Q2 2022 Broadstone Net Lease Inc Earnings Call
All facets of our business.
Before I dive into Q2 operating results I'd like to take a moment to reiterate how our diversified net lease strategy defensively positioned us in today's dynamic market environment.
As I've stated on previous calls our diversified strategy uniquely positions P&L relative to many of our net lease peers to perform across all market cycles and economic backdrops.
Relative to other REIT sectors net lease has proven to be both defensive and resilient during periods of economic stress.
And we feel that our differentiated strategy, well constructed and highly diversified portfolio along with a fortified balance sheet provides us the flexibility to navigate periods of dislocation where changes in cap rates by changes in cost of capital.
Diversification provides both defensive and offensive advantages during challenging economic times.
Our strategy continues to offer unique benefits during the current rising rate an inflationary environment.
We are confident that our strategy positions us to achieve both defensive internal growth as well as consistent and accretive external growth in the face of current economic pressures.
From a defensive perspective, our portfolio of 764 properties is comprised of 213 tenants diversified across 57 industries with no single tenant accounted for more than 2% of annualized base rent.
Granular diversification, coupled with strong weighted average annual rent escalations of 2% translates into consistent and reliable same store growth.
Our portfolio has been deliberately constructed to withstand any single tenant credit event.
Many of the industries in which we are invested or non discretionary in nature and are better positioned to withstand economic downturns.
In addition, while our portfolio is comprised of many non investment grade tenants hyper diversification has proven to synthetically create a lower risk profile than a simple investment grade metrics would otherwise indicate.
I am pleased to report 100% of base rents were collected during the second quarter and the portfolio was 99, 8% leased as of quarter end.
From an offensive point of view, having a wider by box that includes multiple property types allows us to pivot quickly in response to sudden or dramatic changes in cost of capital.
Clearly the long term cost of debt for all net lease Reits is considerably higher today when compared to year end in.
In addition, the cost of equity has changed year to date format lease rates, but more specifically those focused on non investment grade tenants.
Brian will provide details in a few moments on our capital markets execution and balance sheet strategy and how we are proactively manage this part of the business to position ourselves well for the remainder of the year.
While cap rates in certain asset classes have experienced increases year to date, we have yet to see meaningful expansion in cap rates commensurate with the changes in cost of capital experienced year to date.
During this period of dislocation our diversified approach to investing has given us the ability to pivot quickly to maintain accretive spreads on new acquisitions.
We've been forced to be more selective given the environment. We're pleased with the opportunities that we have chosen to pursue year to date.
During the second quarter, we invested $182 million 15 properties at a weighted average initial cash cap rate of six 4%.
The leases include a strong weighted average lease term of approximately 20 years and solid two 1% annual rent escalations translated into robust weighted average GAAP cap rate of 8%.
Our diversified approach to investing has allowed us to adjust our capital allocation decision, making in response to sudden changes in our cost of capital.
While we closed many transactions during the second quarter that were committed to in Q1, we are pleased with the meaningful expansion and a weighted average initial cash cap rate quarter over quarter.
Although investment spreads are not as wide relative to where they were last year. We're pleased with both the near and long term accretion produced by Q2 transactions.
Acquisitions completed during the quarter were more heavily concentrated to industrial opportunities at 82% with a smaller percentage of retail and healthcare transactions at 11% and 7% respectively.
The heavier concentration to industrial during the second quarter helps to balance out a first quarter that included more restaurant and retail transactions.
We were able to source several attractive opportunities this past quarter that I'm pleased to provide additional detail on.
During Q2, we acquired eight industrial properties in five separate transactions for a total of $149 million.
The leases include weighted average annual rent escalations of two 2% and a weighted average 22 year lease term.
These transactions include several unique opportunities, including the expansion of an existing tenants facility.
Last year, we completed and announced a two property sale and leaseback transaction of our refrigerated food processing facilities located in Wisconsin.
At the time of the initial transaction the tenant was well underway with a significant expansion of one of the purchased facilities, which.
