Q3 2022 Essential Properties Realty Trust Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to essential properties Realty Trust third quarter 2022 earnings Conference call.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
This conference call is being recorded and a replay of the call will be available two hours. After the completion of the call for the next two weeks.
The dial in details for the replay can be found in yesterday's press release. Additionally, there'll be an audio webcast available on the central properties website at Www Dot central properties Dotcom.
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 essential properties. Thank.
Thank you Sir please go ahead.
Yeah.
Thank you operator, and good morning, everyone. We appreciate you joining us today for our central properties third quarter 2022 conference call here with me today to discuss our operating results repeating the bodies are president and CEO and Mark Patten our CFO .
During this conference call, we will make certain statements that may be considered forward looking statements under federal Securities law.
Actual future results may differ significantly from the matters discussed in these forward looking statements. We may not release revisions to these forward looking statements reflect changes after the statements were made but I just don't risks that could cause actual results to differ materially from expectations from top or disclose 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.
Thank you Dan.
And thank you to everyone who is joining us today for your interest in essential properties.
As our third quarter results indicate our portfolio continues to perform at a high level with record level unit level coverage of four two times.
Same store rent growth of one 7% and just three vacant properties.
This strong performance is a testament to our disciplined underwriting process there was.
Zillionths sea of our service oriented and experience based tenancy and our consistent recycling of capital out of weak performing properties.
On the investment front.
We remained active in support of our long standing tenant relationships and we continue to adjust cap rates and sellers expectation throughout the quarter to better reflect the abrupt moves in the capital markets.
With quarter end leverage of four four times and liquidity of nearly $900 million our balance sheet is well capitalized for continued investment.
We are committed to maintaining a conservative balance sheet and investors should expect us to remain well within our historical leverage range of four five times to five five times.
We are establishing 'twenty twenty-three F F O per share guidance at $1 58 to $1.64.
Which implies 5% growth midpoint to midpoint.
This earnings growth projection.
Relative to the double digit growth experienced over the last two years.
Also results from our measured external growth outlook.
Current volatility in the capital markets.
And underlying investment spreads.
Turning to the portfolio.
We ended the quarter with investments in 1572 properties that were 99, 8% leased to 329 tenants operating in 16 industries.
Our weighted average lease term.
Stewart at 14 years with only four 2% of our ABR expiring through 2026.
From a tenant health perspective, our.
Our weighted average unit level coverage ratio sequentially improved to 4.2 times this quarter with our percentage of ABR under one times coverage declining to just three 7% of ABR.
Versus six 4% last quarter.
We expect this positive trend among our lowest coverage cohorts to continue as east statistics still remain negatively negatively skewed by our trailing 12 month reporting convention, which lags our own reporting by one or two quarters and the fact that various municipalities we're still placing.
The restrictions on certain industries in the back half of 2021.
During the third quarter, we invested $195 million through 27 separate transactions at a weighted average cash yield of seven 1%.
Which was up 10 basis points versus the prior quarter.
These investments were made in 13 different industries with approximately 60% of our activity coming from the quick service restaurants.
Equipment rental medical and casual dining industries.
The weighted average lease term on our investments this quarter was 16.5 years.
The weighted average annual rent escalation was one 6%.
Weighted average unit level coverage was four four times.
The average investment per property was $3 8 million.
Consistent with our investment strategy 80, 90% of our quarterly investments were originated through direct sale leasebacks, which are subject to our lease form with ongoing financial reporting requirements and 68% contain master lease provisions.
Looking ahead to the fourth quarter, we have closed $60 million of investments to date and our pipeline remains active at increasingly higher cap rates.
From an industry perspective.
Earliest childhood education remains our largest industry at 13, 5% of ABR.
Followed by quick service restaurants at 12, 6% met.
Medical and dental at 11, 4% and car washes at 11%.
Of note unit level coverage for early childhood education portfolio continues to increase above pre pandemic levels. As our offers operators have experienced strong pricing power due to favorable supply demand imbalance.
