Q1 2022 Essential Properties Realty Trust Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Central property Realty Trust's first quarter 2022 earnings Conference call. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone Keypad. This conference is being recorded and a replay of the call will be available two hours after the call.
Please turn up the call for the next two weeks dial in details for the replay can be found in today's press release. Additionally, there will be an audio webcast available on essential properties website at www dot the central properties Dot com, an archive of which will be available for 90 days. It is now my pleasure to turn the call over to Dan Donlan.
Senior Vice President and head of capital markets at a central properties. Thank you Dan you may begin.
Thank you operator, and good morning, everyone. We appreciate you joining us today for our central properties first quarter 2022 conference call.
With me today to discuss our operations ultra people embodies our president and CEO Gregg Seibert, our CFO and Mark Patten, our CFO . During this call we will make certain statements that may be considered forward looking statements under federal Securities law. The company's actual future results may differ significantly from the matters discussed in these forward looking statements may not released ubiquitous as forward looking statements to reflect changes after the statements were made.
Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in yesterday's earnings press release with that Pete. Please go ahead.
Thank you Dan and thank you to everyone who is joining us today for your interest in essential properties.
The first quarter was another strong quarter for the company as our portfolio experienced same solid same store rent growth.
Quarterly investment activity above our trailing eight quarter average and leveraged moved down sequentially.
In terms of the portfolio with no vacant properties at quarter end and same store rents growing 2% year over year, a granular portfolio or portfolio of single tenant net lease properties remains stable and our tenants are performing well.
In terms of investments.
During the quarter, we invested $238 million into 105 properties at a weighted average cash yield of 7%.
More specifically.
100% of these investments were directly originated on our standard form with 83% containing master lease provisions and 83% being sourced from prior relationships.
These positive investments that in addition to the stability of our historical cap rates are a testament to the strength of our relationships and the benefits that accrue to our long tenured market participant and a reliable capital provider.
This has become ever more apparent in the current environment as new market entrants have struggled to execute given the volatility in the debt markets.
With that in mind.
While we had expected our investment pace to moderate this year. This has not come to pass for a number of reasons.
One there's a growing sense among owner operators, but now is a good time to monetize their real estate given the lag lagging effect that interest rates have on historical cap rates.
To say it less sale leaseback financing has become increasingly more attractive relative to alternative financing options and.
And three competition for new investments has moderated in the recent months.
In terms of the capital markets.
Similar to prior quarters, we remained active on the equity front with 158 million of net ATM issuance in the quarter.
Which helped to lower our leverage to four six times.
Coupled with our $200 million increase in our amended $600 million unsecured credit facility, we have ample liquidity and balance sheet flexibility to continue to execute on our investment pipeline.
We ended the quarter with 545 properties that were 100% leased to 323 tenants operating in 16 industries.
Our weighted average lease term stood at $13 nine years with only four 9% of our ABR expiring over the next five years.
Our weighted average unit level coverage ratio was three eight times.
Which improved versus last quarter's coverage of three seven times.
While our traditional credit statistics, which focus focuses on implied credit ratings and unit level coverage experienced sequential improvements. This quarter. These statistics are still negatively skewed by one our trailing 12 months reporting convention.
Which lags our own reporting by one or two quarters.
And to the fact that certain industries like theaters early childhood education, and health and fitness they state level shutdowns and capacity restrictions well into the spring of 2021 and certain areas of the country.
With that in mind, we continue to expect these statistics two experienced solid sequential improvements in the coming quarter.
With that I'd like to turn the call over to Gregg Seibert, our COO, who will take you through the portfolio and investment activity in greater detail.
Greg.
Thanks, Pete during the first quarter, we invested $238 million through 'twenty three separate transactions at a weighted average cash yield of 7%.
These investments were made in 12 different industries with 70% of our activity coming from quick service restaurants, Carwash Auto service entertainment and equipment rental and sales.
The weighted average lease term of our investments this quarter was 15 years.
Weighted average annual rent escalation was one 4% the weighted average unit level coverage was three three times and the average investment per property was $2 2 million.
