Q1 2022 The Necessity Retail REIT, Inc Earnings Call

May 5, 2022

[music].

Greetings and welcome to the necessity retail REIT first quarter 'twenty to 'twenty two conference calls.

Greetings and welcome to the Necessity Retail REIT first quarter 2022 conference call. This time all participants are in listen only mode.

At this time all.

Participants are in listen only mode.

<unk> and answer session will follow the formal presentation.

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I'd like to turn the conference over to your host, Louisa Corto.

I'd now like to turn the conference over to your host Louisa quarto.

Executive Vice President and please go ahead. Thank you operator, good morning, everyone and thank you for joining US. This call is being webcast in the Investor Relations section of RTL website at Www Dot necessity retail REIT dotcom.

Thank you, operator. Good morning, everyone, and thank you for joining us. This call is being webcast in the investor relations section of RTL's website at www.necessityretailrete.com.

Joining me today on the call to discuss the results are Michael Weil, Chief Executive Officer and Jason Doyle, Chief Financial Officer.

Joining me today on the call to discuss our results are Michael Weil, Chief Executive Officer, and Jason Doyle Chief Financial Officer.

Following information contains forward looking statements, which are subject to risks and uncertainties should one or more of these risks or uncertainties materialize actual results may differ materially from those expressed or implied by the forward looking statements.

Following information contains forward-looking statements, which are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, actual results may differ materially from those expressed or implied by the forward-looking statement.

We refer all of you to our SEC filings, including the annual report on Form 10-K for the year ended December 31, 2021, filed on February 24, 2022, and all other filings with the SEC after that date for a more detailed discussion of the risk factors that could cause these differences or otherwise impact our business.

We refer all of you to our SEC filings, including the annual report on Form 10-K for the year ended December 31, 2021 filed on February 24, 2022, and all other filings with the SEC. After that date for a more detailed discussion of the risk factors that could cause these differences or otherwise impact our business.

Any forward looking statements provided during this conference call are only made as of the date of the call.

Any forward-looking statements provided during this conference call are only made as of the date of the call.

As stated in our SEC filings, RTL disclaims any intent or obligation to update or revise these forward-looking statements except as required by law.

As stated in our SEC filings RTL disclaims any intent or obligation to update or revise these forward looking statements except as required by law.

Also, during today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial...

Also during today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance.

These measures should not be considered in isolation or the substitute for our financial results prepared in accordance with the These measures should not be considered in isolation

These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our earnings release, which is posted on our website at www dot necessity retail REIT dot com.

Reconciliation of these measures to the most directly comparable GAAP measure is available in our earnings release which is posted on our website at www.necessityretailrate.com.

Please also refer to our earnings release for more information about what we consider to be implied investment grade tenants, a term we will use throughout today's call. I'll now turn the call over to my

Please also refer to our earnings release for more information about what we consider to be implied investment grade tenants. A term we will use throughout today's call I'll now turn the call over to Mike while Mike.

Thanks, Louisa. Good morning and thank you all for joining us today. The first quarter illustrated the effectiveness of our growth strategy as we closed on over $800 million of open-air anchored, grocery anchored, and power centers and completed the sale of an office property leased to Sanofi in New Jersey.

Thanks, Luisa and good morning, and thank you all for joining US today, the first quarter illustrated the effectiveness of our growth strategy as we closed on over $800 million of open air anchored grocery anchored and power centers and completed the sale of an office property leased to Santa Fe in New Jersey.

Both transactions were part of the series of transformational transactions we announced in December , including closing subsequent to the end of the quarter. We've now acquired all but two of the shopping centers and expect to close these this month.

Both transactions were part of the series of transformational transactions, we announced in December <unk>.

Including closing subsequent to the end of the quarter. We've now acquired all but two of the shopping centers and expect to close. These this month.

Our first quarter transactions were immediately accretive to AFFO per share as we anticipated. AFFO per share grew over 9% to 24 cents per share compared to the fourth quarter of 2021.

Our first quarter transactions were immediately accretive to <unk> per share as we anticipated.

<unk> per share grew over 9% to <unk> 24 per share compared to the fourth quarter of 2021.

These acquisitions only partially benefited our first quarter results, as closings occurred at different dates throughout the quarter.

These acquisitions only partially benefited our first quarter results as closings occurred at different dates throughout the quarter.

We've created a pure play retail REIT, reducing exposure to office assets to less than 1% of our portfolio.

We added diversification by reducing the concentration of straight line rent derived from top 10 tenants from 38, 6% in the fourth quarter of 2021% to 29% this quarter.