From a tenant concentration perspective, our largest tenant represents three 7% of ABR at quarter end and our top 10 tenants account for only 19.4% of ABR.
Tenant diversity is an important risk mitigation tool and differentiator for us and is a direct benefit of our focus on unrated tenants and middle market operators, which export offers an expansive opportunity set.
In terms of dispositions, we sold 12 properties this quarter for $35 5 million in net proceeds.
Six 2% weighted average cash yield with a weighted average unit level coverage of one two times.
As we have mentioned in the past owning fungible and liquid properties is an important aspect of our investment disciplined as it allows us to proactively manage industries tenants.
And unit level risks within the portfolio.
We expect our level of dispositions to remained elevated in the fourth quarter.
As cap rates for individual granular properties remained near historic lows.
With that I'd like to turn it over to Mark Patten, our CFO , who will take you through the financials and the balance sheet for the second quarter.
Sure.
Thanks, Pete and good morning, everyone.
As was evident in our release last night, the third quarter was another solid quarter for us with our portfolio continuing to produce consistent internal rent growth and our balance sheet and liquidity in a highly favorable position.
Among the headlines last night was our F O per share, which on a fully diluted per share basis was 38 cents, an increase of 15% versus Q3, 2021 what.
On a nominal basis, sorry, I thought Oh totaled $53 5 million for the quarter up 13.3 million over the same period in 2021, an increase of nearly 33% and up nearly 6% compared to the preceding second quarter of 2020 two.
We also reported last night that our <unk> per share for the nine months ended September 32022 totaled $1 15 per share on a fully diluted per share basis, which is a 19% increase over the same period in 2021.
On a nominal basis, our year to date 20 twenty-two F O totaled $153 million, that's an increase of $44 million over the same period in 2021, an increase of nearly 36%.
Total G&A was approximately $7 9 million in Q3 2022 versus $5 6 million for the same period in 2020 one with the majority of the increase relating to an increase in noncash stock compensation expense.
Our third quarter cash G&A moved higher sequentially by approximately $800000 of.
Of which nearly $300000 was a one time item relating to the expensing of costs associated with an amendment that lowered the rates on our 2027 term loan, which we were required to write off.
Our cash basis G&A as a percentage of total revenue was up during the quarter, but we continue to expect this percentage to rationalize through the balance of 2022 and into 2020 three.
Turning to our balance sheet I'll highlight the following.
With our $195 million and three Q2022 investments are income producing gross assets reached $3 $8 billion at quarter end.
From a capital markets perspective, we had a very strong quarter from both a debt and equity perspective.
In August we completed an overnight offering that was upsize based on strong demand, which generated just over $190 million of net proceeds.
We also generated approximately $20 million of net proceeds in the early part of the third quarter from our ATM program.
As we reported with our second quarter 2022 earnings call, we closed a $400 million five and a half year term loan this past July .
We completed the 2028 term loan through an amendment of our credit facility and at closing, we drew an initial $250 million, which we swapped to fixed during the third quarter.
In October we drew the remaining $150 million that was available under the 2028 term loan.
$50 million of which we have salt swap to fixed and we expect to swap the remaining 100 million to fixed in the near term.
Our net debt to annualized adjusted EBITDA was four four times at quarter end.
At quarter end, our total liquidity stood at nearly $900 million, our conservative leverage position strong balance sheet and significant liquidity position continues to be supportive of our current investment pipeline and sufficient to fund our future growth plans in 2020 three.
Lastly, I'll reiterate that our current investment pipeline outlook for the core portfolio and our continued strong performance. This quarter provided us with the basis to maintain our 2022 <unk> per share guidance range of $1 52 to $1 54, which as we've previously noted implies a 14% year over year growth.
Right at the midpoint.