Consistent with our investment strategy honored percent of our quarterly investments were originated through direct sale leasebacks, we searched subject to our lease form with ongoing financial reporting requirements and 83% contain master lease provisions.
From an industry perspective.
Early childhood education is our largest industry at 14, 1% of ABR, followed by quick service at 12, 9% car washes at 11, 5% and medical dental at 11, 4%.
We continue to view these four business sectors as tier one industries for a central properties and therefore, there are likely to remain our highest concentration industries for their foreseeable future.
From a tenant concentration perspective, no tenant represented more than three 3% of our ABR at quarter end and our top 10 tenants account for just 19, 2% of APR, which was down 50 basis points versus last quarter.
Increased tenant diversity is an important risk mitigation tool and differentiator for us and it is a direct benefit of our focus on middle market operators, which offers an expansive opportunity set.
In terms of dispositions, we sold six properties this quarter for $18 4 million in net proceeds when excluding transaction costs and property sold subject to tenant buyback options. We achieved a seven 1% weighted average cash yield on those dispositions as we have mentioned in the past.
Liquid properties is an important aspect of our investment discipline.
Is it allows us to proactively manage industries tenants and unit level of risk within the portfolio.
With that I'd like to turn the call over to Mark Patten, Our CFO , who will take you through the financials and balance sheet for the first quarter.
Thanks, Greg and good morning, everyone.
As Pete noted the first quarter was another strong quarter for us.
The notable elements of our reported operating results for the first quarter of 2022 are as follows.
Total revenue was up $21.6 million or 44, 4% versus the same period in 2021.
Italy, $70 1 million for the quarter.
Which reflects the benefits of our 2021 investment activity.
Nearly 85% of our $238 million of Q1 2022 investments closing before March.
In addition, I'll note that we brought two additional tenants back to accrual status.
Well not a material impact to revenues. It did result in our having no remaining tenants on non accrual or cash basis accounting.
Total G&A was just under $8 $1 million in Q1 2022.
Versus $6 4 million for the same period in 2021.
Which really was a result of higher noncash stock compensation expense, which for the first time included the vesting of the subjective portion of performance shares awarded in 2019.
Our cash G&A did move up sequentially from Q4 2021.
But importantly, our cash basis G&A continues to scale favorably as a percentage of total revenue.
Coming in at just seven 5% for the first quarter of 2022 versus 10% for Q1 2021.
Net income was $26 $8 million in the quarter.
<unk> totaled $49 4 million for the quarter or <unk> 39 per fully diluted share.
That's a 30% increase over the same period in 2021.
Our nominal if a phone totaled $48 $9 million for the quarter up $16 $5 million over the same period in 2021, we're.
Which on a fully diluted per share basis was <unk> 38 cents, an increase of 27% versus Q1 2021 .
Turning to our balance sheet I'll highlight the following.
It was another great quarter of investments by our team our income producing gross assets reached $3 $6 billion at quarter end.
From an equity perspective.
I'll reiterate that we were active on our ATM program generating approximately $158 billion of net proceeds during the first quarter.
Which effectively utilize the remaining capacity on our $350 million program.
As a result, our board approved a new $500 million ATM program, which we will launch shortly.
Speed also noted our balance sheet remains strong with net debt to annualized adjusted EBITDA at four six times at quarter end.
Total liquidity of $467 million.
As a result, our balance sheet and liquidity position continue to provide a strong foundation from which to support our investment pipeline and future growth aspirations.
Lastly, I'll also reiterate Pete's important note that our current investment pipeline outlook for the core portfolio.
Strong performance this quarter provided us with the basis to increase our 2022 <unk> per share guidance range to $1.50 to $1 53.
Implant is a 13% year over year growth at the midpoint.
With that I'll turn the call back over to Pete.
Thanks Mark.
Before I open the call to questions Gregg Seibert the company's COO.
And my longtime business partner and close friend has notified the company that after 25 years of net lease investing he plans to retire and therefore will not renew his employment contract that expires near the end of June of this year.
Greg has agreed to consult for the company at least through the end of the year to help us manage through this transition.
