Q4 2022 Broadstone Net Lease Inc Earnings Call
Hello, and welcome to the Brookstone net lease fourth quarter 2022 earnings conference call.
My name is Bruno and that will be the operator of today's call.
Please note this call is being recorded.
I will now turn the call over to Michael Russo Senior Vice President of corporate Finance investors relations at Brookstone. Please go ahead.
Thank you operator, and thank you everyone for joining us today for broad so net leases fourth quarter 2022 earnings call on today's call you will hear prepared remarks from Chris Our Nike, John Marina and Ryan Albano, Kevin will also be avail.
<unk> for the Q&A portion of this call.
Before we begin I would like to remind everyone that the following presentation contains forward looking statements, which are subject to risks and uncertainties that can cause actual results to differ materially due to a variety of factors.
We caution you not to place undue reliance on these forward looking statements and refer you to our SEC filings, including our Form 10-K for the year ended December 31, 2022 for a more detailed discussion of the risk factors that may cause such differences any forward looking statements provided during this conference call are only made as of the date of this call.
With that I will turn the call over to Chris Donaghey.
You, Mike and good morning, everyone.
As this will be my last earnings call before stepping down from my role as CEO at the end of demand.
Want to open the call by acknowledging that sincerely thanking all of the B Enel employees directors and capital providers for their support during my leadership tenure.
I'm incredibly grateful to have had the opportunity to serve P&L stakeholders for the past 13 plus years, Andrew I've served as CEO since 2017.
I am also very pleased with our board's decision to elevate our current chief operating officer, John Miranda to the role of CEO Upon my departure.
Having worked closely with John for more than a decade I am extremely confident there is nobody better suited to lead <unk> into its next chapter.
John knows our business inside and out and is beloved by our employees for a service oriented leadership mentality.
He serves all with great humility and intelligence.
John is an exceptional leader of the company already and you will make a phenomenal chief executive.
I'd also like to congratulate lineup Arnaud and Kevin final on their new roles as President and Chief Financial Officer, respectively. Both are highly deserving of these new roles and responsibilities and are excited for what is to come.
Finally, I want to welcome Jessica Doran and Laura for lease to the P&L Board.
Both are exceptional individuals with impressive professional backgrounds that will help support and guide the company for years to come.
Jessica has a deep background in retail and private equity from her current role as CFO with TSB consumer and REIT tax matters from her days at Deloitte.
Laura's background is also in retailing with her 10 years at Clarks and now as CFO at Bj's wholesale club.
Along with a deep audit background from her time at Pwc.
The entire board is very excited to be able to welcome. These impressive individuals' to an already strong group.
And with that I'll turn the call over to John and the rest of the executive team here today. Thank you, Chris and good morning to all of you who are joining us today before we jump into D&S fourth quarter full year 2020 results I would like to begin by thanking Chris for his immeasurable and a numerable contributions to the company over the past 14 years in particular during his service as our CEO .
Since 2017.
P&L it would not be what it is today without Christmas humble leadership at <unk>.
Selfless dedication to all of our stakeholders.
Chris This vision as CEO and steadfast commitment to our growth over the foundational blocks for VNS that have guided us ever since.
He believed in small ego big shoulder leadership.
That taught us all how to contribute to the greater good pursue continuous improvement create a service oriented and fulfilling culture and did so in a way that was never about him.
I am immensely grateful for his mentorship and friendship.
And I'm confident that Chris is enduring legacy of D&O will be felt through our deep commitment to stewardship transparency and value creation.
The Foundation Christmas Lei will help support <unk> bright future for many years to come.
I'm also grateful to both Chris and our board of directors for their confidence and support me for that.
It looks to continue to deliver exceptional results alongside the same talented team.
Works closely with since joining the company.
Now turning to our results.
I am pleased to report a strong fourth quarter to closeout 2022.
Credibly proud of all that we accomplished during the year and the results we were able to deliver for our shareholders. Despite facing a challenging market backdrop.
With over $900 million of accretive investments more than 99, 9% recollected minimal vacancies and proactive capital markets execution.