We added diversification by reducing the concentration of straight-line rent derived from top ten tenants from 38.6% in the fourth quarter of 2021 to 29% this quarter.

Finally, we've grown the percentage of our straight line rent from Sunbelt states by almost 18% to 57.1% from less than 40%.

Finally, we've grown the percentage of our straight line rent from Sun belt States by almost 18% to 57, 1% from less than 40%.

In addition to AFFO per share, our first quarter results reflect not only the impact of our first quarter acquisitions, but also the leasing and acquisition activity we completed last year as well as the careful management of our balance sheet.

In addition to <unk> <unk> per share our first quarter results reflect not only the impact of our first quarter acquisitions, but also the leasing and acquisition activity, we completed last year as well as the careful management of our balance sheet.

Jason will provide additional detail, but I want to mention a few highlights.

First quarter revenue increased by nearly 20% year over year to $94.9 million and cash NOI grew by over 16% to $73.6 million.

First quarter revenue increased by nearly 20% year over year to $94 $9 million in cash NOI grew by over 16% to $73 $6 million.

Importantly, our first quarter results only partially include the benefit of the acquisitions completed last quarter, which represents about 60% of the total $1.3 billion portfolio of acquisitions as measured by purchase price.

Importantly, our first quarter results only partially include the benefit of the acquisitions completed last quarter, which represents about 60% of the total $1 3 billion portfolio of acquisitions as measured by purchase price.

As previously noted, the multi-tenant acquisitions completed in the first quarter closed at different dates, notably in February and March for the CIM assets, and therefore only proportionally contributed to our results.

As previously noted the multi tenant acquisitions completed in the first quarter closed at different dates notably in February and March for the CIM assets and therefore, only proportionately contributed to our results.

The multi-tenant acquisitions completed in the first quarter contributed $8.3 million of actual NOI.

The multi tenant acquisitions completed in the first quarter contributed $8 $3 million of actual NOI.

Upon closing the last of the 81 property portfolio acquisition, we anticipate that the CIM portfolio will add over $113 million of annualized straight line rent.

Finally, the disposition of the Santa Fe buildings occurred at the very beginning of the quarter and thus didn't meaningfully contribute to first quarter NOI.

Finally, the disposition of the Santa Fe buildings occurred at the very beginning of the quarter, and thus didn't meaningfully contribute to first quarter NOI.

At quarter end, our $4.7 billion portfolio was comprised of 1,029 properties with portfolio occupancy of 91.4% and a weighted average remaining lease term of 7.4 years.

At quarter end, our $4 7 billion portfolio was comprised of 1029 properties with portfolio occupancy of 91, 4% and a weighted average remaining lease term of seven four years.

Annualized straight-line rent increased 21% year-over-year to $346 million and our portfolio grew 33% to 26.2 million square feet.

Annualized straight line rent increased 21% year over year to $346 million and our portfolio grew 33% to $26 2 million square feet.

Our single tenant assets are 53.9% investment grade rated and 38.1% of anchor tenants in our multi-tenant portfolio are investment grade or implied investment grade rated.

Our single tenant assets are 53, 9% investment grade rated and 38, 1% of anchor tenants in our multi tenant portfolio are investment grade or implied investment grade rated.

Based on straight line rent 64, 4% of leases across the portfolio include contractual rent increases, which translate to an annual portfolio wide rent increase that averages 1% per year and also includes leases that have increases based on the consumer price index.

Based on straight-line rent, 64.4% of leases across the portfolio include contractual rent increases, which translate to an annual portfolio-wide rent increase that averages 1% per year, and also includes leases that have increases based on the consumer price index.

We own properties in 47 states and the District of Columbia, and our tenants operate across 40 different industries with no single state or single industry representing more than 10% of our portfolio based on straight line rent.

We own properties in 47 states and the district of Columbia, and our tenants operate across 40 different industries with no single state where single industry, representing more than 10% of our portfolio based on straight line rent.

As of April 15th and including the open Air shopping centers that we closed at the end of April for $277 $8 million or forward acquisition pipeline totaled $532 $4 million based on contractual purchase price at an eight 6% weighted average cap rate.

As of April 15th, and including the open-air shopping centers that we closed at the end of April for $277.8 million, our forward acquisition pipeline totaled $532.4 million based on contractual purchase price at an 8.6% weighted average cap rate, and with 5.9 years of average lease term remaining.

And with five nine years of average lease term remaining.