Greg has been instrumental in crafting our investment strategy.
Mentoring, our credit closing underwriting and asset management teams and.
In helping to develop strong relationships between industry participants and our team.
Greg will be <unk> missed around the office, but we have incredibly strong bench of professionals that he helped to developed and that are ready to assume his many roles.
With that operator, let's please open the call for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question you May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star team.
One moment, while we poll for questions.
Our first question comes from the line of Greg Mcginniss with Scotiabank. Please proceed with your question.
Hey, good morning.
The cost of capital change fairly dramatically over the last six months, but you weren't acquisition cap rates were.
In line with the historical average is there any expectation for expansion are you starting to see.
And at this point.
We expect cap rates kind of trends in the balance of this year.
Sure.
As I always say our cap rates are really driven by our perception of the risk in appropriate risk adjusted return for the individual investments that we make.
Not really driven by our underlying cost of capital.
We were able to hold our cap rates relatively steady.
Cost of capital and rates move down.
And.
I don't expect us to materially change.
Emitters of our underlying investments.
And so we're unlikely to see cap rates move materially up.
I would also note that cap rates are generally sticky and trail movements in interest rates.
All that said, we are seeing a bit less competition, and having a little bit more pricing power.
On the deals we are doing but I wouldn't anticipate a material move in our cap rates.
Okay. Thanks.
Along the same.
Same lines, Gary and cost of capital.
Anticipating needing to raise debt this year and what rate until achievable.
Yeah.
Okay.
I think.
Greg we have consistently held.
The.
A major component of our business. Our thesis is to match fund our leverage to our long dated leases.
Since we got our investment grade rating last year and access to public markets for the first time, our mindset was kind of that that was going to be.
Good way to term out the revolver balance but.
Public unsecured debt markets right now seem a little dislocated.
Although I would say if we were to.
Access that market it might be in the high fours low fives, possibly.
But given that dynamic we will continue to evaluate all our leverage options.
Using the $70 million recorded we've got on the 2027 term loan and <unk>.
Maybe looking at the term loan market generally.
Yeah.
So was there any within guidance is there any expectation for kind of an unsecured debt rate or should we just assume it's more of the term loan and revolver use.
Yeah I mean.
I guess, what I'd say is.
The way, we think about our investment activity is that.
If you are going to term out the revolver would be something we could use given the the rate on it but.
Our expectations have been and we've consistently communicated that we would.
Execute our leverage issuance sometime maybe the back half of the year.
Okay, great. Thanks, so much Mike.
Thanks, Greg.
Thank you. Our next question comes from the line of Nicholas Joseph with Citi. Please proceed with your question.
Hey, its actually Michael Bilerman here with Nick.
It's a good thing you guys down in Florida, a couple of months ago.
Peter I was wondering if you can sort of outline a little bit the change in guidance, which went up three cents at the midpoint.
<unk>.
Soon as you outlined in your release the investment activity is a big driver of that and I Wonder if you could unpack a little bit how much of it to do do volume, where you talked a little bit about how the pipeline is robust and you thought it would moderate but it hasn't how much of it is timing and I think Greg talked about 85.
5% of the deals closing by the beginning of March and then how much of it is rate because you talked a little bit about sort of pricing power.
Even though the cost of capital and rates have moved up and so.
Each of those seems like its higher than where it probably wasn't your guidance, but not knowing what was in your guidance for those three items I don't know how those three items have changed relative to your new guidance and I don't want to jump to any conclusions. So maybe can you outline those three for us. Please.
Yes, I would say.
The biggest change in guidance.
B past events I would say.
Clearly the first quarter was strong for us.
So between initially issued guidance.
We closed the books and finalized the fourth quarter and so as we look at full year guidance, and we will get our first quarter call.
Clearly we were off to a strong start here.
In the back half of the year.
You know I would say our volume expectations have not changed.
And as I said earlier in the call our cap rate expectations have not changed materially.
And that.
I think also embedded in guidance or capital market assumptions and clearly you know those have changed as the markets have changed materially both on the debt and the equity side as we you know.
