact of rising interest rates on your cost of capital, but even if you look out and you underwrite future acquisitions sorry.
That impacting what kind of transactions or our tenants are willing to do transactions with.
Yeah, absolutely it goes into it I mean.
Look we you know we.
We are.
You know small tenants get impacted by credit market liquidity.
Bigger public tenants.
Probably have better ability to access.
Capital like we can't like we cannot we can access the bank market, which is very very advantageous for us right now.
If you're a small private company and not so easy right now.
Not as much access to liquidity, so you'll see you'll see stronger operators access.
Thank market. So what we're looking at a sale leaseback today or looking at a potential investment opportunity. We're looking the same way like do they have access to liquidity.
They're pretty aware there how are they sourcing.
You know there their merchandise or are their operations do they have the ability to pass on cost to the consumer you know all those things are go into our calculus says to you know is this the right investment to make and are we being paid appropriately for it.
And the answer is yes today. It was it was harder last year to be honest with you.
Okay.
And then with regards to your own balance sheet, you kind of mentioned that bank debt.
Relatively attractive compared to operate other options at least today I mean, what kind of spread are you seeing maybe in the swaps term loan market versus unsecured debt.
Yeah look I mean unsecured debt so disrupt right now I'm not even asking for quotes right at this point, but I mean in the bank market, you're saying silver plus 95.
Price swap that into the high threes today.
So it's pretty attractive.
Okay.
That's it for me thank you very much.
Thank you.
Hmm.
Yes.
A question and answer questions.
I would like to hand, the call back to President and Chief Executive Officer, Joe Jackson for closing remarks.
Go ahead Sir.
Thank you operator, I'd just like to thank everyone for participating on our call where we're very enthusiastic about the pipeline that we have going into this quarter and opportunities for the rest of the year.
And we look forward to seeing everyone at NAREIT hopefully in person and just want to once again congratulate art 89 person team here they've been doing a great job. So.
Thank you all for participating.
Have a good day.
Thank you.
This concludes today's.
You may now disconnect disconnect. Your lines. Thank you for your participation.
Okay.
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