Which we agreed to fund a portion of the costs upon completion, which occurred in the second quarter.
This unique opportunity to support an existing tenant as they invest in our assets and grow their business showcases our partnership based approach to investing.
In addition, we completed a sale and leaseback transaction on our portfolio of hardwood floor manufacturing and distribution assets during Q2.
The properties are master leased and located across several attractive markets in the southeast we were able to acquire these assets. After several leather buyers dropped out of the process as financing conditions change rapidly.
We continue to see this theme occur in the industrial transaction market and are ready to execute as attractive opportunities such as those present themselves in the future.
During the quarter, we continued to acquire several investment grade assets leased to discount retailers, which are relatively insulated from recessionary <unk> inflationary pressures.
We continue to view small one off investment grade transactions as an attractive complement to our larger sourcing efforts.
Finally, we acquired a single site medical education and lab facility for approximately $13 million.
The state of the art facility was designed and constructed by a leading national developer.
And is dedicated to the tenant's nursing and medical education programs.
This includes a new 10 year term that commenced at the time of completion as well as attractive 3% annual rent escalations.
This opportunity was sourced through an existing develop a relationship and we're hopeful that the relationship will continue to yield additional opportunities in the future.
Since quarter end, we've closed an additional $80 million of transactions and currently have approximately $71 million of opportunities under control, which we defined as having an executed contract or letter of intent.
Was approximately $544 million of acquisitions, either closed or under control year to date, our 73% of the midpoint of our current acquisition guidance I'm pleased to reiterate our confidence in our current full year 2022 acquisitions guidance range of $7 million to $800 million.
The current market environment requires us to remain highly selective but we are confident that our diversified capital allocation strategy will translate into an opportunity set that meets our risk and return expectations in the second half of the year.
With a smaller asset base relative to many of our net lease peers, we're able to produce meaningful growth in earnings with relatively modest levels of acquisitions.
Now I'll turn the call over to Ryan to provide additional detail on our quarterly financial results recent capital markets execution balance sheet positioning and our current guidance for 2022.
Thank you, Chris and good morning, everyone.
The second quarter, we generated <unk> of $62 8 million or <unk> 35 per share, which represents approximately six 1% growth over per share results from the same period last year.
<unk> per share was flat quarter over quarter, when compared to Q1, 2022, which is largely driven by the revenue generated from late Q1 acquisitions offset by accelerated equity raise is derisked, our capital markets execution in the back half of the year ACA.
Acquisitions completed during Q2 were predominantly closed in June and are expected to serve as a tailwind to our Q3 earnings during.
During the quarter, we incurred $9 3 million of total general and administrative expenses.
Which includes $7 9 million of cash expenses consistent quarter over quarter.
Turning now to our balance sheet activity during the second quarter. We are currently experiencing an environment, where investors are concerned about inflation.
Rising rates and the potential for a recession and we remained focused on navigating this dynamic market backdrop through proactive capital markets activity to maintain balance sheet strength and flexibility.
During Q2, we sold three 2 million shares of common stock under our ATM program at a weighted average sale price of $21 42 per share for net proceeds of $68 3 million.
As of quarter end, there was approximately $166 million of capacity remaining on our ATM program.
We ended the quarter with leverage of five three times on a net debt to annualized adjusted EBITDA basis, and remain committed to our conservative leverage profile of less than six times.
Equity issuance in the first half of the year has provided the leverage capacity and liquidity to fuel additional selective accretive growth opportunities in the second half of the year.
We intend to continue to opportunistically utilize our ATM to effectively manage our leverage profile via the match funding of acquisitions.
In addition, we continually evaluate alternative equity raise methods available to us and are prepared to execute as pricing dynamics makes sense relative to our pipeline of acquisition opportunities.
On August one we entered into two new unsecured bank term loans, including a $200 million five year term loan that matures in 2027, and a $300 million seven year term loan that matures in 2029.