In addition to the remaining open air shopping centers, the pipeline includes an additional nine primarily service retail properties that are under contract for a total of almost $18 million. Our robust acquisitions are supplemented by significant leasing activity. For the first quarter, our total leasing activity exceeded 325,000 square feet, including new leases, renewals, executed leases, and pipelines.

In addition to the remaining open air shopping centers. The pipeline includes an additional nine primarily service retail properties that are under contract for a total of almost $18 million a robust acquisitions are supplemented by significant leasing activity for the first quarter, our total leasing activity exceeded three.

325000 square feet, including new leases renewals executed leases and pipeline.

In the first quarter, we signed leases for over 12,000 square feet of space, an annualized straight-line rent of $158,000 in our multi-tenant portfolio.

In the first quarter, we signed leases for over 12000 square feet of space and annualized straight line rent of $158000 in our multi tenant portfolio.

In the first quarter, we also completed 18 lease renewals in the multi-tenant segment of our portfolio, including six with anchor tenants that totaled 150,000 square feet and $2 million of annual base rent.

In the first quarter. We also completed 18 lease renewals in the multi tenant segment of our portfolio, including six with anchor tenants that totaled 150000 square feet and $2 million of annual base rent.

Executed occupancy, which includes leases that have been signed, but where the tenant hasn't yet taken possession of the space, is comprised of seven new leases that total 78,000 square feet and $1.2 million of annualized straight-line rent over a weighted average lease term of nine years.

Executed occupancy, which includes leases that have been signed but where the tenant hasn't yet taken possession of the space is comprised of seven new leases that totaled 78000 square feet and $1 2 million of annualized straight line rent over a weighted average lease term of nine years or.

Our leasing pipeline includes 16 new leases that total 86,000 square feet and $1.6 million of annualized straight-line rent over a weighted average lease term of 10 years.

Our leasing pipeline includes 16, new leases that totaled 86000 square feet and $1 6 million of annualized straight line rent over a weighted average lease term of 10 years.

Before turning to our balance sheet, I wanted to revisit the debt transactions we completed last year in light of the current interest rate environment.

Before turning to our balance sheet I wanted to revisit the debt transactions, we completed last year in light of the current interest rate environment in.

In part through the issuance of unsecured notes while rates were favorable, 84.2 percent of our debt was fixed rate as of the end of the quarter. We also extended our weighted average debt maturity to 5.3 years from 4.5 years at the end of the first quarter of 2021.

In part through the issuance of unsecured notes while rates were favorable 84, 2% of our debt was fixed rate as of the end of the quarter.

We also extended our weighted average debt maturity to five three years from four five years at the end of the first quarter of 2021.

With U.S. interest rates on the rise, blocking in favorable rates for such a substantial portion of our debt and for a longer period was a prudent strategic decision.

With U S interest rates on the rise locking in favorable rates for such a substantial portion of our debt and for a longer period was a prudent strategic decision.

At quarter end, our net debt to gross asset value was 46%. As we discussed previously, our balance sheet has been temporarily utilized to accommodate the acquisition of the open-air portfolio, which we firmly believe is a critical growth opportunity for the company.

At quarter end, our net debt to gross asset value was 46% as we've discussed previously our balance sheet has been temporarily utilized to accommodate the acquisition of the open air portfolio, which we firmly believe as a critical growth opportunity for the company with.

With the portfolio acquisition substantially complete, we intend to resume our deleveraging initiative through the sale of $250 million of assets that we've identified to hold for sale, potentially providing proceeds to begin to reduce leverage back to previous pre-closed levels.

With the portfolio acquisitions substantially complete we intend to resume our deleveraging initiative through the sale of $250 million of assets that we've identified to hold for sale potentially providing proceeds to begin to reduce leverage back to previous pre close levels in.

In addition, we've identified 13 assets that have strong leasing potential for which we began to develop a leasing pipeline immediately upon closing.

We've demonstrated an ability to successfully delever in the past and expect that we'll be able to do the same in the future.

We have demonstrated an ability to successfully de lever in the past and expect that we'll be able to do the same in the future.

We also issued approximately $78.3 million of common stock through a combination of $24.9 million issued through our ATM program at an average price of $9.02 per share and $53.4 million in issuance to affiliates of the CIM group in connection with the CIM portfolio acquisitions completed during the quarter.

We also issued approximately $78 $3 million of common stock through a combination of $24 $9 million issued through our ATM program at an average price of $9 <unk> per share and $53 $4 million in issuance to affiliates of the CIM group in connection with the CIM portfolio.

Palio acquisitions completed during the quarter.

We remain confident in the long-term prospects for necessity-based retail real estate, especially in the single-tenant and open-air shopping center space.

