Q1 2022 STORE Capital Corp Earnings Call
Good day and welcome to the store capital first quarter 2022 earnings conference call.
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I would now like to turn the conference over to Megan Mcgrath Investor Relations for store capital. Please go ahead.
Thank you operator, and thank you all for joining us today to discuss store capital's first quarter 2022 financial results.
We issued our earnings release, along with our newly reintroduced earnings supplement as well as our quarterly investor presentation. After the market closed yesterday.
These documents are available in the Investor Relations section of our website at IR Dot store Capital's dotcom.
Under news and results quarterly results.
I'm here today, with Merrifield, President and Chief Executive Officer of store, Jerry Rexroad, Chief Financial Officer, Craig Barnett EVP of underwriting and portfolio management and tie them or E V. P of acquisition.
On today's call management will provide prepared remarks, and then we will open up the call for your questions.
In order to maximize participation, while keeping our call to an hour we will be observing a two question when it during the Q&A portion of the call.
Participants can then reenter the queue. If you have follow up questions.
Before we begin I would like to remind you that today's comments will include forward looking statements under federal Securities laws.
For looking statements are identified by words, such as well be intend believe expect anticipate or other comparable words and phrases.
Statements that are not historical facts, such as statements about our expected acquisitions dispositions or <unk> per share guidance for 2022 are also forward looking statements.
Our actual financial condition and results of operations may vary materially from those contemplated by such forward looking statements.
Discussion of the factors that could cause our results to differ materially from these forward looking statements are contained in our SEC filings, including our reports on Form 10-K and Form 10-Q.
I would now like to turn the call over to Mary feed of what Starz Chief Executive Officer Martin. Please go ahead.
Thank you Meghan good morning, everyone welcome and thank you for joining us today.
I'll begin the call with an overview of our first quarter performance and some thoughts on the current market environment, Craig will provide an update on the additions we made to the portfolio and our portfolio management activities and then Sherry will review our financial results I'd like to quickly mention we have reinstated a financial supplement to our earnings release, which we have.
We'll provide an efficient presentation of our financials.
Look forward to your feedback.
In light of our first quarter performance, we are raising our acquisition and <unk> guidance for the year Sherry will provide this updated guidance for 2022 in her remarks, we will then open the call to questions.
Our momentum from 2021 has continued through the first quarter of 2022, we acquired $513 million in profit Center real estate, the highest first quarter volume in stores history. These acquisitions were at an initial cap rate of seven 1% with weighted average annually.
Lease escalation of one 8% cap.
Cap rates were right in line with our guidance and our investment spread for the quarter was robust at approximately 340 basis points above our recent debt issuance.
This activity along with the strong performance of our portfolio resulted in solid a F F $158 million and a F F. All per share a 57 cents for the quarter.
Both were the highest in our history and have had a consistent upward trend for the past four quarters.
Given the recent sea change in interest rates and inflation I'd like to address stores the ability to continue to drive growth and attractive spreads in the current environment.
Our total addressable market is estimated to be nearly four trillion dollars and over 2 million properties within that total addressable market. We are focused on an estimated 200000 companies that are in vital sustainable and growing industries. These are regional and national companies that benefit from the law.
Long term real estate financing solutions, we provide.
Such a large market opportunity, we have a very long runway to grow and we can be very selective in the investments we make.
One of the stores strategic advantages has always been our ability to identify and successfully acquire a large volume of granular transactions through our direct origination approach. This has been our consistent strategy since inception.
This approach allows us to price new leases from both a cap rate and rent escalation perspective that reflect the current economic environment, which today is one of inflation and rising interest rate.
With pricing power on the front end and our disciplined underwriting process, which includes a deep dive into both the credit of the customer as well as the value of the real estate, we are able to make accretive acquisitions with widespread resulting in attractive risk adjusted returns.
We also have strong internal growth of 5% between our annual rent Escalations, which average one 8% on the portfolio our retained cash flow from our low dividend payout ratio, which was 67, 5% this quarter and proceeds from disposition.
The financing flexibility that we have built over the last decade positions us well to fund our growing pipeline of acquisitions with both debt and equity options.