Lastly, as Pete mentioned in our release last night, we issued our <unk> per share guidance for 2023 at a range of $1 58 to $1 64, which implies a 3% to 7% growth at the low and high ends of the range relative to the midpoint of our 2022 F O per share guidance.
With that I'll turn the call back over to Pete.
Thanks, Mark operator, let's please open the call for questions.
Thank you Sir at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue. You May press star two if you would like to remove your question from the queue.
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One moment, please while we poll for questions.
Okay.
Our first question comes from the line of Nick Joseph with Citi. Please proceed with your question.
Hi, there, it's a mixture on for Nick Joseph This morning.
Quick one for me just wondering what if you could quantify sort of what being more prudent means on the acquisition market versus you know.
The average quarterly acquisition volume, which I think you've all said is around $220 million.
Yeah, I mean, and we quantify that so and our in our materials and I'd be reluctant to put a number on that you know certainly the markets have been volatile.
And we're fortunate to be in a position, where we have ample capital to invest in our <unk>.
<unk> pace will really depend on you know what's going on in the capital markets and our ability to move cap rates with with our our relationships in and so we're trying to moderate expectations, but I'm you know, it's it's obviously a dynamic time and yeah. It will.
It depends on what the market spring.
Yeah.
Sure and then it takes to that and then a quick follow up on that is if there's sort of a.
The threshold on cap rates that you think would bring you back into the markets would be a little bit more active on acquisitions going forward.
Yeah, I'd stop short of providing a threshold and you know we price each in each individual <unk>.
Transaction based upon the you know the our.
Our view of the appropriate risk adjusted returns for that transaction.
And and you know that.
We make investments to create accretion and so you know there's no hard number there, but certainly given our current cost of capital and where cap rates are where we're being a little more judicious than we have in the past because the spread isn't as wide as we've seen.
Yeah.
Great. Thanks.
You got it thank you and congrats to Nick.
Okay.
And our next question comes from the line of RJ Milligan with Raymond James. Please proceed with your question.
Hey, Good morning, guys I guess I'll start with my Boilerplate question here and you know how do you view your current cost of capital what is it and how do you calculate it.
Yeah. So you know as I said to Nick you know where we were.
We're not we don't love our current cost of capital, but that said.
We were fortunate to raise capital earlier in the year and have capital to deploy that's already been raised we also have the ability to raise capital through capital recycling kind of in that low six range as you see through our accelerated disposition.
Activities and kick it over to Dan to kind of give you the specifics on on how we think about it but you know stop short of giving a specific number at this point because obviously it's been.
Pretty volatile, but Dan go ahead, yeah, Adrienne in terms of our WAC you know, we always look at our implied cap rate as kind of a shorthand way to to look at that which is around $6 six.
Okay, and then we look at our the traditional weighted average cost of capital analysis, which we view as a 50 40 10 mix of equity debt and free cash.
Dividends and when you do that math, you put everything together and weight. It you know our weighted average cost of capital as you know anywhere between six four and six eight.
And that's about a 75 to 100 basis point spread versus where we're seeing our pipeline today on an initial yield basis and on a straight line basis, you can add another.
90 to 100 basis points to that.
That's helpful and then I guess for the 60 million acquired so far this quarter what was the average cap rate.
What was the average cap rate.
I would add into seven to seven two yes. So you know listen we tend to think about the cap rates on the overall pipeline and certainly based upon you know the you know that.
Mix of deals that we have and in any given quarter, but I'm. So seven two on that 60, I think a better you know we'd want to be more a wider range.
Uh huh.
Low to mid sevens for the entire quarter.
Got it so certainly accretive accretive.
Accretive deals so far this quarter just based on your current WAC.
But a little bit tighter spreads.
I think that's accurate yes.
Which is once you know kind of goes part and parcel with a.
Tempering our investment appetite.
Makes sense. Thank you.
Andre.
And our next question comes from the line of Wendy MA with Evercore. Please proceed with your question.
Hi, Good morning, everyone and thank you for taking my question.
My first question here.