We remain confident in the long term prospects for necessity based retail real estate, especially in the single tenant in open Air shopping center space.

The shopping centers we've acquired recently are intentionally located in suburban markets with strong demographics and traffic counts.

The shopping centers. We've acquired recently are intentionally located in suburban markets with strong demographics and traffic counts.

With necessity retail tenants like grocery stores and quick service restaurants, these centers are conveniently located between home and work and are where America shops every day.

With necessity retail tenants like grocery stores and quick service restaurants. The centers are conveniently located between home and work and are aware America shops everyday.

Well-located and well-positioned retailers as a whole have experienced a renaissance over the last two years as in-store shopping is approaching pre-pandemic levels.

Well, located and well positioned retailers as a whole have experienced a renaissance over the last two years as in store shopping is approaching pre pandemic levels.

You need to look no further than major U.S. retailers' own earning calls for evidence of the importance of physical stores to these brands' long-term strategy.

You need to look no further than major U S retailers own earning calls.

For evidence of the importance of physical stores to these brands long term strategies.

From Walmart, where orders coming into stores have increased eightfold in two years, to Target, where growth in digital sales has been matched by growth in physical stores, the message is that continued growth will come through omnichannel operations and that store counts will continue to increase to meet demand from consumers.

From Walmart, where orders coming into stores have increased eightfold in two years to target where growth in digital sales has been matched by growth in physical stores. The message is that continued growth will come through omnichannel operations and that store counts will continue to increase to meet demand from consumers.

Net absorption continues to improve. A recent CBRE research report highlighted that retailers leased almost 100 million square feet more space in 2021 than they vacated. And TJ Maxx and Burlington stores have disclosed plans to open over 100 new stores each this year and to grow their total store counts by between 30 and 50% over time.

Net absorption continues to improve our recent CBRE research report highlighted that retailers leased almost 100 million square feet more space. In 2021, then they vacated and T. J Maxx and Burlington stores have disclosed plans to open over 100, new stores each this year and to grow their total store count.

By between 30% and 50% over time.

The significant momentum we carried into this year has continued to grow in the first quarter. With the addition of the remaining accretive multi-tenant shopping centers, the power of our platform and our relationships with national retailers can fully be harnessed to create opportunities for portfolio growth.

The significant momentum we carried into this year has continued to grow in the first quarter.

With the addition of the remaining accretive multi tenant shopping centers.

Power of our platform and our relationships with national retailers and fully be harnessed to create opportunities for portfolio growth.

We're well positioned to be one of the premier acquirers of high quality service retail property.

We are well positioned to be one of the premier acquirers of high quality service retail properties.

We've already experienced significant year-over-year growth thus far in 2022 and we look forward to the remainder of the year. I'll turn it over to Jason Doyle to take us through the numbers in greater detail.

We've already experienced significant year over year growth, thus far in 2022, and we look forward to the remainder of the year.

I'll turn it over to Jason Doyle to take us through the numbers in greater detail Jason.

Thanks, Mike. First quarter 2022 revenue was $94.9 million, up 19.9% from $79.2 million in the first quarter of 2021, and up 15% from $82.5 million in the fourth quarter.

Thanks, Mike.

Quarter two.

<unk> revenue was $94 9 million up 19, 9% from $79 2 million in the first quarter of 2021 and up 15% from $82 5 million in the fourth quarter of 2021.

The company's first quarter gap net income was $39.9 million compared to losses of $40.2 million in the fourth quarter of 2021 and $9.4 million in the first quarter of 2021.

The company's first quarter GAAP net income was $39 9 million compared.

Compared to losses of $40 2 million in the fourth quarter of 2021, and $9 4 million in the first quarter of 2021.

NOI was $75.8 million, an $8.6 million increase from the $67.2 million we recorded for the fourth quarter of 2021, and a 15.3% increase over the $65.7 million of NOI we reported in the first quarter.

NOI was $75 8 million and $8 6 million increase from the $67 2 million, we recorded for the fourth quarter of 2021, and a 15, 3% increase over the $65 7 million of NOI, we reported in the first quarter of 2021.

For the first quarter of 2022, our FFO attributable to common stockholders was $30 million, or $0.23 per share. That's compared to $0.21 per share for the same period in 2020.

For the first quarter of 2022, or <unk> attributable to common stockholders was $30 million or 23 per share.

That's compared to 21 per share for the same period in 2021.

First quarter AFFO increased 24.3% to $31.8 million, or $0.24 per share, unchanged compared to the first quarter of 2021, and a 9.1% increase over the $0.22 reported in the fourth quarter of 2020.