Which allow us to optimize our cost of capital to generate attractive spreads.
We have three primary sources of debt financing our store master funding facility investment grade unsecured debt and unsecured bank debt as well as access to the equity market usually through our ATM program.
While interest rates are rising just last week, we were able to issue term debt financing at an attractive fixed rate of 3.68% Sherry will provide more details in her remarks, but we are extremely pleased with this execution and the broad participation from all 13 banks and our bank group.
In light of these key Differentiators, we feel store is well positioned to execute on our objectives for the year.
Now I'd like to provide a current market update.
First we are seeing a lot of activity and demand for our financing solutions, we have a strong diverse pipeline of over $13 billion and growing we believe cap rates have bottomed and we are currently seen upward movement of approximately 25 basis points, which we should see the benefit of in the second half of the year.
Second we are currently negotiating rent escalations on new opportunities in the range of 2.25 to two 5% a year up from about 2%, we anticipate seeing this and the contracts we fund in the second half of the year.
Third given the volatility of financing conditions stores proven track record for timely execution has become a major consideration for our customers and an important advantage.
As we have mentioned before we really believe periods of uncertainty and complexity in the capital markets can create opportunities for us as our customers will need our unique financing solutions and partnership more than ever.
Finally star currently has an attractive dividend yield of about five 5% and historically, we have been able to grow our dividend annually by more than 6% on average.
In summary, it was an excellent quarter and we expect the momentum to continue throughout this year.
We believe these results directly reflect the fundamental strength of stores differentiated business model, which was built to deliver growth and attractive returns in a variety of economic environments, including the volatile and complex market we are experiencing today.
Now I'll turn the call over to Craig.
Thank you Mary.
During the first quarter, we provided a variety of tailored solutions to meet customers' needs approximately two thirds of the volume was sale leaseback transactions that allow customers to efficiently capitalize their balance sheets and invest in their businesses.
The remaining transactions assisted customer growth through expansions, new construction or acquisition financing.
We acquired 111, new properties added 19, new customers and invested in an average transaction size of approximately $13 million and about $4 $6 million per property.
The acquisitions covered a variety of industries, including home furnishings restaurants health clubs automotive repair and maintenance metal fabrication and food processing.
The weighted average primary lease term of our new investments continues to be long at approximately 17 years, 100% of the Multiunit net lease investments that we made during the quarter were subject to master leases and all of the 111 of the new assets acquired during the quarter are required to deliver us unit level financial.
Statements, giving us extraordinary unit level financial reporting from 99% of the properties within our portfolio.
The weighted average unit level coverage ratio of these new acquisitions was 5.2 times, which improves our already strong portfolio unit level coverage of four seven times.
One third of quarterly acquisitions were done with existing customers in line with our historical average.
Now turning to the portfolio.
We have deliberately built a granular and diverse portfolio to limit volatility and deliver consistent and attractive risk adjusted returns to our shareholders.
Our portfolio consists of 2965 properties operating in 121 industries.
Our sector mix remained consistent with our service sector, representing 64% manufacturing, 20% and service oriented retail 16%.
About 85% of the portfolio was comprised of businesses that individually represent less than 1% of our annual base rent and interest.
There was no change in our top 10 customers and our largest customer represented approximately 3% of base rent and interest in our top 10 customers accounted for only 18% of base rent and interest.
Turning to dispositions, we sold 11 properties in the first quarter, eight where strategic sales that netted $47.3 million in proceeds or a 9% gain over our original investment.
The remaining three were vacant or non paying properties and were sold as part of our ongoing property management activities.
Our occupancy remains high at 99, 5%.
We're very pleased with our portfolio's health and have confidence in the long term performance of our customers who have been in business on average 26 years 'twenty.
'twenty 2020 'twenty, one was a period of adjustment for many tenants who responded to changing macroeconomic environment by adapting in various and creative ways, including automation technology improvements commodity hedging and price and cost optimization to name a few.
These adaptations improved our tenants financials throughout 2021 a trend that continues into 2022.
Compared to 2019 on average our portfolio today exhibit higher corporate and unit level coverages less leverage higher sales and more liquidity.