Borrowings on our new term loans bear interest at variable rates based on so far are plus in margin based on our corresponding credit rating.
The applicable margin commensurate with our triple B and <unk> two investment grade ratings was <unk>, 95% and one 5% for the five year and seven year term loans respectively.
Proceeds from the term loans were used to repay in total or $190 million 2020 for unsecured term loan and a portion of the outstanding outstanding balance on our revolver.
Given the current state of the investment grade bond market return to the unsecured bank market to both lengthening our maturity profile at attractive relative pricing and provide additional runway until conditions in the debt capital market stabilize.
We currently have no significant debt maturities until 2026.
While we remain committed to being a repeat issuer in the investment grade bond market in the future. We believe accessing the bank term loan at this time was a prudent long term decision that provides a high degree of flexibility and aligns with our current growth objectives.
For fiscal year 2022, we are narrowing our <unk> guidance range to $1 38 to $1 40 per diluted share, which represents an implied growth rate of six 1% at the midpoint over our 2021 results of $1 31 per share.
This revision to our full year <unk> guidance is driven primarily by the acceleration of our capital markets activity during the first half of the year.
Although these proactive and strategic capital structure decisions create a modest short term drag on earnings we believe de risking the balance sheet today will allow us to continue to execute on our growth objectives in the pursuit of long term shareholder value creation.
This guidance range is based on the following key assumptions.
Acquisition volume between $700 million and $800 million.
Which remains unchanged disposition.
<unk> volume between $75 million and $100 million, which remains unchanged and total cash G&A between $31 million and $33 million, which remains unchanged.
As a reminder, our per share results for the year are sensitive to both the timing and amount of acquisition disposition and capital markets activity that occur throughout the year.
Finally at our Board meeting held on July 28, our directors declared a <unk> 27 dividend per common share in OE unit to holders of record as of September 30 payable on or before October 2014, we continue to evaluate additional future increases to our dividend with our board on a quarterly basis.
With that I will turn it back over to Chris for closing remarks.
Thanks, Brian I want to close today by reiterating how this quarter shows some of the key principles in North stars of how <unk> operated how John and Ryan and I think about running this business for the long term.
First and foremost we will always maintain a very diversified defensive portfolio that supports our base of operations and allows us to grow.
Second committed to maintaining a strong balance sheet and thinking long term as evidenced by the seven year term loan that we completed just a few days ago and the pull forward of equity.
The short term trade off that comes from this is something that we will make over and over again as we think on a long term basis of what's best for the company and our shareholders.
Finally, you see very clearly our ability to pivot and the value that comes from our flexible acquisition strategy with.
But Q1 versus Q2 difference and are going into initial cap cap cash cap rates of 70 basis points is the strongest in this space and that is reflective of our ability to move as market conditions change and ultimately drive drive the best possible risk adjusted returns for our shareholders. These.
These three factors are cornerstones of how we run the business and support an exciting and interesting back half of the year, along with a very robust pipeline and so I want to reiterate those factors as to why we think broad zone is the right net lease company for today's environment with that operator, you can open the line for questions.
Thank you, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad. If you would like to remove yourself from the queue. You May Press Star one again one moment. Please for your first question.
Your first question comes from the line of Kim with Truest. Please go ahead.
Yes.
Thanks, Dan and good morning.
And can you just describe the acquisition environment.
Irving and Peter for pricing and how.
The progress for the remainder of the year.
Hey, Kevin would you mind repeating that it got a little choppy out there and I think you were asking about the acquisition environment, but if you just repeat it so I make sure. We hear your question that'd be great. Yeah. Sure. If you can just talk about the acquisition environment.
For pricing and how you how you think.
That's progressing throughout the remainder of the year.
Sure absolutely.
Absolutely maybe maybe ill.
Start off and I'll give it to John to talk a little bit more as well.
I think from a very high level.
A very strong positive that we feel great about is that transaction volume and things that fit our buy box.