We're able to deliver full year 2022, <unk> of $1 40 per share.
Presenting six 9% growth over the prior year.
Closing out 2022, with a conservative leverage profile.
Five two times net debt to annualized adjusted EBITDA.
Ample liquidity, we are well positioned to continue to selectively pursue attractive investment opportunities in 2023.
For me 2022 was the perfect installation of what makes our diversified investment strategy, so dynamic and frankly undervalued by the market.
Throughout 2022, our broadly diversified by box provided us with unparalleled flexibility in Q1, we invested $210 million and 27 properties with 87% of the ABR coming from restaurant and retail assets.
Fast forward to Q4.
A significant period of macroeconomic uncertainty rising.
Rising interest rates.
Dislocation between cost of capital and asset pricing in the transaction market struggling through price discovery as sellers are slowly forced to adjust their expectations.
Responding to all of this disruption.
Shifting our focus to industrial assets, where we saw cap rates expand at a more accelerated pace due to a sector specific supply and demand characteristics as many private leverage centric buyers, who rely on asset level financing exited the market due to rising debt costs.
With this shift we finished the year with 72% of our total investment activity concentrated in our industrial vertical as we were able to transact at higher cap rates and achieve better risk adjusted returns for our shareholders.
During 2022.
Our weighted average acquisition cap rate expanded 100 basis points from Q1 to Q4, representing the largest expansion of any net lease REIT.
Some buybacks that spans multiple core property types, and taking a disciplined but nimble approach to where we allocated capital allowed us to maintain accretive investment spreads without compromising our underwriting standards.
During the fourth quarter, we invested approximately $310 million in 17 properties at a weighted average initial cash cap rate of six 7%.
As for new acquisitions include a strong weighted average lease term of approximately 20 years and solid 2% rent escalations translating into an attractive weighted average GAAP cap rate of 8%.
As discussed on our previous earnings call fourth quarter acquisitions were largely driven by the single largest sale leaseback transaction in <unk> history.
Opportunity directly sourced from an existing relationship to acquire seven mission critical industrial facility leased to a food manufacturer with a long standing and successful operating history.
As our new single largest tenant exposure at 4%, we feel confident that the tenants focus on defensive end user products deep industry relationships and a strong track record uniquely positions the tenant to perform across all market cycles. In addition to seven locations, our master lease well located and represent 100% of the <unk>.
Companys production capabilities.
While Q4 represents the largest quarter of activity for 2022.
We intentionally slowed our acquisition pace during the quarter as it became clear to us that additional price discovery and expectation resetting needed to occur.
Rob really reflect an appropriate risk reward tradeoff.
Dominantly all of our Q4 transactions were closed by early November and had been underwritten and signed up in late summer.
Solid capital markets execution earlier in the year allowed us to lock in a favorable cost of capital that translated into accretive investment spreads on all acquisitions completed during Q4.
Heightened selectivity in the second half of the quarter translated into full year investment activity just above the low end of our guidance range, but has positioned us to continue to prudently grow in 2023.
We will continue to employ this more measured approach to external growth in the near term as price discovery persistence.
As always we remain focused on only pursuing opportunities where risk and return are appropriately calibrated.
As stewards of our shareholders' capital, we do not believe in growth for growth's sake, and we will take a disciplined prudent and selective approach to deploying our capital.
We are currently focused on deploying available dry powder in handle that supports a accretive spread investing at prevailing market cap rates.
Quarter end, we currently have $5 $2 million of investments under control, which we define as having an executed contract or letter of intent.
In addition, we currently have $36 million in commitments to fund revenue generating capital expenditures with existing tenants.
We continue to see creative ways to partner with our existing tenants in an effort to supplement our routine sourcing efforts.
In addition, we will continue to Accretively recycle capital through strategic dispositions in 2023.
During the fourth quarter, we sold three properties for net proceeds of $39 2 million at a weighted average cash cap rate of five 8%.
Subsequent to quarter end, we executed a simultaneous lease buyout and sale of an office asset for total proceeds of approximately $39 5 million.