This data is consistent with the feedback we are receiving from our customers during our regular conversations or tenants are overwhelmingly conveying a positive outlook for the next year as increases in consumer spending continues to drive higher demand for their products and services.
We are proud of their resilience and look forward to partnering with them and their continued growth as well as adding new customer relationships.
I'll now turn the call over to Sherri.
Thank you Craig today, I'll discuss our financial results for the first quarter, including an update on our balance sheet capital markets activity and our 2022 patent please.
Please note that all comparisons are year over year, unless otherwise noted.
Our first quarter revenue increased 22% from a year ago quarter to $222 million, primarily reflecting the very strong growth.
I'm following up.
Revenue from that acquisition activity increased approximately $25 million, which includes a full quarters revenue from our net acquisition activity in 2021, well a partial contribution from a large volume of first quarter acquisition.
As Mary mentioned total acquisitions for the first quarter were $513 million approximately two thirds of this volume closed in the last half of March which creates a nice Duncan base for our continued growth in the second quarter.
First quarter 2022 avenues include about 5 million of lease termination and other fee primarily related to property easily solved and 1 million of interest income related to the early repayment of one of our mortgage loans.
Turning now to expenses.
Interest expense increased by $2 $2 million from the year ago quarter, primarily reflecting borrowings remain during 2021 to support growth in our real estate portfolio.
Actually offset by a lower overall cost of debt.
The weighted average interest rate on our long term debt was three 9% as of March 31, a marked decrease from four 2% a year ago.
Property costs, which totaled $4 $2 million for the first quarter were down from $4 7 million a year ago.
Property costs for the 12 months ended March of 2022 represented about 12 basis points of our average portfolio assets down from 17 basis points for the same period ended March 2021.
We expect the property cost as a percentage of average portfolio assets will continue to decrease as we move through 2022.
First quarter G&A expenses decreased to $17 million from 25 million in the first quarter of 2021, which included $10 $1 million.
Noncash stock based expense related to certain long term incentive compensation award.
Excluding the impact of this expense.
Overall G&A expenses were as expected and are in line with the growth in our portfolio.
On a rolling 12 month basis, our G&A expenses, excluding noncash stock based compensation were 44 basis points average portfolio asset.
In the period ended March 31 2022.
As compared to 47 basis points for the comparable 12 month period, ending March of 2021.
Which reflects the efficiencies we gain from our scalable platform as that portfolio continues to grow.
During the first quarter, we recognized a $912000 impairment provision, which included a $1 2 million dollar real estate impairment provision related to three properties that we are likely to sell.
This amount was partially offset by a net reduction of 288000 unexpected loss provisions on our portfolio of loans and financing receivables.
As Mary mentioned <unk> increased to $158 million from $125 million.
On a per share basis.
Increased 21% to 57 cents per basic and diluted share from 47 since a year ago.
This is three times higher than we had budgeted as well as three cents higher than consensus estimates.
Approximately half of the increase central time, and is primarily from the timing of acquisitions and lower property costs and G&A expense.
And approximately half is nonrecurring and includes additional lease revenue from a contract modification, one time fees and loss reserve reversals from higher collections.
As you know we declared a first quarter 2022 dividend at 38, and a half cents per share which was paid on April 15 to stockholders of record on March 31st.
Now turning to the balance sheet and our capital markets activity.
We funded a record level of acquisitions with a variety of sources, including cash from operations.
Borrowings on our revolving credit facility and the sale of equity through our ATM program.
During the quarter, we issued approximately $5 5 million shares of common stock under our ATM program at an average price of $30.41 per share.
Raising net equity proceeds of $166 million.
In April we issued additional shares bringing our total proceeds raised year to date to $195 million.
We are mindful of our cost of equity is today and given our attractive cap rates and spreads we are continuing to make accretive acquisitions at current stock price level.
We closed the quarter with a strong balance sheet and ample access to capital.
<unk> $39 million in cash approximately 370 million available under our ATM program.
And the borrowing capacity available under our revolving credit facility at.
At March 31st we had $4 $2 billion of long term fixed rate debt outstanding.
<unk> average maturity of just under seven years.
And as noted earlier, a weighted average interest rate of three 9%.