Think about the back half of this year.
So there's a lot of puts and takes in the business model.
<unk> <unk> and all of them.
Clearly.
Having one quarter of the year done and.
Pretty good visibility into the.
Second quarter gives us confidence to move guidance up.
Yeah, I guess I was looking for a little bit more specific details because obviously you had earnings in mid February .
At that point it sounded like most of the deals in the quarter were already underway with most of them closing by the end of that month, and so I wouldn't imagine that the.
Your average quarter was $200 million right and I would assume from a modeling perspective, you would assume mid quarter convention, which would be.
Mid fab, that's doing $238 million of deals we didn't cause a 3%.
Positive impact, especially given the things you just talked about which are negative right.
Rates are up equity cost is higher so all of that is dilutive to your future.
Back half relative to the acquisition volume So I would surmise that your volumes in your guidance are up or the timing of it is earlier.
The first quarter wouldn't drive that much given your previous comments that we should look at your eight quarter running average, which is $200 million in using mid quarter convention as a modeling.
Yeah, Yeah listen I would say we've never really.
Given me.
Mid quarter convention as a guidepost and quite frankly, we have a more conservative internal modeling convention here and we beat that materially and.
Youre also.
Ignoring the base.
Capital assumptions that we had embedded in that initial guidance as well so.
As I said, Michael there is a lot of puts and takes and as we look at the back half of the year.
Where our expectations were pretty consistent with what we expected you know in the first quarter.
Even though your pipeline is more robust and things are I mean, it just sounds like the transaction activity in our back and forth. When you say all your more conservative, but we beat that regularly.
To me putting out the actual guidance, just what youre expecting heyward.
Why not put that out.
Rather than us going back and forth in trying to.
In on what the changes of your guidance.
Yes.
Yes.
What's the hesitation.
As I said and we made this painfully clear on the last call is we rarely have visibility beyond 90 to 180 days on our pipeline and so the commentary we gave on the very quarter quarterly basis is what we're seeing out in front of us.
You are asking for guidance.
It goes out for a full year and really ignores the kind of independent.
Independent quarters, and so we think we have a convention that allows investors to have good visibility on what to expect and it matches the visibility that we have without going out beyond that and so.
On the call is it we've got a good pipeline looks good.
We're seeing them.
But I don't know, what's going to happen in the fourth quarter.
Yes, no no no.
But I just wanted to what's in your assumptions right. So it sounds like the assumptions are beginning or end of quarter closed for your volumes rather than mid quarter close I'm, just trying to get understand whats in.
So that when you change your guidance I know what the benchmark it to you.
If you don't tell us what the what was in there when you say you've updated it.
Have to know what changed and obviously theres a lot of levers that you can pull to change so anyway all Europe .
Thank you.
There are in.
You are asking for one data point and Theres a lot of puts and takes in the business plan.
But thank you I appreciate your input.
Thank you. Our next question comes from the line of Sheila Mcgrath with Evercore. Please proceed with your question.
Oh good morning.
You have two tenants in the top 10 festival visited Jackson Parks, just wondered if you could tell us a little about those tenants.
And my second question is how much of your potentially increasing opportunity set is from existing customers versus new tenant opportunity.
Yeah.
Great. Thanks Sheila.
I would say both both of those tenants have been.
Tenants, we've been dealing with for.
Quite some time now than they were in our portfolio and moved into our top 10 through follow on acquisition activities repeat business.
Just kind of go onto your second question.
Tracks as a as a.
Well capitalized consolidator in the family Entertainment centers space.
With about 13 locations and.
We were able as they roll up we're able to help finance their consolidation through sale leasebacks and had been able to continue to invest with them.
First of all the foods is a 39 unit grocery chain that operates predominantly in the state of Wisconsin.
Third generation family owned Aesop owned company, that's been in business for about 75 years.
Great operator, strong credit and Im sure anyone up in Minnesota.
Minnesota, and Wisconsin markets, and those knows them, well and thanks, Hi, Liam.
In terms of existing versus new.
I think the <unk>.
80, 2080 515 mix.