First quarter, <unk> increased 24, 3% to $31 8 million or <unk> <unk> per share unchanged compared to the first quarter of 2021, and a nine 1% increase over the 22 reported in the fourth quarter of 2021.

As always, a reconciliation of GAAP net income to non-GAAP measures can be found in our earnings release, supplement, and Form 10.

As always a reconciliation of GAAP net income to non-GAAP measures can be found in our earnings release supplement and Form 10-Q.

We ended the first quarter with net debt of $2 3 billion at a weighted average interest rate of three 7% and net debt to gross asset value of 46%.

We ended the first quarter with net debt of $2.3 billion at a weighted average interest rate of 3.7% and net debt to gross asset value of $46 billion.

At March 31st, the components of our net debt included $378 million drawn on our credit facility, $1.5 billion of outstanding secured debt.

At March 31, the components of our net debt included $378 million drawn on our credit facility $1 5 billion of outstanding secured debt.

500 million of senior unsecured notes and cash and cash equivalents of 82.1 million.

$500 million of senior unsecured notes in cash and cash equivalents of $82 1 million.

The amount drawn under our credit facility represents the entirety of our floating rate debt.

liquidity, which is measured as undrawn availability under our credit.

Liquidity, which is measured as undrawn availability under our credit facility plus cash and cash equivalents stood at $254 9 million. That's based on our March 31, cash balance and borrowing availability.

Plus cash and cash equivalents stood at $254.9 million. That's based on our March 31st cash balance.

We drew approximately $100 million on the credit facility to fund the acquisitions from SEM in April .

We drew approximately $100 million on the credit facility to fund the acquisitions from them in April .

The company distributed $26 $7 million in common dividends to shareholders in the quarter or <unk> 21 per share.

The company distributed $26.7 million in common dividends to shareholders in the quarter or $0.21 per share. With that, I'll turn the call back to Mike for some closing.

With that I'll turn the call back to Mike for some closing remarks.

Thanks, Jason.

We're well on our way to making 2022 a transformational year for RTL. The accretive open-air anchored, grocery anchored, and power center acquisitions we completed this quarter helped to grow our AFFO per share over last quarter to 24 cents despite only owning the assets for a partial quarter.

We are well on our way to making 2022, a transformational year for RTL. The accretive open air anchored grocery anchored power center acquisitions. We completed this quarter helped to grow our <unk> per share over last quarter to 24.

Despite only owning the assets for a partial quarter.

Weighted average debt maturity increased to five three years from four five years and fixed rate debt increased to 84, 2% blocking and interest rates at favorable rates.

Weighted average debt maturity increased to 5.3 years from 4.5 years, and fixed rate debt increased to 84.2 percent, locking in interest rates at favorable rates.

We're focused on being a pure play retail REIT and where America shops through our successful acquisition and leasing activity and have minimized our exposure to office assets.

We're focused on being a pure play retail REIT, and where America shops through our successful acquisition and leasing activity and have minimized our exposure to office assets.

We've already seen the positive impact of the transactions we completed in the first quarter and eagerly look forward to the lasting impact the remaining acquisitions will have throughout the rest of the year. Thank you for joining us this morning, and operator, please open the line for questions. Thank you.

We've already seen the positive impact of the transactions, we completed in the first quarter and eagerly look forward to the lasting impact the remaining acquisitions will have throughout the rest of the year.

You for joining us this morning, and operator, please open the line for questions.

Thank you very much.

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One moment please.

Four questions.

Okay.

We have a first question from the line of Brian Mayer with B Riley.

We have our first question from the line of Bryan Maher.

B Riley Securities. Please go ahead.

Good morning, Mike, good morning, Jeff, and congratulations on some really solid execution in the first quarter. That's pretty impressive. Thank you.

Yes, good morning good.

Good morning, Mike Good morning, Congratulations on some really solid execution in the first quarter pretty impressive.

So, we were a little surprised, though, when we saw the release that you actually made some other acquisitions in addition to CIM. We thought that you might take some time to digest CIM, maybe focusing on deleveraging, which I'm sure you're planning to. But what is it about those assets that you acquired outside of CIM and other ones in the pipeline that have you going down that path?

So we were a little surprised though we saw the release that you actually made some other acquisitions in addition to cin.

We thought that you might take some time to digest.

Maybe focusing on deleveraging, which im sure Youre planning to do.

But what is it about those assets that you acquired outside as Yan Cin and other ones in the pipeline.

That had been going down that road.

Yes.