Leverage is at the low end of our target range of 517 times net debt to EBITDA on a run rate basis.
Or under 40% on a net debt portfolio cockpit.
Subsequent to quarter end, we entered into 600 million of unsecured floating rate bank term loans, including a 400 million five year loans, and a $200 million seven year alone, which complement our debt maturity schedule.
We also entered into interest rate swap agreement, which effectively convert floating rate on this debt to an attractive weighted average fixed rate of 3.68%.
We used the proceeds from that transaction to prepay without penalty $134 million on store Master funding notes that had a coupon of 5% Gen.
Generating annual interest savings of $1.8 million.
We also paid down the outstanding borrowings on our revolving credit facility with the remainder to be used for grass.
As we thought of it that transaction, our total long term debt stands at $4 $7 billion with a weighted average cost of 38, 5%.
And we currently have the full availability on our 600 million unsecured revolving credit facility to fund that growth.
Now turning to guidance.
We are increasing our 2022 acquisition volume.
Net of anticipated sales to one three to $1 $5 billion and maintaining our cap rate guidance, 7% to seven 2%.
We are raising our 2022.
<unk> per share guidance to a range of $2 20 to $2.23.
This represents seven three to eight 8% growth over 2021 assets for sure.
We continue to assess our outlook.
Update guidance as appropriate as we move through the remainder of the year.
And the current market environment I'd like to more specifically address our sources of capital to fund our acquisition pipeline.
Based on our updated net acquisition guidance of $1 $4 billion at the midpoint.
Our retained cash flow from operations and dispositions is estimated to be approximately 500 million for the year, which combined with our year to date ATM issuance of $195 million will fund approximately two thirds of our equity needs.
And the recent 600 million dollar debt issuance will provide approximately 85% of our leverage requirement, while adhering to our 60 40 equity debt ratio.
With that I'll turn the call back to Mary.
Thank you Sherry, we will now open the call to your questions.
We will now begin the question answer session.
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At this time, we will pause momentarily to assemble our roster.
The first question today comes from Sheila Mcgrath with Evercore. Please go ahead.
I guess good morning first quarter volume was it.
Hi, first quarter volume was a record what are the factors that you can point us to that might be driving that above average volume.
Hey, Sheila good morning. This is Mary so our first quarter really was the result of the continued momentum that we were starting to see the second half of 2021 and as a matter of fact, our business performance has been really strong in the last four quarters on a lot of key metrics from acquisitions and growth doesn't come to the SFO.
So that momentum just really continued into first quarter, our customers. The M&A activity and they are back in growth mode, and we were able to take advantage of that as well with them. So that's really what drove it.
Okay and my second question is I think some people view, the fact that you're able to execute at higher cap rates that than investment grade acquisition. There's elevated credit risk I was wondering if you can comment a comment on the tenant health of your portfolio, how the portfolio performed through the pandemic and maybe how the tenant watch.
List is now and in historic context.
Yeah, we'd love to do that Sheila and I'll, just make a quick comment on when we turn it over to Craig to give them. So our business model actually the direct origination and our ability to go out and knock on doors and address the marketplace, which is 200000 companies and we've been in business 11 years, and we have about 600 customers here is very very large.
It allows us to go out and ask for the cap rate create our own contracts and have that pricing power on the front end and then from there we have a very disciplined underwriting approach that actually allows us to sort of control our destiny on our spreads and I'm sure we'll talk a little bit more about this when we talked on the prepared remarks about how our business.
Model is really really built for.
The current environment and our ability to continue to get these lives are wider spreads. So I'll turn it to Craig now and he'll talk about the portfolio overall and sure yeah. So the portfolio is performing.
I'm extremely well right now we're seeing.
Strong demand for the services and products that are tenants offer.
We're seeing that in the coverages.
We have across our portfolio.
And just you know.
Yes.
We're confident in their ability to make it through any kind of potential.
Cessionary environment.
Our tenants have been in business for a very long time.
<unk> has operated in multiple economic cycles.
And we are very diligent.
Our underwriting process to make sure that we understand that and how they've operated through multiple economic cycles.
And again, they're performing extremely well.
Well right now strong demand they've adapted their businesses to operate in the current environment.