Translating into an all in exit cap rate of approximately 6%.
Opportunistic asset sales such as the not only provide additional dry powder to be accretively recycle.
But also help to mitigate both residual and credit risk in our existing portfolio.
With this sale and on a pro forma basis, we have reduced our office exposure to five 9% of our ABR from six 5% at year end and we will continue to look for opportunities to reduce our Standalone office exposure further in ways that generate strong returns for our shareholders.
As for the health of our existing portfolio as of year end, all but three of our 804 properties were subject to a lease and our properties were occupied by 221 different commercial tenants across 55 industries.
Portfolio's weighted average annual rent escalation remains at 2% and the weighted average remaining lease term was 10 nine years.
With significant ongoing economic uncertainty that may persist for an extended period of time.
We have increased the scrutiny of our internal portfolio review process and credit stress testing in light of the current backdrop of note.
The new operator at Santa Cruz Valley Hospital, now known as Green Valley Medical Center continues to work through their licensing and accreditation process. It is on track to complete these steps and begin accepting patients later this year.
In addition, we are monitoring carvana situations closely and remain confident of the mission critical nature of the industrial asset we leased to them and its underlying residual value.
Finally, we sold three of our Red lobster properties in 2022 for gains at attractive cap rates and we'll continue to look for opportunities to decrease our exposure over time.
We currently own 19 of the original 25 properties, we acquired in 2015 and 2016 at high six cap rates all of which are subject to a master lease and are located in strong retail corridors in large population centers. Despite.
Despite those areas of increased attention our collections continue to pace then that leads the industry with more than 99, 9% collected for the year, which with the exception of 2020 during the Covid pandemic when our collections were still top tier in the net lease space continues a seven year track record 99, plus percent rent collections since becoming a public.
Putting coupled.
With some of the lowest tenant concentrations in the net lease space.
Really diversified operating model creates a lower risk profile than a simple investment grade rated percentage would otherwise indicate.
Geographic Tennant brand and industry diversification provides a defensive hedge against any singular tenant credit events.
Confident that our thoughtfully constructed portfolio is built to perform across all market environments, including the one we find ourselves in today.
With a disciplined prudent and selective approach to growth this year.
No material debt maturities until 2026.
Conservative leverage profile robust liquidity and solid portfolio performance I believe <unk> is well positioned to capitalize on 2023.
And build momentum throughout the year for differentiated growth in 2024 and beyond.
With that I will now turn the call over to Ryan. Thank.
Thank you John and good morning, everyone I'd like to first start with an overview of our current balance sheet positioning and recap some of the capital markets activities. We completed during 2022 and have positioned us to operate in a period of economic uncertainty while also pursuing selective growth in 2023.
Our active balance sheet management and capital markets execution throughout 2022 <unk>.
Have positioned us for success, both in the near and long term.
During the year, we judiciously raised capital focused on creating near and intermediate term financial flexibility via many of the capital market's tools available to us.
This approach allowed us to lock in attractive investment spreads on all acquisitions completed during the year build dry powder that can be accretively deployed during this period of extended pricing discovery.
And our debt maturity profile to provide greater flexibility in light of capital markets volatility hedge our interest rate exposure in response to aggressive fed monetary policy and provide ample cushion to operate during the economic uncertainty that lies ahead.
As I outlined on our previous earnings call. We entered into two new unsecured bank term loans in August which allowed us to extend our debt maturity profile and lock in attractive relative cost of debt.
We currently have no major debt maturities until 2026, and while we intend to be repeat issuers in the investment grade bond market in the future. The actions. We took during 2022 provide us the flexibility to access the long term debt markets when conditions normalize.
In addition, during the year, we sold a total of approximately $10 5 million shares of common stock at a weighted average sales price of $21 66 per share for net proceeds of $223 million under our ATM program.
While we did not use the ATM during the fourth quarter opportunistic use of the program in the first half of the year fueled most of the accretive acquisitions completed during the last two quarters of 2022.
<unk> has been and will continue to be a core component of our overall capital market strategy as of year end, there was approximately $145 million of capacity remaining on the current program.