Would you mind talking about you are in terms of acquisition pipeline and how much all acquisitions are like in the pipeline and also giving out for Q acquisition to date how.
How would you compare to those historical levels.
Yeah, So 60 million quarter today.
Would indicate you know a a you know pace relatively consistent.
With with historical levels and as I said in the prepared remarks, our pipeline.
Remains robust, but I'm you know, it's it's certainly it's a volatile market and you know there is there is a bid ask spread with buyers and sellers given the volatility in capital markets and you know typically the fourth quarter is a little elevated them on a historical basis, given you know that.
Tax motivated sellers at year end so.
You know, it's a little early in the quarter to put a fine point on that but.
But the pipeline is full we're seeing good opportunities, but you know, we're continuing to try to push cap rates to to.
Get sellers expectations to meet ours.
Okay. Thanks, and my second question is it.
Does it trying to economic slowdown or is it me session impact any of your tenants and yeah. Do you have any expectation for far too long for the remainder of this year and how would you think about your occupancy going into next year.
Yeah listen I first I would start that you know we we expect you know continues to be you know kind of as it always to have our occupancy high because we have very fungible assets.
Assets are subject to very long dated leases mm and very little rollover and so.
I would not I would be I would not expect R.
Our occupancy to dip materially.
And in the fourth quarter or next year.
As part of our operating assumptions, we model credit losses, both for situations that we anticipate and situations, we don't anticipate in those assumptions.
Would be embedded in the guidance and one that we reiterated for this year.
<unk> for the guidance that we provided for for for next year.
You know all that said the portfolio is in a great spot.
Our coverage is at a record level, we continue to and see improvements in our LOE lower performing cohorts, which are you know.
Our operators with our sites with coverage below one and a half or below one we see that pool continuing to migrate smaller.
And it's a you know it doesn't feel like there is a recession.
With what we're seeing and hearing from our tenants.
The portfolio is operating in a really good fashion at this point.
Okay. Thanks, that's helpful.
And our next question comes from the line of <unk> St. Juste with Mizuho. Please proceed with your question.
Hey, there good morning.
I guess I'll follow up on guidance.
For next year I'm curious what gave you the confidence I guess to put it.
Guidance range out there given the challenging macro shifting capital markets and asset pricing you mentioned I'm curious what are the underlying assumptions for new equity capital recycling and leverage parameters within that guidance.
Yeah.
Yeah handle that one.
One of the one of the factors that gave us confidence and issuing guidance is I guess two one is it's a wide range.
Of guidance into it has a very wide range of assumptions underlying.
Those the guidance and that relates to raising.
Raising capital buying assets and the cap rates at which we're deploying capital so.
Unfortunately at this point you know, we're not in a position to give more clarity.
You know on those specific components, because as you point out there there.
They're pretty volatile, but we are confident in the range we provided.
Looking at a wide range of scenarios around all of those inputs.
I would say one of the biggest factors.
That contributed to that level of comfort is the fact that you know we have a lot of capital availability is already built into our balance sheet as we sit today with.
Our leverage at historic low levels in nearly $900 million of of liquidity.
Okay fair enough.
A separate question I guess on the July debt offering I think you guys had to see a 150 million floating on a five year I think he mentioned you like $50 million of that so I guess I'm curious first of all can you walk us through the thinking there and why you didnt pursue long term fix for all of the spectrum.
What's the plan for the remaining 100, but that Hasnt been a what are you looking for when should we expect them to fix that.
Yeah, I'll, let Marc tackle the specifics on the term loan you know in terms of you know it.
Issuing longer term paper.
No we.
I have to go to the term market on a short term basis, because it was just much more efficient than you know where the long term 10 year unsecured bond market was in and given our maturity schedule and debt profile, we had ample.
One way to layer in that that you know very efficient five year execution, but I can give you the specifics on when we drew it when we fixed it and what we have left.
Though we may have mentioned this on the second quarter call, but I'll hopefully may.