You know our portfolio is extremely diverse in its granular and it's.
No really built to withstand any issues.
And we might have some customers that have issues on the fringe. If there is a potential recessionary environment, but were very diligent.
And have a deep underwriting process and into the real estate and we like where we're at in our real estate.
And again, we differentiate ourselves too by collecting the.
The financial statements of our tenants so we're able to monitor.
And it's proactively to manage any.
Any potential issues.
The next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.
Hi, Good morning, maybe just a follow up on that the cap rate topics. So I was just going to ask on it could you go through to what extent stories like a price setter versus price takers. So just wondering if your cost of capital increases to what extent cap rates may or may not rise a similar amount and the impact that would then.
On your spreads.
Yes. This is Mary I'll touch on that Caitlin.
Again, the business model here of the direct origination in this very very large marketplace does allow us to ask for higher cap rates and we are seeing a we're seeing that now the timing of what were what we closed in the first quarter clearly was negotiated at the end of last year and will be closing in the second quarter was negotiated at the beginning of the year. So that's why I imagine you'll see.
The.
Upward trend towards the upward movement towards the second half of the year here.
But you know we are very very mindful of our cost of capital here and Sherry mentioned it in her remarks, I think in a really nice way, where she talked about the fact that we feel we're in a good place as it relates to capital needs. This year with two thirds of our equity available raised through our dispositions and our ATM also that wouldn't be the foods. We're.
Acting and also 85% of our debt. So we feel good about where we are on the cost of capital. We're watching it every every single day and being very mindful of it and again the business model of just really allows us to knock on a lot of doors and asked for that higher cap rates that were asking for these spread so huge market we're in.
Vital and Ah industries in America, where we're in Middle America, which is needed and so what I love about this business is that it is it's it's a value proposition that is so strong and there really isn't any long term real estate capital for these customers. So we are just we have just been great.
<unk> to continue to grow in this market place and and ask for the cap rate and spend our model consistently for 11 years in it and it's nimble we play in a niche lane, that's $8 million to $12 million of average deal size and it's not a small lane is a widely and so we have been able to do not only not only.
Get higher cap rates or ask for the cap rates and the spreads and again its a win win for us and the customer. So it's a good conversation, but we can also priced the escalations and as I mentioned in my prepared remarks, we're really pleased with seeing the escalation in the marketplace. That's why I keep coming up in the marketplace in all fronts.
Front end team is all over that too so where really the how the business model of this business all designed to work in.
In almost any environment and this one in particular.
Yeah, and when you think about that idea of asking for the cap rate could you just go through at this point the potential partners that you're working with maybe what their alternative sources of capital are and how we're working with store is attractive versus those other options and maybe how that changes how does change yeah. You bet you got to as I mentioned really.
You know there is really no long term real estate financing capital out there as an option you can go to your bank you can get some short term or short term debt you got to come up with equity you know along with that to the banks going to do 60, 70, 580% LTV, you're going to come up with some equity and you're going to and we're going to come up with 100 per cent.
A word on an equity substitute some weird immediately were going to reduce your cost of capital Andrew and increase your return on equity. So and you were going to put together a long term 15 to 20 year leases that has flexibility in real alignment with the customer. So if in fact, and we're going to do that for a cap rate with some escalations. So.
And for the customer there's a big alignment and we're kind of like you know equity on the upside in insurance on the downside. So if you have a bad store you need to substitute a story that works, that's working and one that doesn't allow that flexibility as long as you give us a store that is that's insurance on the downside and then if you ever started doing great. We're gonna be here to help expand it. So it is equity on the outside.
The real alignment with our customers in a long term relationship we have a lot of repeat business and then now we're gonna be here and what's been interesting in this market and we're seeing a very strongly is the certainty of execution right. Now is a real key advantage for them for us to have them for an 11 year old platform and just as a big proven track record.
Of execution and being there for our customers.
The next question comes from Todd Thomas with Keybanc Capital markets. Please go ahead.
Hi, Thanks.
Can you talk a little bit more about how your acquisition efforts.
Changes or perhaps might evolve you know I I.