Finally, as I outlined on our previous earnings call. We completed a forward settled public offering of 13 million shares of common stock at a price of $21 35 per share in August of last year.
We settled all outstanding forward equity during Q4 on December 28 for total net proceeds of approximately $273 million.
Following settlement, we ended the quarter with leverage of five two times on a net debt to annualized adjusted EBITDA basis.
As of year end, we had approximately $825 million of liquidity.
As John stated we are focused on selectively deploying this available dry powder on opportunities that are not only accretive but are appropriately priced on a risk adjusted basis.
<unk> earnings coupled with strategic asset sales will continue to bolster available dry powder, while also strengthening our balance sheet.
Now turning to our financial results during the quarter, we generated <unk> of $65 6 million or <unk> 36 per share, which represents 6% growth over per share results from the same period last year.
Q4, <unk> per share results represent approximately 3% growth quarter over quarter, largely due to early quarter acquisition closings.
Given our heightened deal activity during the second half of Q4, we do not expect to benefit next quarter from the tailwind, we typically experience from linked quarter acquisition closings.
As for full year 2022 results, we generated <unk> of $252 million or $1 40 per share, which represents six 9% growth over our 2021 results.
Full year <unk> per share results landed at the top end of our final guidance range at the midpoint of our initial guidance range.
We incurred $7 8 million and $32 1 million of cash G&A expense during Q4 and for the full year respectively.
Total cash G&A expenses incurred during 2022 landed just below the midpoint of our guidance range straw.
Strong and consistent operating results during 2022 translated into two dividend increases during the year. Our board of directors has maintained a 27 five cent dividend per common share and unit to holders as of March 31, 2023 payable on or before April 14th 2023.
This represents an increase of three 8% over the annualized dividend amount from the first quarter of 2022.
The dividend continues to be well covered with <unk> payout ratio in the mid to high 70% range and represents an attractive dividend yield relative to many of our net lease peers.
We will continue to evaluate additional future increases to our dividend with our board on a quarterly basis.
Finally, we are introducing initial 2023 guidance today.
With an <unk> range of $1 40 to $1 42 per share, which represents an implied growth rate of one 4% at the midpoint.
This more modest estimate of year over year growth is driven by the strength of our 2022 results and reflects our patients and highly selective view on growth opportunities in 2023.
We hope to revise our guidance upward as we progress further into the year and gain more clarity into both the pace of asset repricing and conditions in the capital markets for now we are providing conservative guidance range that reflects the following key assumptions.
Acquisition volume between $300 million and $500 million.
Disposition volume between $100 million and $150 million total cash G&A between $32 million and $34 million.
As a reminder, our per share results for the year are sensitive to both the timing and amount of acquisitions dispositions and capital markets activity that occur throughout the year.
And with that I will turn it over to Chris for closing remarks.
My time at broad stone has been an incredible experience that far surpassed any expectations I had when joining the company.
I'm deeply grateful to have had the opportunity to serve for many years and in many roles.
The best has always been being part of the team at BMO and living our one broad zone mentality with them.
The board and I have the utmost confidence in John Brian and the entire management team, who have a long history of working together.
They will continue to uphold our track record of success in delivering long term value for all of our shareholders.
I look forward to cheering on all of their successes. Thank you everyone.
Operator, you can now open the lineup for questions.
Okay.
Ladies and gentlemen, if you'd like to ask a question. Please press star followed by one on your telephone keypad now.
I would like to cancel the question press Star.
I would like to.
And please also remember too and mutual microphone.
Okay.
Our first question is from Ronald <unk> from Morgan Stanley .
Your line is now open. Please go ahead.
Hey couple of quick ones.
First congrats to both of you on the management changes.
Im just curious as you sort of thinking about taking the helm.
Anything that we should expect different or is it just more of the same anything organizationally strategy wise.
Thanks.
Thanks Ross.
Strategy standpoint.
The endpoint I think the way, we're thinking about 2023 as an opportunity to look or defer.