Maybe reiterating it so apologies for that but you know first and foremost as Pete mentioned the.
The unsecured bond market are really through the balance of this year has been pretty dislocated frankly has gone from dislocated to extremely dislocated and so we opted for the term loan execution.
Even though we really modeled in.
The anticipation of doing a fixed unsecured bond deal.
As it relates to the actual term loan itself and the execution of.
Our initial draw was was really kind of an indication of our initial.
What we thought our initial capital need was from that borrowing.
So we you know once.
And once we decided that we sort of lagged our way into swapping that the fixed you can see that in our debt schedule I think the weighted average rate is four four.
So once we you know frankly once the markets continued to be choppy and frankly looking like they were going to be challenging for quite some time, we decided to draw the remaining 150 in October .
Once again, we kind of leg doorway and then started to swap that that's probably going to not be too north of where we were swapping the first 250.
And I think that's gonna be buttoned up actually pretty quickly.
Okay. Thanks, and then one more on <unk>.
I guess that tenant categories watch list I'm curious on any categories and specifically concerned about here in a recession any anything incremental on the watch list and I guess I'm, particularly curious about town sports, what's your sense of what's going to happen there.
Yeah, I guess, you know on a macro basis. The watch list is is as low as it's been in in a good spot and.
I think our first level of concerns really become more tenant specific.
And less industry specific you know really looking at tenants that may have weaker balance sheets or maturities or just not be as good operators and that's 10 to who we folk.
Tend to be who we focus on but as I said overall the.
The portfolio is in a great spot and we don't have any high level concerns going into recession.
Some people will point to casual dining is one of the first industries to kind of fall off in a recession and you know, we'll certainly watch those operators very closely is if this if this recession sets and certainly doesn't feel like it at this point.
As it relates to the town sports.
That used to be a top tenant of ours that company went through a bankruptcy and a restructuring a new entity.
You know what.
Turning to our sites.
You know coming out of that bankruptcy over a year ago.
And in that entity continues to struggle and we were fortunate to re lease those three assets away from that entity with a new operator.
It represents probably about 50 50 basis points of ABR and you know we think we've put those assets in better hands at this point so.
So we don't have any specific concerns or specific commentary about how town sports is performing.
Performing.
Great.
I had a follow up I've got a question from an investor. If you were willing to comment on the guide for next year. If you could I know, it's a wide range you put out there with a wide range of assumptions, but the question is can you get to the midpoint of our guidance without new equity.
Yeah, I, you know listen we can.
And you know it's.
It's yeah.
There's a lot of variables and we can we can play with with all of them and we could get to the midpoint without issuing additional equity.
Okay.
Actually without issuing additional debt, but just using the credit facility.
Is kind of what I would add.
And staying well within our historical range of four and a half to five and a half.
And.
Okay got it that's important I appreciate you highlighting that.
That is important.
As a reminder, if you'd like to ask a question. Please press star one.
Our next question comes from the line of Greg Mcginniss with Scotiabank.
Scotiabank. Please proceed with your question.
Hey, thanks for taking them.
Question I. Appreciate your time this morning, I'm, just trying to think about it.
And kind of the best way to view. This was moderated approach towards acquisitions and made me first in context, and if you had if you had had this view for this approach at the beginning of Q3.
How might that have impacted the level of acquisitions and cap rate achieved.
Yeah listen I think we had a similar level of caution going into Q2, and and we had a similar messaging in that quarter ended up around 175.
175 million that are probably a seven instead of 10.
And so you know it's.
It really is it the markets really dynamic.
We are fortunate to have ample investment capacity and the pace at which we put that capital to work will really depend upon you know the market and our ability to bridge. The current bid ask spread that exists between buyers and sellers.
If that bid ask spread you know narrows and and and we're able to get the yields. We think appropriate then we could end up doing more if if that bid ask spread persists and sellers. You know continue to you know hold expectations that are tethered to you now.