At inflection points and you know I guess, maybe fed tightening cycles or the changing macro environment.
A little bit as we look ahead, either you know in terms of the types of deals that you're doing the types of industries, you know really whether or not the buy bucket changes at all going forward.
Yeah, Hey, Doug.
Thanks for the question.
Honestly no.
Again, it's a really big market, we're focused on profit center real estate, there's 200000 companies out there, we're really going and you know, we're really going to stick to our knitting here and I don't see any big shifts in and those areas are different pools of buyers or anything we're looking at a lot of opportunities here.
You know what I'll I'll mention that you know in Covid in the second quarter April May and June of 2020, you know we were able to manage through you know are our.
Our share price was not was low at that time low much lower than it is today and we were able to have I'm pretty get higher cap rates during that time right at eight 6% in that quarter. So again. This is what I'm talking about of controlling our destiny and continuing to make accretive acquisitions in all environments and our whole company understands this now.
Hum.
So our whole company you know is really aligned together and understand how we make money and how we address the market place and why we exist and how we add value to our customers and our shareholders.
Okay, and then with regards to the acquisition yields.
And in sort of a slight increase that you're you're you're starting to see so the guidance assumes 7% to 7.2%, but it sounds like there could be upside to that based on on what you're seeing is that the right read or would you not expect acquisition yields to really trend above that range.
At least this year.
Based on the the time it takes to get deals done and the lag in price changes.
Yeah, Todd I think youre thinking about it right I think you can think towards the high end of that and hopefully it will be higher than that but because of the timing of acquisitions and because of the time you know like what we're negotiating today will close you know 60 days maybe later.
Out into the future I think you have to that's why we did we looked at that but we didn't change. It. So I think if you're thinking about it right. It's a possibility, but the high end is probably the best place to be.
The next question comes from harsh a money with Green Street. Please go ahead.
Thank you.
So.
The acquisition guidance increase meaningfully this quarter.
The last quarter and the last thing last couple of times, we spoke to you.
Mentioned that there were no portfolio transactions contemplated in this guidance.
Is there any portfolio acquisitions baked into that now and to that point. The last time you went to.
Discuss the competitive environment could be sky portfolio, though.
GAAP based on these beads are lower there's more crowded with gap and recovery.
That changes a door and then put that yet.
Mhm.
Thank you.
So couple of things on the portfolio transaction. So first of all our guidance is never included any portfolio transactions and in first quarter. They what we what was available and for of course still out of reach from our accretion or a cap rate perspective, as well as our lease term perspective. So we have not seen anything that that is interesting and again.
I want to just mention that you know for any portfolio transactions would need to fit into our business model of granular diverse and so on and so nothing there to report and as it relates to the competition.
A lot of money come into the space, We've all talked about that and I think what's happened recently is that you've seen some of the money that is really reliant on asset.
The financing has had to take somewhat a little bit of a pause or a sideline because they've seen anything there that caused the rise so substantially and cap rates were compressing until those margins, we're getting quite soon so we've seen a little pause there, but that money coming in we weren't really we weren't competing with them because we're not folks that tended to be in our lane of eight to 12 million.
So I you know a million dollar deal sizes.
But that's just some color on you know the money in.
In the space that we're seeing come in.
That's helpful. And then you know you mentioned in the prepared remarks about the cafe is starting to go up.
And these escalators are starting to go up so when you are of course, yes.
Well with that and what.
I'd be more comfortable with our debt.
Comfortable with lower prices on there you'll just stick it in.
In exchange for lower rent growth or the biggest.
So there's still going to have higher prices, but how are you doing.
Oh, yes.
Yes.
Can you give us any color on that.
Okay. So harsha I apologize I'm a need when we need you to repeat that last part just a little bit you're talking about real estate prices are the level of them.
Yeah.
You mentioned cap rates are moving up I'm, yes, escalators are moving up too and so yes.
What's the interplay between those two when you speak with tenants, where it had been more willing to compromise.
Have you hired to support that.
Yes.
You know how should we actually both of actually there's no real trade off there for US I mean, we're actually I'm talking about both with them and we're not given there's not an option between the two so we were actually talking to them about both of them and and getting what the market will bear on both.