Differentiation for us the catalyst for this type of growth in the multiple expansion that we believe this portfolio deserves we'd be the same weather were sustained or we're in the position that we are today.
No daylight between Chris Ryan and myself.
The entire time, we've been working together until.
So the strategy and the way that we're thinking about evaluating portfolio evaluating opportunity set and looking to provide the type of long term shareholder value that we have and we believe that this portfolio can provide would be the same.
Similarly, the type of <unk>.
A stewardship, the transparency and the commitment to growth and our commitment to value for our shareholders that Chris has instilled in us over this year's at bastone, and particularly as CEO .
We absolutely hope to be able to continue and to honor him in that way and so that's what you should expect to contingency from us going forward.
Great and then what about organizationally.
In terms of like the reporting structures or any anything like that.
Sure.
The biggest changes are the two that you've got on the phone with you right now beyond me.
Ryan into his new role as President and Chief operating officer, and sitting over our real estate functions. That's an area that Ryan had.
And into more and more over the years and really is.
Sort of at the heart of how his brain works. So we're excited to have him as a part of that and bringing his deep experience as our CFO over the last six or seven years into that role and.
It really providing sort of.
Forest level Big picture view of the market the industry, how our real estate investments and.
Full asset lifecycle fit into the broader capital markets and Investor Relations picture, So thats, an exciting area for us.
And then elevating capital Kevin into the CFO role.
Really deep capital markets expertise from his time in previously with us with BMO as well as in the last three or four years that you spent with US. So we're excited to have Kevin step into that role and so those are the two major reporting changes that you oversee.
Otherwise, we've got a really incredible team of people that I believe is the smartest group that we've got in the industry on working incredibly hard to provide value for our shareholders.
Excellent for my second question, if I could just switch to the acquisition pipeline.
Obviously the acquisition guide of 400 million, maybe if you could give a little bit more color in terms of where you guys are seeing cap rates trending and what sort of the sweet spot.
That you guys wanted to be executing at clearly high sixes, maybe low sevens to get to the spreads.
Love to hear a little bit more commentary on the ground.
Yes sure.
Now that we're looking at high <unk> low sevens.
It's sort of a triangulation among a number of different things, but including the spread how we're thinking about risk adjusted return trying to match up what the opportunity is with our cost of capital and still making good prudent selective decisions.
That disciplined prudent prudence that we are bringing I think is evident in the first quarter pipeline. What you are saying, we've got $5 million under control at the moment there are a handful of things that we're looking at including one.
Fairly significant large off market opportunity that we're evaluating right now that could shift those numbers, but just not at a point, yet where we felt comfortable including it in the under control numbers.
But the place that we've spent a lot of our time focusing on is the opportunity set in this space generally right now the top of the funnel is in line with what we would consider more normalized at least volumes.
21, and 2022 had much heavier volumes and what you have seen in this industry on a normalized basis pre COVID-19.
So in terms of.
Sort of routine volume that we're seeing in the first quarter and works out to $20 billion to $25 billion in opportunities on an annualized basis that we would review.
So definitely a slower start to the year than what people have been used to the last couple of years, but there's still plenty of good opportunities that are out there heavily weighted for us in terms of what we believe is actionable towards industrial but theres been a lot of retail that's been on the market this year as well.
The cap rates in industrial as everyone saw last year moved much further and faster than the other areas that we invest in retail and restaurants are coming along certainly in the investment grade space has stayed in that high fives low sixes.
So thats not something that we're spending much time on right now health care hasn't moved as much. We're currently in a little bit of a place where it feels like the heavier movement you saw on cap rates throughout the assortment.
Last nine months period of 2022 has maybe slowed a plateaued a bit but at the same time, there's still lots of opportunity that are out there, where we feel like price expectations are still getting reset.
Price discovery is continuing and the risk reward trade off on these assets there is still a little bit of room to grow so we're cautiously and carefully monitoring these things.
And with our $400 million midpoint of guidance on acquisitions. It certainly will be more back end weighted than what it was last year. When we were a little bit more smoothed out with roughly $200 million every quarter with 300 in the fourth quarter.