The earlier market, then you know our our acquisition levels could be extremely muted.
And you know that's a wide range and.
It's kind of too early to really tell how what that might look like.
And I guess I'm thinking about this.
Spread that you're seeing today, yes.
If you it's it's the acquisitions didn't come in the seven one the sellers were looking for.
Is it your expectation that the deals just want to have happened at all.
Or is there just enough buyers right now and that you're still kind of maintain cap rates I guess with everyone's dealing with the same kind of increase in cost of capital.
Now what what portion of that change.
Yeah, I think there's certainly been a change in the competitive landscape.
Landscape with the you know the private and the leverage buyers becoming you.
You know less.
Less aggressive.
And the public markets also becoming a little less aggressive.
You know, we we and doing sale leaseback transactions with long standing relationships you know our competition tends to be with alternative capital sources, you know it could be debt financing it could be equity it could you know it could be.
However, these companies decided to capitalize themselves away from us and so you know, it's we're not necessarily just competing against you know real estate cost of capital, but capital solutions across the spectrum all of which you're currently repricing.
And so it's hard to say, whether the transactions just wouldn't have happened or they would've happened away from us.
Yeah at a different rate or would've happened away from us with a different capital source.
But I think probably some combination of that.
Okay. Thank you.
Thank you Sir.
And our next question comes from the line of Joshua <unk> with Bank of America. Please proceed with your question.
Everyone to similar questions one just now.
You know, what's what's competition for your AR.
The buying competition out there like today and then the conversations with sellers.
They recognize that buyers cost of capital have changed and like what kind of pushback or they may giving on pricing at this point.
Yeah, the by the competitive environment as I kind of just alluded to is you know kind of a a little bit muted with the private buyer going away that said you know.
Public buyers are increasingly searching for yield and we're finding some some peers come into our space and it's getting a little more competitive from that perspective, and so on balance, it's still pretty competitive but not as competitive as it was say in the first.
Quarter of the year or even in the fourth quarter of last year.
And you know listen we're buying from surface.
Sophisticated sellers that are run operating companies and and they recognize what's going on in the markets and they live it through their businesses and are you now understand.
You know how cost of capital is working and you know what's going on in the interest rate environment and.
So they certainly see it doesn't mean, they're necessarily willing to to pay it.
And there's kind of a price discovery process that we're going through now.
Got it that's it for me thank you.
Yeah.
And our next question comes from the line of John Masako with Lindenberg Thalmann. Please proceed with your question.
Good morning.
Or Jeff.
And you got to look at the cap rate environment today, maybe how wide the spread in terms of cap rate between.
What was closed during the quarter or maybe even in the pipeline as of quarter end versus what you're kind of bringing into kind of the under PSA or LOI bucket.
Yeah.
Scott that's really hard to look at certainly in the pipeline because it that that number is as I said kind of earlier in the cause is widely dependent upon the mix of deals the size of the operators in the industry is at where.
Investing in our <unk>.
Cap rates have moved up 2030 basis points throughout the course of the year. If you look at the seven two we just disclosed on the subsequent activity versus kind of six nine and so you know I think that 30 basis points, you know us as a good proxy as any.
I mean that level of expansion you've seen this year is something that's.
I mean, maybe your visibility and as you think about acquisitions theyre going to enter.
And our that PSA LOI bucket in November December even January of next year.
An additional 30 basis points.
And additional.
You know Oh.
<unk> an analyst that's that's one of the reasons why we're trying to moderate investment.
Our expectations is we would like to see that another 30 basis points and we think it's appropriate.
But we're not sure we're going to get it and if we don't get it we will likely invest less.
And so.
We are pushing cap rates recognizing that our cost of capital has moved and endeavoring to get as wide investment spread as we can while continuing to service our relationships and protect our relationships.
But I.
I do think you know continuing to move that cap rate it is warranted.
And then on the acquisition side have you seen any tenants that may be kind of priced out of being attractive targets because they'd become.