The next question comes from Ronald Camden with Morgan Stanley . Please go ahead.
Hey, just sticking on that question are really interesting comments about both sort of higher escalators as well as higher cap rates are maybe asking it a little bit differently could you provide color in terms of maybe each of the segments, whether it's services versus manufacturing is there isn't across the board are there sort of subs.
Sectors or sub industries, where you're seeing more ability to push versus loss just a more color on that would be great.
Yeah, Hey, Ron.
Yes, it's across the board, we're not seeing any in terms of the ray in terms of the upward movement in both across the board now of course, our I'd say industrial is still has a lower cap rate and in terms of in the space. If you will but still there's upward pressure there too so.
Across the space, we're seeing upward movement.
Great and then the next one.
Just on the bigger deal comment Oh, my God bouncing off of that I know, there's nothing contemplated in the guidance, but is that is that still something the company is thinking about and how to foster those opportunities how's that coming.
Coming along.
Uh-huh if if there's enough you don't the good news about stores were $11 billion. So we're big enough. If we see I like to talk about having built this business brick by brick which is what we've done primarily and I'd like to talk about the fact that if a bag of break shows up here were $11 billion and we can process that we can integrate that.
And I'm not not dilute the story here, our granularity and diversity.
But the really good news is we don't need to that we have an acquisition front end engine well oiled machine that is calling.
Calling on a very very large universe of opportunities and we can grow we can grow our based on our objective doing that all day long.
The next question comes from John Masako with Ladenburg Thalmann. Please go ahead.
Good morning.
Hi, John .
So maybe going back to guidance, just a little bit.
You know if my back of the envelope math is right you did basically 30% at the high end of the new debt investments volume guidance.
And once you already so I guess, maybe what is driving it.
The conservatism relative to kind of once you performance is it just visibility into the tail end of the year or maybe more disposition volume that's expected over the course of the year just any color there would be helpful.
Okay. Yeah. This is Mary So you know I would say definitely John as you know we have some visibility into you know a short time periods looking forward, but we don't have total visibility into the whole year. So I would say that first quarter was extremely strong and it was our highest quarter at first quarter ever and our second highest quarter in our.
History. So we're expecting that second third and fourth would probably go back to a more normal.
We have normal more normal pace and stuff. So that's all about kind of the thought process that was put into you know the acquisition a raise of acquisition guidance raise.
Just like you know the force that you really have you know.
It's again, it's a flow business and we can't see all the way through the year.
And there's a bit of a disposition front for me is that was that pretty typical <unk> versus what you were expecting.
So the on dispositions, we've kind of we've always sort of guided to 3% to 5% of the portfolio and I would say that we will likely be at the lower end of that.
Low to mid range there.
The next question comes from Kevin Kim with Truest. Please go ahead.
Thank you good morning.
Go back to some of the Hi, I just wanted to go back to some of the prior questions around acquisitions.
You know I know this isn't like a video game, where you're going to stop and start and reset them, but given your commentary on not just yours, but the entire sector is about expecting higher cap rate.
How do you balance doing more acquisitions like your guidance implies this year versus.
Maybe holding back a little bit with the prospects of maybe better deals ahead.
Okay. Keeping this is Mary so actually you're correct us not like playing a video game and and but.
I'll go back to the business model and I'll tell you that you know or are you have such a big market and we can go out and directly acquire accretive acquisitions and we can do that today and we can do that tomorrow. So our there is that's what we're focused on we're focused on executing every single day.
Hey, and you know again the market is just so big and our ability to get accretion, but you know, we're mindful and mindful of our cost of capital, we're mindful of making accretive acquisitions. So and it's it's it's kind of neat that we have this business model that really helps us control of destiny on the on the spread side.
Cause we're out there knocking on doors and asking further rate in aligning with customers in.
In the current market in the current environment and so we have that flexibility, we're nimble big Big market Big Lane, and we can do that today and we're going to do that every day, we wake up.
And you know, it's an interesting dynamic and triple and that's where the more you buy the better that you do that the tougher it gets next year right because you're you're complaining about your asset base is growing.
Yeah.
How does that configure into some of the calculus that you think about when you do deals and you're increasing the size of the company.