But we're completely open to reevaluating that guidance as the year goes on and if the opportunity set or our cap rate excuse me, where our cost of capital changes in the way, where we believe that we can increase that acquisition guidance, we absolutely will.
Great. That's it for me Super helpful.
Our next question is from Kevin Kim from Truest Kim Your line is now open. Please go ahead.
Thanks, Good morning, and.
Congratulations John and best wishes Chris.
First question on the new top tenant Roskam baking company can you just help us understand the deal and operate at a little better just given the tenant concentration I noticed that they were.
<unk> bought out by a private equity company like a year ago or two years ago, just trying to better understand the credit quality and potential risk with the company.
Sure Hi, keeping its Ryan.
We're very pleased with this deal.
Ed.
Sense of industry from <unk>.
Food processing perspective, again, that's a place that we have talked about before.
I'd like to play.
We acquired six assets that are.
Basically the entire production.
The company itself.
They have from a financial perspective.
Our spot defensive position in terms of their ability to pass through and protect margins pass through costs and protect margins.
The leverage is generally.
Moderate.
Calibrated very well too.
The private equity starting point.
And we feel good about the investment overall.
And since it's the entire comp production.
For the company.
You probably have a good sense of where the rent coverage ratio is relative to their EBITDA, what does that look like.
Yes, we don't typically look at rent coverage four manufacturing sites themselves, where food processing sites rather.
We're looking at the credit profile of.
The tenant for the corporation as a whole similar to how banks would underwrite it from a lending perspective.
Primarily because the numbers that are going through the facilities themselves.
Arent all that debt relevant from a coverage perspective, we spend more time thinking about how much manufacturing capacity. They have at each site how much of that theyre utilizing how much of that is open for additional.
Production capabilities, where they would need to add new lines. Those types of things are the things that we focus on at the actual site level.
Less so from a general coverage perspective.
And just second question on Red Lobster any updates you can share on recent conversations you've had with the operator and any updates on <unk>.
How their business is doing overall.
You bet.
I don't think its a secret that theyre going through some difficulties right now.
Hi Union has been very open about that publicly.
As they've talked about their results for the year and Thats not so.
Prior to us or anyone else, we've had routine conversations since the Thai union deal ever since Covid.
Making sure that we're aligned in understanding how their businesses are operating.
We continue to have comfort with our investment in Red lobster.
They are the sites that we have are specifically picked at the time that we did those deals in 2015 and 2016.
So these weren't sort of.
Having to take our portfolio and as we were able to go through and pick the ones that we thought were going to perform well over time as you heard during the prepared remarks. These were.
Located in strong retail corridors. These are in the same strip because youre going to see an olive garden, Walmart Longhorn Steakhouse Outback just <unk> you name it.
Really good average five mile population of about 150000, plus so we feel really good about the real estate itself.
Understanding that red lobster is going through some difficulties right now.
We're looking at this as how do we think about the investment overall from the time that we purchased these assets today and through essentially exiting the position as you heard we originally had 25 sites, we sold six of them over time, including three last year. The three we sold last year.
<unk> were flat fixed cap rates and in terms of dispositions that compares against the highest weighted average acquisition cap rate for these back in 15 and 16.
If you take the rents that we have received over time from Red Lobster. In addition to the disposition proceeds that we received.
We've already received back more than 75% of reference 75% of our initial investment in these assets with 19 of them still to go. So we've looked at how do we continue to recoup our investment and get to a spot where we feel very comfortable that we're going to have.
Well more than our initial investment back in June .
Understanding the difficulties, we will look for opportunities to continue to reduce our exposure over time, but they continue to pay their rent.
No indications otherwise and so we feel that we can take a patient methodical approach to that.
Exposure for Us and if you look at where it was at the beginning of 2022 today, we dropped at 50 basis points and overall ABR exposure from two one to one 6% so and in the right direction.
Confidence in our ability to manage that through to conclusion.
Hi.
Sorry to belabor the point, but any near term rent cuts.
In the cards.
Not for us.
Something that I know.
Being discussed, but it's not something that we're currently interested.