It continues to kind of represent our portfolio.
We continue to invest with existing relationships and we continue to work hard to source new relationships that will bring deals down the road and so I wouldn't expect a material change in that blend Sheila.
And one more question you mentioned that.
The last two tenants that were.
On cash accounting went to accrual maybe you could comment on the health of your tenants have most back to pre pandemic levels, and maybe who are the laggards and looking back at the crisis, maybe you could comment on how your portfolio held up.
Yes. So those last two tenants were those those two tests over the last two kind of cash accounting tenants.
As a result of the Covid pandemic in general I always start that question by saying the portfolio is 100% occupied in our collections are 100%.
Sure.
The deferrals are pretty far in our rearview mirror at this at this point.
As you see in our our coverage reporting there are some some guys that are still kind of on a trailing 12 month basis recovering and as as we said on the call as Greg said, it's in the <unk>.
Fitness early childhood education and movie Theater space.
Where they kind of had a little bit of a lagging.
Fact COVID-19 .
Covid, but overall the health of the portfolio continues to improve its in a great spot and.
And I think.
We were very proud about how our operators came out of out of Covid.
The modest.
Rent deferrals that we granted.
As accommodations to help them through were well received and have been <unk>.
<unk> paid back.
I think our portfolio performance.
Is really something to be proud of and really a testament to great underwriting, but more importantly, just great operators, who are able to navigate through that.
That period.
Thanks, and congrats Greg on your retirement.
Thank you.
Yes.
Thanks Sheila.
Thank you. Our next question comes from the line of Nate Crossett with bearing Baird. Please proceed with your question.
Hey, good morning, and congrats on the retirement.
Maybe just a question on the disposal side and the sell side.
Theres less.
11 players in the market less better strength thing does that maybe make you more reluctant to do sale.
Where cap rates are going up is that making more reluctant Eric how should we be thinking about.
That side of the equation.
Yeah I think.
Sales, there's a couple of buckets to our sales.
The opportunistic sales, where we see a bidder that offers a price that.
Thank is very compelling.
Reflective of the underlying risks.
Of that particular investment and then there is there is derisking sales, where we're looking to get out of a potential problem down the road.
I think as the market calls Youll see us do less opportunistic in and continue to focus on on the Derisking sales.
And you're really just getting out of assets that we think present.
Potential long term issue for the portfolio and managing exposure.
All that said.
I wouldn't expect our disposition activity.
Deviate materially from what we've done in the past kind of that $15 million to $20 million quarterly average.
Good barometer to there.
Okay. That's helpful. And then I think last quarter there was some.
Discussion about loan payoffs and I'm just curious is there any update there.
And if rates have gone up does that make people less likely to repay.
Yeah, I think our loans.
Our loan book is very small.
And there will be periodic repayments from that loan book.
Clearly the fourth quarter. It was kind of an outlier in that regard with bigger loans.
Coming in.
I.
I do think.
The capital markets.
With rates higher.
And the availability of alternative financing being Morris.
More expensive would create a little more stickiness in our loan book.
Okay. That's helpful I'll leave it there thank you.
Thank you Nate.
Oh.
Thank you. Our next question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your question.
Hi, Good morning, I had a couple of minor ones first it looked like operating expenses were particularly low in the quarter. So I was wondering if you could go through what drove that and to what extent, we should expect your NOI margin to remain in the mid 97% range by 2019 to 21 versus I think it was about 98% this quarter.
Yeah.
Okay.
That's right.
I'm sorry go ahead.
I was just going to say that's really.
When you take those tenants off of the accrual and put them off of cash and put them on to draw you start accruing for it there.
They are property costs and then we also had a 100% occupancy. So we had no vacancies during the quarter, but go ahead mark.
Okay.
What I was going to say the those two factors were pretty significant.
Okay. So it sounds like that could be sustainable that sir.
Thats Fair fair.
Okay.
And then you mentioned briefly in the prepared remarks, but G&A was up meaningfully in the quarter on an absolute basis. So could you go through whether there was something in particular that drove that or is that just the reality of a growing business, maybe plus some inflation.