So Brian , most of those acquisitions were in the pipeline as a part of our normal operation prior to the CIM transaction. So we were really just going ahead with the contractual obligations.

Brian most of those acquisitions were in the pipeline.

As a part of our normal operation prior to the CIM transaction.

We were really just going ahead with the contractual obligations.

You know, as I look at the general market, we are monitoring, we're looking at the types of deals that we like to buy at necessity retail REIT, but we have, for the most part, taken a pause on new deals as we've just seen, I guess it's the divergence. Cap rates are compressing.

As I look at the general market.

We are monitoring we're looking at the types of deals that we like to buy at necessity retail REIT.

But we have for the most part taken a pause on new deals as we've just seen.

I guess, it's the divergence cap rates are compressing.

Uh huh.

at the same time that interest rates are rising. That is not surprising in the beginning of a period like this. It takes the market maybe one to two quarters before we see it catching up and cap rates starting to widen again. So we're certainly not aggressively pursuing deals in the market. You know, if we have a relationship with a prior tenant and they're looking to do something,

At the same time that interest rates are rising that is not surprising in the beginning of a period like this it.

It takes the market, maybe one to two quarters before we see it catching up in cap rates starting to widen again, so we're certainly not.

Aggressively pursuing deals in the market, if we have a relationship with a prior tenant and they're looking to do something.

and have come back to us because of the relationship. We're certainly going to take a hard look at it. But as you correctly pointed out, we have been very focused on integrating the assets that we acquired through the CIM transaction. We've had great response with the tenants. We've continued to

And have come back to us because of the relationship.

Certainly going to take a hard look at it.

But the.

As you correctly pointed out we have been very focused on integrating the assets that we acquired through the CIM transaction. We've had great response with the tenants.

We continue to.

Really focus on new leasing and lease renewals and thats going to continue to be an important part of NOI growth in the portfolio. So.

really focus on new leasing and lease renewals and that's going to continue to be an important part of NOI growth in the portfolio.

Yes.

It was really a successful quarter. The asset management team and the accounting teams all really came together, worked really hard, made sure that everything was in place, and as you can see from the results, it was a good indication of what we expect to come.

It was really a successful quarter.

The asset management team and the accounting teams all really came together worked really hard and made sure that everything was in place and as you can see from the results.

A good indication of what we expect to come.

And just sticking with the deleveraging for a moment, is the plan to still get down to about seven to seven and a half times by...

And just sticking with the deleveraging for a moment is the plan to still get down to about 7% to seven five times.

Okay.

Yeah, nothing has changed in our plan. We think that that is a reasonable place for us to track to. Ultimately, as I've said before, longer term goals would be to see Necessity Retail do the things that are necessary to achieve an investment grade rating.

Yes, nothing has changed in our plan.

We think that that is a.

A reasonable place for us to track to ultimately.

Ultimately as I've said before our longer term goals would be to see necessity retail re do the things that are necessary to achieve a an investment grade rating.

But, as we said last quarter, we thought that the positive impact of the CIM portfolio warranted us...

But as we said last quarter, we thought that the positive impact of the CIM portfolio.

Warranted us taking the action steps that we did bringing this portfolio in really key.

taking the action steps that we did, bringing this portfolio in, really

creating that absolute focus on retail, both single tenant and multi-tenant, and we will resume the efforts and actions to lower the portfolio leverage.

Creating that absolute focus on retail both single tenant and multi tenant.

And we will resume.

The efforts and actions to lower the portfolio leverage.

Thanks and just last for me. I think you said that you've identified 13 properties with strong leasing

And just last from me I think you said that you've identified 13 properties with strong leasing.

We did notice a little bit of a downtick in the occupancy for the quarter. Are those properties within the CIM portfolio? What's the timing there, and how much do you think you could get that occupancy up?

We did notice a little bit of a downtick in the occupancy for the quarter are those properties with the in the CIM portfolio, what's the timing there and how much do you think you could get that occupancy uptick.

Okay.

It's in both the...

Yes.

It's in both the.

The existing portfolio and the CIM portfolio, as you will recall, we increased our asset management platform in anticipation of this CIM transaction, so we've been able to have

The existing portfolio and the CIM portfolio as you will recall we.

Increased our asset management platform in anticipation of this CIM transaction, so we've been able to have.

More people on the ground working the assets.

more people on the ground working the assets. We've also seen a tremendous reaction from national retailers really looking to expand their physical footprint. So the activity has been strong. If we look at the

We've also seen tremendous reaction from national retailers really looking to expand their physical footprint.