We remain very robust and we've talked about it on previous calls for the past year or so that the transaction opportunities that has been very strong to put a little bit of math around that we've underwritten through the second quarter, something north of more than $4 billion than that than we did last year. So that's a significant increase for our size of our company and so that is.
Been a net positive that allows us to both be very selective.
As we're working through this uncertain environment, but also still keep an active pipeline that's very exciting and then rare.
Relative to where our.
Cap rates came in at a six four for this quarter and what's been driving that.
I'd say that.
There's three factors that are ultimately impacting it.
Obviously market dynamics and the competitive set is different than it was a few months ago, we've clearly seen the.
The levered buyer, the p/e backed buyer, where the secured financing buyer all generally exit the market, which has created a little bit of.
Cap rate relief for us and it ultimately.
While certain in certain asset classes excuse me to look more attractive. So you saw that very clearly with the non investment grade.
Meg.
Industrial space manufacturing food storage food processing things like that.
You also see the cost of capital for those who are still active being different and that is changing our return expectations and it ultimately how.
How transactions are being bid.
And those two dynamics have created some interesting back.
Backdrops to the market and certain transactions.
We are seeing bid ranges across a number of sophisticated parties being 100 to 150 basis points wide.
That means you could have some folks coming in at a six cap and some folks coming in at a seven five cap.
And that's an.
And interesting.
Backdrop for the market as well.
And then I'd also couple that up with there is the number of transactions that continue to come out with a certain structure or a certain.
Set of return expectations or parameters around it.
And ultimately might come back two or three more times.
Certain buyer chooses not to perform or is unable to perform and so those are opportunities obviously for stable and established companies with a strong reputation like P&L to be able to execute the last piece of it is clearly our ability to pivot and move between asset classes and you saw that pretty clearly this quarter.
With our move back into industrial and a more significant way, whereas in Q1, we are very heavily weighted towards retail and restaurants and so putting all those factors together, that's really what drove the cap rate differential we saw between Q1 and Q2 I'm not sure I can parse each.
Component of that and tell you one was good for 20 basis points and one was good for 10.
But those are the factors that we see impacting.
The acquisition market as it as we sit today.
Again that pipeline and that size of opportunities does give us a lot of excitement for the back half of the year. So we feel really good about being able to execute.
Within our guidance range and if there's opportunities to go beyond that we can do that as well.
And maybe I'll kick it to John to just talk a little bit more granularly about whats going on in some of the individual property sets, but we ultimately feel pretty good about being able to execute where we are.
Going in basis today and through the rest of the year.
Yes.
The carry forward from what Chris was we are currently on pace to evaluate about $30 billion and opportunities. This year, which is a significant increase over us from even a historical high from last year.
The market remains very competitive, but we think that that plays to our strengths with a diversified and differentiated investment strategy.
Ability to pivot between these asset types industrial retail and restaurant health care.
We think is unique in the space and as Chris said in his remarks, you can see that play out in that 70 basis point increase in cap rate from Q1 to Q2.
We continue to see great opportunities for us with our investment strategy as well as disciplined execution and underwriting standards that we employ in that mid to mid six range up to the high <unk>. So we expect to continue to play in that space.
Industrial in particular is an area, where theres a lot of activity some great opportunities in the pipeline and.
We hope to see some additional in the health care, that's always been something we've talked about this year has been a little bit light retail and restaurants continued to have some good opportunities as well.
But with our strategy, we think the second half of the year is going to be really interesting and we hope to be able to opportunistically execute on some additional growth on the back half of this year from where we stand today.
And second question.
How do you guys think.
The balance between raising equity fund your acquisitions versus selling additional assets.
And obviously that sector.
Prices have been a little bit.
If you just raise equity to buy assets.
The spread is smaller.
Just curious how you think about.
Handling those different avenues.
Sure Luke its Ryan for that.
Sure.
Yes.
Look as we think about the portfolio.
We have certainly thought about dispositions before and media a little bit of a different light today, but not too different.