Yeah.
Okay.
Look I guess, the one thing I'd say is.
We had.
In the first quarter, we pulled forward a little bit more of the 401k match and the social security taxes that would have been a little bit more leveled out in the second quarter, given the size of or the difference between.
Probably incentive comp quarter over year over year.
So it was really almost call it.
Seasonality if you will.
Okay got it and then maybe bigger picture.
The company has obviously grown significantly in the past few years I was wondering if you could comment on the strategy of granular relationships based acquisitions and how long do you think that could work for like if you end up targeting one to one 5 billion of acquisitions in the future do you think anything has to change with how you guys run your business could you just.
More of what Youre doing today.
Yeah, I think it's more of the latter I think the way we invest in.
Is really driven by where we see.
In our view the best risk adjusted returns in the net lease market.
By investing in very granular transactions with growing middle market operators through direct sale leasebacks, we feel we're able to compete as a capital provider and provide value to those tenants and get outsized risk adjusted returns in.
That middle market.
That middle market.
Market for us is very expensive and very important part of what we do is is continuing to grow our relationships and expand our network.
To provide ever increasing investment.
Opportunities to grow with and we have grown our quarterly investment activity from $125 million a quarter to close to $200 million a quarter since coming public back in 2018, and Theres nothing that would indicate.
We can't do that.
Going too.
Whatever your scenario is three or 400 and.
Specifically in the fourth quarter of last year, we did 340 plus million so.
We need to continue to grow our team we need to continue to grow our relationships and make investments in both in and Thats and Thats what were doing.
Okay. Thanks.
<unk>.
Thank you. Our next question comes from the line of John Masako with Ladenburg. Please proceed with your question.
Good morning.
Start off congratulations on your retirement Greg.
Thank you very much.
And then if my back of the envelope math is correct.
Correct.
It seems like you've done about $50 million of acquisition to date since the start of March and.
And I guess, maybe what kind of cause if you will this kind of air pocket in acquisition activity given you seem very positive on the pipeline.
For the remainder of the year and even maybe somewhat near term.
Yes, I mean listen it.
We don't control the timing of our deals in.
The when you're supporting a sale leaseback transaction is really operator, driven and there's just natural ebbs and flows there is nash.
Natural.
Pressure around the quarter ends where people tend to bunch deals in it.
And.
It just it.
It's just you don't control it and then when your average deal of $6 million in.
Our $8 million or $9 million and then you have a big deal of $40 million to $50 million. It can it can be chunky. So.
Read too much into that and just the nuances of the business that we don't control.
Okay.
That makes sense and then.
Does the change in the competitive environment, you alluded to in the prepared remarks changed the dynamics of the acquisitions you are targeting at all I guess, specifically could you see more attractive opportunities with sale leaseback transactions that are not on your lease form.
Okay.
Well I mean listen.
The sale leaseback is by definition you are writing the lease at close and we're generally going to start with our lease form and so.
I think that remains.
Our preference I think the bigger point is in.
In the context of the sale leaseback, you're acting as a capital provider and competing.
Ah.
Against other providers and based upon your reliability and certainty of execution you are not competing against a broad audience of investors purely on cap rate and price and proceeds and so we prefer to.
We compete on the strength of our execution and not on cap rates and that's going to be the way we continue to invest.
But I guess some of the more maybe broadly marketed.
Sale leaseback portfolio transactions that are going to have more bidders per se right, maybe a little less kind of middle market nature of it and they become more attractive because.
Some of these off.
<unk>.
Have been kind of priced out of the market given what's happened with interest rates.
Yes.
For those bigger more high profile deals.
It's really not going to impact us if it goes from 10 to 15 bidders to five to eight is still competitive and you're still.
It is still likely to be a bloodbath.
And where youre not getting appropriate risk adjusted returns.
If you are talking about a bigger.
Broadly marketed higher profile transactions, we prefer.
Avoiding those situations and finding opportunities that just present better risk adjusted returns in our view that said, we see them, we're an active market participant.
<unk>.
Pricing comes in line that makes sense for us, we'd certainly be willing to participate.