So the activity has been strong if we if we look at the.

Leasing that includes our pipeline and and when we included in pipeline, Brian We have a pretty high level of authority that it will.

leasing that includes our pipeline, and when we include it in pipeline, Brian , we have a pretty high level of assurity that it will

Come to be.

We're we have positive absorption.

We're we have positive absorption and you know as as we continue to look through this calendar year

And as as we continue to look through this calendar year.

We're very close including the pipeline to overall, 90% occupancy.

We're very close, including the pipeline, to overall 90% occupancy, and we can break it out for you. Part of that slight dip that you mentioned was the CIM portfolio that we acquired did have slightly lower occupancy than our existing portfolio, so that was factored into the purchase, right?

And we can break it out for you part of that slight dip that you mentioned was the CIM portfolio that we acquired did have slightly lower occupancy than our existing portfolio. So that was factored into the purchase.

And <unk>.

how we're looking at driving occupancy, that is new opportunity for us. We didn't lose deals, and we didn't lose existing tenants, which is what I really focus on. Thank you.

How we're looking at driving occupancy.

That is new opportunity for us we didn't lose deals and we didn't lose existing tenants, which is what I really focus on.

Alright, thank you.

Okay.

Thanks, Brian .

Thank you.

We have a next question from the line of Barry Oxford with Colliers, please go ahead.

We have a next question from the line of Barry, Oxford with Colliers. Please go ahead.

Great. Thanks, guys, Hey, Michael to build on the opportunity or for the for the leasing.

Great. Thanks, guys. Hey, Michael, to build on the opportunity for the for the lead.

I know it's hard to tell, but where do you think occupancy could be by year-end so that we can kind of have an idea how to build that model out as far as contributing NOI from a year-to-date model? I don't think so. I don't think so.

I know, it's hard to tell but where do you think occupancy could be.

By by year end, so that we can kind of have an idea of how to build that that model out there.

As far as.

Contributing NOI from from the vacant space.

So Barry, nice to talk to you. Thanks for for joining.

So very nice to talk to you thanks for joining.

Yes, no worries.

As you know, we've never given guidance, so I really need to think through how to give you a better understanding.

As you know we've never given guidance, so I really need to two.

Through how how to give you.

Sure.

The way to think about that week.

the way to think about that. We continue to have positive absorption in the quarters. We're seeing the...

We continue to have positive absorption in the quarters, we're seeing the.

We're seeing the trends to be in line with what we saw last year and.

We're seeing the trends to be in line with what we saw last year.

And.

At.

I still think that this portfolio will be.

I still think that this portfolio will be in the.

In the.

Mid 90 occupancy whether Thats 90 394.

mid 90 occupancy, whether that's 93, 94. And we should be able to get there during the course of the next, I would say,

And we should be able to.

Get there during the course of.

The next I would say four to six quarters.

right but i think it is pretty good color you know if the seven leases that you started getting ready to take action he said he had like sixteen out i mean that's a pretty good clip i mean do you think you can kind of keep that clip up

Right.

Pretty good color.

Leases that you're sort of getting ready to take occupancy that you said you had like 16 out I mean, that's a pretty good clip I mean do you think you can kind of keep that clip up.

I do I do because.

I do, I do, because... Okay, okay, that helps, that helps.

That helps.

Yeah, as we've indicated, you know, these properties are really well located in strong suburban markets. We've got a significant exposure to the Sunbelt markets, and we have a very active.

Yes, as we've indicated these properties are really well located in strong suburban markets. We've got a significant exposure to the sunbelt markets and we have a very active.

uh... at that management platform will have a a large presence that i think that the this year uh... we've really come to the market with the the necessity retail re being where america shops we've expanded our relationship with the existing national tenants uh... so yes we're very positive on on where we can go with that

Asset management platform.

We will have a large presence at ICSC this year.

We've really.

Come to the market with the necessity retail REIT being where America shops, we've expanded our relationships with existing national tenants.

So yes, we're very positive on where we can go with this.

Great, great and switching gears, but sticking with the timing C.

at switching gears but sticking with the timing um... theme uh... you indicated about two hundred fifty million al for sale uh...

You indicated about 250 million out for sale.

Is there a timing on that is that going to be more towards the back of the year or could we see it more in the middle of the year.

Is there a timing on that? Is that going to be more towards the back of the year, or could we see it more in the middle?

As it looks now, I think that's going to be in the second half of the year.

As it looks now I think thats going to be in the second half of the year.

Okay, Okay and then.

On the disposition front.