A more institutionalized or.
People, who enamored with the kind of credit.
Come back into kind of pricing range that makes sense for doing for.
For you to kind of target from an acquisition perspective.
Yeah, I think we've seen a fair amount of that where deals.
The first or second quarter priced away from us or priced away from where we thought the appropriate risk adjusted return was.
That went to other buyers, maybe a private buyer or someone else who didn't perform or re traded.
And come back to us.
Based upon our certainty and reliability.
You know at higher cap rates and so there's a fair amount of that as you would expect in end markets that are as choppy and volatile disease.
And then on the disposition side of things.
I mean, I know there's language in kind of the prepared remarks about dispositions being elevated in the back half of the year you should we view what happened in <unk> is kind of an elevated pace of dispositions or could that accelerate further.
Yeah.
You know, we disclose our our eight quarter average for for a reason we think that's a good indicator of what to expect.
You know the third quarter is elevated I would stop short of setting expectations beyond that.
That said you know we have a very liquid portfolio retail buyers that market remains active and the cap rates in that market have not moved as much as one would expect so it remains a attractive source of capital for us and so.
You know I think.
The third quarter expectation is probably reasonable going forward.
Okay very helpful. That's it for me. Thank you. Thanks.
Thanks, John I appreciate it.
And our next question comes from the line of Chris Lucas with capital One Securities. Please proceed with your question.
Hey, good morning, guys three questions for me So one bigger picture question Pete you've been at this.
<unk>, a long time and I guess I'm, just curious as to what you see.
Or your experience has been is what a normalized spread between acquisition cap rate and cost of capital should be in this business, Oklahoma a long period of time.
Yeah.
It's.
It's kind of ebbed from as high as 300 to as low as a you know a.
180.
You know I would say certainly north of 100.
It should be a reasonable threshold.
As a.
As a spot estimate.
But I do think that you know overall the asset class has evolved and theres greater appreciation for the durability of the asset class in that.
There was excess spread given the inefficiency in the asset class in and I would expect that excess spread to come out over time as people have a growing appreciation for the durability of these assets through various cycles.
Okay. Thanks for that and then.
Just in terms of the conversations you're having with potential sellers is their motivations changing at all given the environment or is it still essentially what it was say a year ago were three four years ago.
Yeah, I would say they're.
Given me, we're doing you know call it 90% sale leasebacks.
And in sale leaseback motivations tend to be driven by.
A you know a defined defined set of catalysts.
Business M&A growth acquisition tends to be the largest of that there could be some you know equity recaps or debt refinancing that could be part of that as well.
And so those factors changed slightly.
But the vast majority of our sale leaseback transactions are driven by our relationship tenants that are seeking to grow and bye bye.
By up competitors in and grow in adjacent markets.
Okay and then last question for me just relates.
Prior question, which is.
You mentioned that your the retail buyer cap rate.
It's been a little stickier.
Do you think because your typical asset is smaller more liquid and therefore more likely to find it all cash buyer.
That cap rate will be stickier over time.
Absolutely.
That's you know that's.
That's a key fundamental of why are we buy assets and how we look at an asset and in the risk of owning that asset is our ability to to have liquidity and selling that asset and to the extent that the.
The end buyer is not.
Tethered to a third party financing.
What you tend to see in a call it a $1 million to $4 million of asset that you wouldn't see in Florida.
Million dollar asset.
Cap rates are going to be a lot more stickier.
And then less.
Tied to interest rates.
Great. Thank you that's all I had this morning.
There are no further questions at this time I would like to turn the floor back over to Pete My voice for any closing remarks.
Great well. Thank you all for your time today. Thank you for your questions.
Certainly a dynamic time that we're navigating through in and we appreciate your diligence and working.
Working with us and we look forward to meeting with you all in the upcoming NAREIT take care and have a great day.
Okay.
Yeah.
Yeah.
Yes.
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