Does it does get tougher to move their earnings model does that.
Does that factor into some of the decisions that you make.
Yeah, Great question, very true and again, what I'll say is what's really important is the internal growth to start with and we have 5% of that so we like because you now sort of think about that and the other thing really to think about is the fact that you know we are we are creating deal flow, we're not sitting waiting for something to get lifted or we're not sitting.
Waiting for someone to come knocking on our door, we're creating it and the market's huge so that's how we think about it is our ability to you know granular we acquire businesses or you know real estate everyday with businesses is.
What we do it's what's the business model is designed to do and it's what we do.
And we have a lot of repeat business to oh by the way so the loyalty.
Program that we've created in this business has it really been really been neat like a third of our business and consistently has been repeat business.
So a member only that we priced a new business there too so it's not on the old cap rate. So any repeat business is priced as well.
The next question comes from Wes Golladay with Baird. Please go ahead.
Hey, Yeah, good morning, everyone.
Do you expect any change in deal flow composition, hi, there or do you expect any change in deal flow composition as the year progresses based on your tenant conversations more so looking now or are they talking about maybe slowing down M&A picking up where our organic expansion or just looking to unlock the value of real estate more now.
It really short answer to that is no oh, yeah, I'm looking at Tyler himself.
Yes.
Tyler So basically we're so you know we're still like Mary said earlier, playing in our lane and having conversations with our existing customers and our prospects and it's a very big market. So we're finding customers that are looking to grow and it's and we're just we're just sticking with that I'd like marriage that very big market a lot of opportunity. So even if there are some people on the fringes.
That are changing their plans is there was a lot of what they're seeing we're finding you know we're definitely partnering with with existing customers and new ones that are that are looking to grow and that we can help with that effort.
Got it and then a few of the recent mentioned baby stepping up dispositions to.
I guess, that's a little bit of a price differential between the public and private pricing I know you have a lot of your equity funded for this year, but to the extent the market just takes another leg down lower would you step up the dispositions that just kind of set up extra for the equity perspective.
A couple of thoughts on that so you know we have a again a long runway to grow in keeping NOI and here at store and performing assets is really what we what we're focused on doing so we're going to just do dispositions very strategically to improve our portfolio and we.
We're gonna keep continue to keep the NOI here now and things we distribute that we dispose of strategically you know our again our assets are granular the way, we make acquisitions and with the higher cap rates above market. We haven't bought a game. So we've been very successful in being able to disclose when we needed to but it but as it relates to dispose of.
To raise equity or to use as a substitute for equity or the private equity that that we would not that that's not something that we would be thinking about doing because we have the sources of equity and we will dispose of them you know our our properties strategically as we need to and keep the NOI.
Here and go get more of that.
Yeah.
The next question is a follow up from Keybanc, Ken look to it. Please go ahead.
Thanks, a quick one on guidance.
It went up went up about a penny and a half.
Same amount of debt of one time items I was just curious if there were other one time items that were embedded in guidance and if you can comment on any other line items that might be a potential drag.
Okay.
Hum, but one of the hassles really revenue because our acquisitions are so.
You know healthy this quarter, we achieved the revenue in this quarter and if it is considered recurring because it'll go throughout the year.
So it's you know a penny and a half of that recurring kind of revenue and some cost savings.
The one time things I mentioned them in the guidance and.
You know I think that the when you have a.
Termination fees and things like that we can't predict those but yes, we anticipate that you know through time that won't be recurring because of that but those are one time event.
So is there any kind of prior period rents that you're expecting.
For <unk>.
Yeah.
So.
I think you're referring to like Covid.
The deferral and we are continuing to receive payments on their we estimate by the end of this year, we should have about 85% of them and into 2023 all of them should be richer.
This concludes our question and answer session I would like to turn the conference back over to Mary seed a long for any closing remarks.
Thank you. Thank you all for participating in our call today and for your continued support and interest in store, we look forward to seeing some of you at investor conferences, including NAREIT over the next few months and I would also like to thank our dedicated team for their hard work and contributions to store.
Please feel free to reach out if you if we can answer any additional questions and have a great day.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Uh huh.
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