Are there properties in the CIM portfolio that you feel just don't fit, and that could also be another source of dispositions? Or when you look at the 81 properties, you're like, look, Barry, we see opportunity in just about all of them.

Other properties in the CIM portfolio that you feel just don't fit in that could also be another source of dispositions or when you look at the 81 properties you like.

Look Barry we see opportunity in just about all of them.

So, Mary, I've talked about it last quarter also, and we feel the same way. The CIM portfolio was very high-quality, open-air shopping centers, so we really

So.

Barry I've talked about it.

Last quarter also and we feel the same way.

CIM portfolio was very high quality open air shopping centers, so we really.

like the portfolio that we acquired. There are a couple of assets that we think have significant value from a disposition standpoint, and that view hasn't changed. One of them is called the plant.

Like the portfolio that we acquired.

There are a couple of assets that we think.

Have significant value from a disposition standpoint, and that view hasn't changed.

One of them is called the plant.

out in San Jose, just a very valuable piece of real estate with a great shopping center on it. So we'll continue to look strategically. For the most part.

Out in San Jose.

Very valuable piece of real estate with a great shopping center on it. So we will continue to look strategically for the most part we intend to.

We intend to own and operate these properties because we see real upside and

Owned and operate these portfolio or are these properties.

Because we see real upside in <unk>.

addition to NOI, but there are a few that we will look at for sure.

Addition to NOI.

But there are a few that we will look at for sure.

Okay, great. Appreciate the color. Thanks, guys. All right. Thanks, Barry. Yep. Yep.

Okay, Great I appreciate the color. Thanks, guys, alright, Thanks, Barry Yep Yep.

Thank you. We have next question from the line of Mitch German with JMP Securities, please go ahead.

Thank you we have next question from the line of Mitch Germain with.

M. P Securities. Please go ahead.

Hi, Mitch.

It's going on.

About the two remaining properties that youre acquiring.

Versus.

The remainder of the CIM portfolio. It seems there significantly bigger size value is there any characteristics you can point to.

of the CIM portfolio. It seems they're significantly bigger size value. Is there any character

No, it's just for these two assets, they have very specific loan assumption process. One of them requires rating agency review. That was part of the original loan doc. It has nothing to do with the buyer or the seller. It's just taking a longer period of time.

No. It's just the for these two assets they have very specific loan assumption process.

One of them requires.

Rating Agency review.

Just that was part of the original loan Doc has nothing to do with the buyer or the seller.

And it's just taking a longer period of time.

And the other loan is held by a LIFE Co.

And the other.

The other loan is held by a life co.

and their process has just been...

And their process is just been.

A little slower than some of the Servicers that we've had to deal with but.

a little slower than some of the servicers that we've had to deal with, but...

We don't we don't see it as problematic, it's just been slightly different timing.

We don't see it as problematic. It's just been slightly different timing. Gotcha, and then, correct me if I'm wrong, but I thought the original expectation was you were gonna be assuming some debt.

Gotcha and then.

Correct me, if I'm wrong, but I thought the original expectation was you were going to be assuming some debt.

And it Didnt appear.

My My last review is that it.

Should I think about that the majority of the remaining purchase prices on that assumption or how yes.

Okay got you Okay. That's it for me. Thank you, yes, yes, nothing changed Mitch in.

That's it for me. Thank you. Yeah. Yeah. Nothing changed, Mitch, in how the acquisition was constructed, and different pieces had different characteristics. Appreciate it.

How the acquisition was constructed and different pieces had different characteristics.

I appreciate it.

Alright, Thanks Mitch.

Thank you.

Thank you. Ladies and gentlemen, we have reached the end of the question and answer session and I'd like to turn the call back to Michael Weil, CEO , for closing remarks. Over to you, sir.

And gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Michael Weil CEO for closing remarks over to you Sir.

Right, thank you. Well, again, thanks everybody. We always appreciate you taking the time out of your day to hear the update. Necessity Retail, the quarter, the start of the year was very productive. We anticipate

Thank you well again, thanks, everybody and we always appreciate you taking the time out of your day to hear the update necessity retail REIT.

<unk> started the year was was very productive we anticipate continuing to post these results with the completion of the acquisition and we look forward to talking to you.

continuing to post these results with the completion of the acquisition, and we look forward to talking to you. We'll either see you hopefully at NARIT or ICSC, so thank you for your time this morning. Thank you. Ladies and gentlemen, this concludes today's conference.

We'll either see you hopefully at NAREIT or ICSC. So thank you for your time this morning.

Yeah.

Thank you ladies and gentlemen. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.

Okay.

This F? F.

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