Okay.
That's it for me thank you very much.
Thanks, Jeff.
Thank you. Our next question comes from the line of Joshua <unk>.
<unk> with Bank of America. Please proceed with your question.
Good morning, everyone.
People wanted to touch base I think it was something you mentioned about maybe the buyer pool since we'll be sending out a little bit.
I'm curious just.
What your thoughts are on maybe what's driving that.
Yeah I think.
It's just.
The volatility in the debt markets right that rates.
Both underlying treasury rates as well as debt spreads have moved pretty rapidly and the availability of that capital is less certain and so buyers who were participating based upon a levered bid are less certain in the current environment.
Okay that makes sense I appreciate that and then.
Or are you seeing market participants, maybe changing kind of the terms that they might want to put it in a sale leaseback in response to the rising inflation.
Is it.
Are people trying to push for more kind of inflation linked bonds or just trying to get a higher fixed rent bumps.
Yeah listen I think we all try to get the best terms, we can and the best economic package that we can in <unk>.
Escalations certainly are part of that and I think some buyers are.
Particularly sensitive to that but.
It's not.
I'm going to come without a cost.
Lower cap rate or.
Clearly sellers and sale leasebacks are sophisticated and theyre looking at the total.
Economic package that offered and so the market's pretty efficient and we have been.
Pretty consistent with our Escalations and I don't expect the market to change materially.
Thanks.
Got it thanks.
Thank you. Our next question comes from the line of Keybanc, Ken with <unk> Securities. Please proceed with your question.
Thank you congrats Greg.
Sorry, I jumped on the call a bit late here, but.
Going back to your credit.
<unk> metrics.
Good to see some improvement.
Over quarter.
But you still have 8% below one times coverage.
You mentioned it was fitness childhood education movie Theater.
But my question is if you looked at more real time data not just crawling 12 months.
What's the best indication of what that covers looks like.
Okay.
Yes, I guess.
The most real time data keeping is the fact that they're paying rent and.
Yeah.
Leases are being honored.
We would expect that bucket to normalize back to historical level, which is closer to around 2% and.
The current data that we have suggests that.
That's a trend these guys are on.
That said, a big chunk of that in movie theaters.
Four.
Our AMC.
Anyone's guess on where those things shake out, but clearly that company has ample liquidity to kind of manage through.
And tied to that your same store NOI.
So rent went up 2%.
The outlier was expert experiential.
Any thoughts on what that can look like going forward for rest of the year the same store rent.
Yes, I mean, our contracts are generally written to get 116% and it could be.
To be annual or every five years, so that creates some some lumpiness there.
What you see happening there Kevin is.
We had some experiential tenants that we went through a COVID-19 related bankruptcy restructuring where.
There was a discounted rent period thats burning off in those sites are coming back on it.
At a more of a full rent and thats kind of drove that outside.
Increase there.
Okay, and just going back to the G&A can you just give me a.
Hard number guidance for Queensland through G&A.
Hi, Mark.
Yes, I mean look we don't really know.
You really got to a G&A number.
I think.
Okay.
What we've consistently holders.
Right now we're at seven 5% cash G&A to revenue.
Think that's going to continue to go down but.
I think if you started there and work your way down you probably have a pretty good reference point.
Okay.
Okay, but just to clarify that.
Going back to <unk> question, you mentioned.
I mean, you got 8 million of G&A on a GAAP basis this quarter.
There were some expense pull forward so.
Should we expect that absolute number to move lower for remainder of the year.
Yes.
Yes.
Sequentially, it's not a whole lot I think.
And I think.
The GAAP G&A is really a function of as I mentioned in.
Paired remarks, we had our.
2019 awards that have a subjective component of the CSR.
Grants and therefore invested in January so that was.
Kind of a unique.
Washington, So unique now, but it was outsized for a year over year comparison that 25%.
Is actually.
Included in each grant that's occurred since 2019, so that's going to start happening every first quarter from here on out to the extent that there is an award.
<unk>.
But in terms of this year.
Yes, what I would say cash G&A is that it should it should normalize.