Frankly, we're always pruning assets that are lower performers disposition.
Disposition strategy.
As we think about assets that exist in the portfolio that we could sell and positively recycle capital.
You take that you think about the frictional costs associated with it and the fact that we really like these assets and want to hold them for the long term, we don't see a very meaningful way to recycle capital through dispositions.
First is our ability to raise equity today at <unk>.
Various pricing levels and put it to work in an accretive manner. So when we weigh those two things out we certainly look at and evaluate it like anybody should from a capital allocation perspective, but feel very comfortable with.
Funding acquisitions through equity rather than shrinking the portfolio.
And incurring a bunch of frictional costs related to assets that we want to own for long term.
Okay. Thank you.
Your next question comes from the line of Michael Gorman with BTG. Please go ahead.
Yes, thanks, good morning.
Chris I was wondering if you could just talk for a minute about how you're approaching your underwriting and as you look at this portfolio of deals that you have out there in this pipeline a lot of discussions in the REIT sector, obviously about the changing cost of capital for buyers in the market, but I'm wondering how that changing cost of capital is having an impact on the tenants and maybe.
How youre thinking about underwriting different financial strengths in different financial structures of your tenants given the volatility in the capital markets.
Yes, absolutely.
I think.
Where we sit today relative to history.
Probably isn't dramatically different.
I think we have been always very downside oriented in thinking about our tenants' financial health and picture.
Probably the difference in the.
The biggest change of where we sit today is obviously, putting a closer lens on.
Retail and restaurant sectors, where.
You clearly could see some incremental pressure on the consumer and making sure that.
We are acquiring the highest quality highest performing site as possible in our portfolio and perhaps doing a little bit.
More up tearing in that regard.
But in terms of just underwriting through regular way industrial or healthcare. The philosophy is very much the same or credit risk team spend a lot of thoughtful and diligent time in conjunction with our acquisition team.
Dress testing each tenant or underwriting.
One of the most common.
Bullet points in an acquisition memo.
They've gone out and stress tested rates rising across the debt stack of a tenant by 400 500 basis points and what does that do to their fixed charge coverage and their ability to meet their obligations.
And then also looking more carefully at downside margin.
Compression that could occur in the same sort of math of margin compressor and compression being 10% or 20% of what does that ultimately due to the tenant's overall.
Set of obligations.
And so I think a lot of that.
Which is embedded in who we are and how we've been able to collect and have such a strong portfolio and a non investment grade basis for the last 15 years.
Just a heightened focus on those type of metrics today more than ever and then obviously thinking about tenants.
Refinancing risk in the same way that we spent a bunch of time talking about our.
Refinancings today and trying to make sure that we pushed out our debt maturities as long as possible.
<unk>.
The capital stack and understanding where a tenant might have future refinancing risk in the next two to three or four years.
Most of our tenants have a pretty good handle on that and are are pushed out a number of years, but that's always a discussion topic as well. So I think those factors are all what we're focused on today more than ever.
Great. That's helpful and then maybe even specifically on the industrial side as you've started to see.
This wider bid range and as you've seen some of the transactions increasingly coming back to market are you starting to see sellers.
Accepting but not the top bid for the certainty of close so when you're entering some of these are you winning transactions, where maybe you are not the top bid just because of your reputation is being able to close and close on time.
Yes, a lot of examples I'll, let John give examples because I'm sure he's got a few of them.
I would just say absolutely we absolutely are winning deals because of that with a 15 year track record of surety to close and not having financing contingencies and.
And also having a reputation in the market with brokers and sellers that we make sure that when we have signed up a deal that we have integrity around the terms that we've underwritten that we have done the work that we need to do to ensure that unless there is some real.
Unknown that comes up during our diligence, we are going to close and that matters in this market, particularly in comparing us with folks that are coming in with financing contingencies or with.
Slightly shorter track record or no track record at all where sellers are looking at it and saying that this is a key part of their business operational and financing strategy and they want to make sure that theyre going to have that cash in hand at the end of this deal.