Okay. Thank you.
As a reminder, ladies and gentlemen to ask any further questions. Please press star followed by one on your telephone keypad now.
Our next question is from Eric Gordon from BMO capital markets.
Eric Your line is now open. Please go ahead.
Hey, good morning, Thanks for taking my question I, just maybe following up on the guidance.
Just given the sofa curve typical seasonality how should we think about acquisitions throughout the year.
On your assumptions for the expected move in cap rates.
Okay.
So we've looked at a cap rate or the fed.
Sort of plateaued, a little bit I think that's natural with.
The type of year end activity that usually seen in the fourth quarter, where expectations sort of settle in as people are sort of just putting our head down and trying to get your year end activity, which is always happier than otherwise.
All of that.
Slower start to the year.
There has been this bit of a pause.
Tom.
The information we're seeing.
Mark.
But we're looking at from our brokers.
Uptick again in the type of repricing discussion cap rate.
Expectations, but we believe.
Okay.
Alright.
Okay.
Yeah.
Yeah.
Given the risk return trade off that we're seeing relative to the current macroeconomic backdrop.
As part of the reason why you're seeing such a selective approach in the first quarter and what sort of leaning more towards.
The belief that our acquisition pipeline will result in a heavier back end weighted to the year.
So our belief is that theyre still selling.
But.
Thanks.
Going to be opportunistic.
Risk adjusted returns.
Against.
Enhanced.
We're in a position relative to the opportunity set or our cost of capital, where we can execute and win.
Okay.
We will absolutely look to increase our acquisition guidance.
If things come to pass.
So currently thinking on a conservative basis, more backend weighted with a little bit of cap rate movement, but if opportunity set at a cost of capital just in place we will adjust both of those forward in the year and look to increase as we can.
Great. Thanks, and then just on the latter.
Last question.
Could you just elaborate a little bit more on that.
What are the discussions youre, having the type of tenants the potential impact to ABR.
Additional color there would be very helpful.
Yes, we're not in active discussions are actively considering red cliffs for any of our tenants right now.
I don't know if things get tossed around a lot given where people sit and I think it maybe is a little bit more prevalent in the last couple of years as people think about the COVID-19 environment or thinking about movie theaters.
The way that those have been handled since then but we're not actively considering giving rent cuts to any of the tenants.
Nothing in the watch list that we think about.
Particularly somatic.
That would lead us to a place where we think that those are coming the ones that are on there right. Now are the things that we talked about during the prepared remarks, it's red lobster, keeping an eye on carvana keeping.
Keeping an eye on Santa Cruz, which has now agreed valley Medical Center.
And do you feel confident in where all three of those are headed or our ability to manage those through what might be a difficult period.
Alright. Thank you and then last from me on the development side $30 million pipeline currently in place is that.
For the quarter or is that your assumption for the year and then what's the expected commencement period on those projects.
The yields there.
So it's not a full year projection doesn't just currently a spot number that we have we've taken a pretty proactive approach in the last couple of years too.
Sort of enabling our property management asset management teams to spend more time working with our tenants to find rare.
Our revenue generating capital expenditures that we can have that supplement our existing sourcing efforts.
This is just a spot number.
Comprised of a handful of different ones. So there's different timelines on these different yields but one of the reasons why we focused on which is probably an assumption that youre, making a question, but one of the reason we focused on is that by working directly with our tenants and finding ways to partner with them.
For their success, we're going to get better yields with lower transaction costs than we do on the open market. So this is an attractive area for us to be allocating capital and we're going to be looking to do as much of it as we can this.
This year and every year going forward for those reasons.
Thank you.
Okay.
We currently have no further questions I will now hand back to Chris <unk> for final remarks. Please go ahead.
Thank you just want to again, thank all of the folks in the broad stone universe for all the support you've shown me over the years I am incredibly grateful and more importantly, I am even more excited about the future of this team I know they are locked and loaded and ready to continue to execute on your behalf and we'll look forward to see.
You soon at a number of industry events throughout the spring and so thank you and have a great rest of your week.
Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.