Through the next three quarters, because like I said.
There was a little bit of pull forward in the first quarter.
Okay. Thank you.
Thanks Steven.
Thank you. Our next question is a follow up question from the line of Nicholas Joseph with Citi. Please proceed with your question.
Hey, it's Michael Bilerman again, I just wanted to follow up on Johns question just on the pace.
So I think Greg congratulations on your retirement very jealous.
I think you said, 85% was done by the beginning of March which would have left about $35 million in the month of March and I was wondering if you can share how much is closed in the month of April already.
And then separately how much you have under contract and under LOI, just to really understand going back to Pete.
You talked about just not having clarity in the future, which I, which I get so maybe you can share with us a little bit more details about the hero now the size of the overall pipeline how much is under contract how much is under LOI and how much is closed so far in the quarter already.
Well, let's see the subsequent events in our Q would have which closed in the quarter number down 17 17 million.
We've got $17 million.
And.
I won't break out Psa or LOI, because its not really relevant to the pipeline.
But our current pipeline sits around $200 million.
$200 million does that include the stuffed up $17 million that was closed in the first month of the quarter or that's separate.
On that that would be material to the $17 million certainly.
With the variability because all of that 200 may or may not close as.
To that timing question, we don't control the timing and our sellers do.
That's exclusive of the quarter to date activity.
Yes.
Got it Michael if you dug deep into the queue you discover that we've got.
25 about $25 million under PSA right now.
Okay. So I haven't been able to review the Q as of yet given all the midnight.
But does that pace I guess $55 million in two months relative to what had been much more aggressive and Pete I take your comments about.
The average size of $6 million and you do a portfolio deal with it dramatically increases that but I'm just trying to reconcile some of the robustness.
Real confidence in our growing pipeline, but yet the last few months have been well below what that pace would have been previously right you had been on call it a $70 million to $80 million monthly pace.
And now that's down pretty meaningfully in March and April .
Yeah, Michael I think you're getting way too granular on a business thats.
There is.
It is not it's not a science right and I'm, giving you a general feel about the market in my pipeline and I gave you a very specific number in and a sense of.
What are our ongoing dialogues with our operators and and the feeling that they are conveying to us about their businesses about their prospects and it is not it's not that this business is not a model. This business is not a month to month model, where I can predict is not it is not an assembly line I'm not cranking out truck.
We're doing deals with middle market operators to the tune of <unk>.
<unk> 40, a quarter that may or may not close these deals involve negotiations diligence.
Environmental issues and so.
My feel for a pipeline that is robust and is very consistent with our past quarters and we're feeling good about things.
Right down deeper than that is.
Trying to create create a level of precision and understanding that's just not attainable.
Yes, I'm not trying to get to that.
External growth is a key component for the net lease Reits and obviously theres two sides to that your own cost of capital and then the deal that you are able to complete in terms of volumes right. The core business is a pretty stable net lease business that we can model pretty well.
These questions are not to get precision on estimates there.
There are questions about the direction overall of growth of your cash flow driven by the key.
Part of your business, which is to go out and acquire assets.
So that's that's the reason for the question.
Just looking at the numbers there appeared to be a pretty material decline in volume in March and in April and so it was just trying to dig in a little bit deeper just understand some of the variables that may be impacting that and your views going forward.
That seems like I'm not trying to model there until the 10th of a penny. It's more so just trying to understand the business and you had focused on more of the near term and the long term and so that's what I was thinking at all.
When we gave you a very specific.
The metrics around the near term so hopefully it looks for you.
Thank you so much.
Thank you.
Thank you there are no further questions at this time I'd like to turn the floor back over to Pete for closing comments.
Great. Thank you all for your time today and more.
More importantly, Greg Thanks, Thanks for taking my partner for the past.
10, plus years and I want to wish you the best going forward, certainly I know you'll be around with us for the coming months as we navigate through this transition but.
This is a very appropriate forum to thank you for all you've done for this company.
Thank you and everyone have a great day.
Yes.
This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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Okay.
Yeah.
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Okay.
Okay.