So that absolutely has played a part in our ability to execute on these transactions.
I would also say I mean.
It's about walking the or.
Walking the walk you were talking to talk.
We continue to honor what we set out four we closed the industrial transaction in early July that we picked up and shook hands on in March and it took a while to close and we honored the spirit of that deal and put a price differently today, probably but for repeat partner that we knew really well with our longstanding brokerage relationship.
It was far more important for us to be the steady hand during this time.
Then.
Squabble over an incremental change there and so I think that's that will continue to serve us well and as John said, it's happening every day with.
Opportunities that we're going after it in today's environment. So.
Okay, Great and then maybe one for Ryan just sticking with the financing side of things.
Clearly understand especially in this market and wanting to take care of pending maturities and I just wonder how you think about it right 2024 is certainly probably further out I think than a lot of other folks would be thinking, but how you balance out potential.
Interest rate drag in the short term versus how far out you are looking at extending maturities and should we take this as some type of indication of your thoughts on where rates are going over the next two to three years or where you think access to capital is going over the next two to three years.
As you think about the capital stack.
Sure.
I think maybe if I sort of referenced back to.
Previous conversations even in last quarters call I believe we talked a little bit about.
The fact that we didn't need to go out to say the bond market or a more permanent financing source until maybe late this year or early next year and it would really be driven by the pace of acquisitions.
Our pace of acquisitions has been very solid and we're excited about that.
We're also very excited about the term loan execution that we just recently had.
As always were really assessing all forms of our debt capital.
And as you pointed out the bond market itself has been a bit choppy in dislocated and frankly, there hasn't been a REIT deal executed since I believe April at this point.
So as we sort of thought through where rates are where rates may be headed without really taking any long view other than the fact of shoring up our balance sheet, creating liquidity and locking in permanent financing, we saw an opportunity while discussing.
Unsecured term loans with our banking relationships and due to the strength of our banking relationships. We did identify the fact that we were able to access a seven year term loan.
So what we just did was a $200 million.
Five year term loan and a $300 million seven year term loan.
At seven year isn't not all reads can access that seven year timeframe from a term loan perspective.
And from an overall pricing perspective on an all in kind of swapped out basis Youre talking to say high threes on that 7% versus the alternative in the bond market.
Call It mid fives on a seven or 10 year, so to us it was a no brainer locking in today lock in the cost of capital from a debt perspective put it out into more permanent financing source.
And if that means a little bit of.
Interim drag or near term drag that was a no brainer that we decided we would take all day long.
Okay, Great I appreciate the color guys. Thank you.
Thank you.
Your next question comes from the line of John Kim with BMO capital markets. Please go ahead.
Hey, guys. Good morning, it's Eric on for John just kind of sticking with the theme of capital markets on your new secured or unsecured facility.
Is that.
It's the reason to keep it variable.
So it gives you more flexibility in the market today than versus swapping that facility.
Sure, maybe I'll, just add a little bit of color. So.
The $500 million total term debt, we used the 190 to pay down our 2024 term loan.
Which was already swapped out so with our balance sheet.
Have a pool of swaps that.
Paul a swap and a pool of unsecured bank debt, which removes.
The majority of that variability.
190 is already swapped out at this point, we are evaluating fixing out the new term loan exposure call. It the remaining 300 or 310 rather.
For five to seven year Tenors.
And thats the all in rate that I was referencing so we're evaluating that right now and likely look to fix some of it out.
Okay.
Perfect. Thanks for that and then maybe one on the watch list.
How has your view changed at all or kind of given the current.
Environment today.
Is there anything that has been added or removed.
Okay.
Okay I'll take that.
In terms of the watch list I'd say, there's been no real material change since Q1.
Only a handful of tenants on it obviously, we continue monitor them and they have.
Varying degree of changes in terms of.
Strength or weakness associated with them, but overall nothing new specifically from a tenant perspective is.
Come on are gone off in any meaningful way from one quarter to the next I'd say, maybe to sort of piggyback off of one of chris's points from a genetic perspective.
We're clearly looking at the market backdrop.
The uncertainty of the inflationary pressures supply chain related.
Dislocations and trying to understand how that really impacts each of our tenants.
So one area that we certainly have focused on is consumer discretionary spending where does that impact our portfolio.
And how do we see that play through.
Chris had referenced the restaurant space, we're keeping an eye on that and a few other sort of consumer discretionary focused basis.
But overall thats more thematic no actual tenant identified that would make its way to the watch list at this point.
Okay.
Okay, great. Thanks, guys I'll leave it there.
Your next question comes from the line of Ronald Camden with Morgan Stanley . Please go ahead.
Just a couple of quick ones just going back to the question on sort of the bank loans.
Asking a different way debt to EBITDA was $5 three.
<unk> ended the quarter, just how high you want to let that go.
You sort of evaluate opportunities before you have to come back to the equity market.
Thanks.
Sure.
As we think about our leverage I think I've said that we're comfortable operating in that low to mid five zone. So we're certainly comfortable operating in the mid fives.
And I think from one quarter. The next we were five one to $5 three we raised some equity off of the ATM subsequent to quarter end.
We've also identified deal so I'd say.
That mid five zone still feels very comfortable to us in this environment.
Great.
This opening comments I apologize if you covered but.
Sort of the.
Acquisitions in Canada.
Last quarter I, maybe can you talk about just what the opportunity set is that market.
What you are looking like.
And so forth.
Sure.
Brian We continue to think about Canada as.
Excluding the portfolio, we did last quarter.
As complementary to what we're doing I think.
This quarter, we looked at schuh industrial portfolios, and we're pretty active and neither of them came to fruition, but they were sort of three plus one internal joke. Its three U S assets in one Canadian asset.
And.
We've.
That seems like that's a good spot for us to continue to differentiate ourselves and.
Add value to a bidding process where.
Purely domestic buyer would only be focused on.
The U S assets, whereas we can provide a holistic solution through a sale leaseback transaction.
And then we also continue to have some dialogue with tenants, who are thinking or looking at space in Canada as well and so.
That is that is sort of where we are for the rest of the year. We also continue to explore if theres more opportunities across the retail verticals within Canada, but that's a little bit more preliminary at this point. So generally focus more on those sale leasebacks, where we might pick up an incremental asset or two as part of a larger portfolio or a diversified portfolio as a way to differentiate ourselves.
The competitive landscape.
Great and then my last one was just on cap rates. Just what are you seeing the most sort of widening and sort of you guys have the opportunity to look at a lot of different buckets, whereas we're sort of at the best opportunities right now for the incremental dollar.
Sure, Yes, I think.
We've talked a little bit about it in the early part of the call but.
Certainly I've seen more widening in the non investment grade industrial space. So again, taking distributions out of it but the light manufacturing food processing has seen some of that widening and then.
Secondarily on the non investment grade retail that has that has also widened out a little bit.
Health care for Us this year, which is sort of our third vertical.
Has.
Been a little bit quieter. So we're we're not ready to call any dramatic pricing movements there.
<unk>.
Investment grade retail space.
Maybe a little bit of widening but because also hung in there because of the type 31 by has been pretty strong so for the incremental dollar and where the pipeline is today more heavily weighted towards that non investment grade industrial space, which is I think were looking at yesterday something like about half of our pipeline right now with the other three verticals.
Fairly equally weighted after that for the remainder.
Helpful. Thank you.
Thanks, Ron.
This concludes the question and answer session I will turn the call to Chris Donaghey.
It sounds good. Thank you so much everybody for joining us for our second quarter earnings call. We continue to appreciate the support of all of our investors and we wish you a great end of the summer and we look forward to be back.
Back in front of view a strong Q3 results in early November .
This concludes today's conference call you may now disconnect your lines.
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