Essential Properties Realty Trust Inc. Q1 2023 Earnings Call

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Good morning, ladies and gentlemen, and welcome to U S.

As a reminder, 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.

Dial in details for the replay can be found in yesterday's press release.

Additionally, there will be an audio webcast available on essential properties Realty Trust's website at www dot essential properties Dot com.

An archive of which will be available for 90 days on the call. This morning are <unk>, President and Chief Executive Officer, and Mark Patten.

Executive Vice President and Chief Financial Officer. It is now my pleasure to turn the conference over to Mark Patten. Please go ahead Sir.

Thank you operator, good morning, everyone and thank you for joining us today for the first quarter 2023 earnings conference call of essential properties Realty Trust.

During this call we will make certain statements that may be considered forward looking statements under federal Securities law company's actual future results may differ significantly from the matters discussed in these forward looking statements. We may not release revisions to those forward looking statements to reflect changes. After the statements were made factors and risks that could cause actual results to differ materially from expectations.

<unk> are disclosed from time to time in greater detail in the company's filings with the SEC and in yesterday's earnings press release with that I'll turn the call over to Pete.

Thanks, Mark and thank you to everyone who is joining us today for your interest in the PRT.

As our first quarter earnings release indicate we had a very solid first quarter.

Highlighted by the strength and stability of our portfolio and our strong investment activity.

Our properties continue to perform at a high level with unit level rent coverage staying strong at three nine times.

Our same store rent growth remaining at one 6% for the second straight quarter and just four vacant properties.

The overall health of our portfolio is a testament to our disciplined underwriting process the quality of our operators and the resiliency of our service oriented and experience based businesses.

With regard to our investment activity.

Benefits of our differentiated strategy and the development of long standing tenant relationships were evident in the first quarter as we acquired 57 properties and 24 separate transactions that we're 100% sale leaseback transactions with 94% of those deals generated from existing relationships.

We were able to increase our initial cap rate to seven 6% from 7% cash cap rate in our first quarter 2022 investments.

And achieve an average annual annual rent escalation of 2%.

19 years of weighted average lease term.

Which result in an average yield over the primary lease term of 9% versus the seven 8% average yield for our first quarter 2022 investments.

Our balance sheet remained conservatively positioned and our liquidity remains strong.

With quarter end leverage of four four times.

And pro forma leverage of four one times when taking into account our unfold unsettled forward equity.

Liquidity of $775 million.

As we've said and have demonstrated consistently we are committed to maintaining a conservative balance sheet.

Based on our first quarter results and our second quarter investment pipeline, we have refined our 2023 <unk> per share guidance to a range of $1 60.

To $1 64.

Which implies 6% growth from midpoint to midpoint.

Turning to the portfolio.

We ended the quarter.

With <unk> hundred 88 properties in our portfolio that were 99, 8% leased to 348 tenants operating in 16 industries.

Our weighted average lease term stood at $13 nine years.

With only five 7% of ABR expiring through 2027.

From a tenant health perspective.

Our weighted average unit level rent coverage ratio at quarter end was three nine times.

And the percentage of our ABR that had a 1.0 rent coverage level continued to decline.

<unk>, just two 9% at quarter end.

Regarding our first quarter investments we.

We invested $207 million.

In 24 separate transactions at a weighted average cash yield of seven 6%.

Which was an increase of 10 basis points versus last quarter.

Our investments included properties and 11 of our 16 focused industries.

With approximately 79% of those investments being made in the Carwash family dining industrial and fitness <unk> industries.

The weighted average lease term of our investments.

This quarter was 19 years.

As I mentioned, the weighted average annual rent escalation reached 2%.

The weighted average unit level rent coverage was very healthy at three three times.

And the average investment per property was $3 4 million.

As I noted in my earlier remarks, 100% of our investments this quarter were originated through direct sale leaseback transactions, meaning that they were completed on our lease form with ongoing financial reporting requirements.

And Additionally, 86% of our investments were in our master lease structure.

Looking ahead into the second quarter, our pipeline remains strong.

From an industry perspective.

Car washes remained our largest industry at 14, 6% of ABR, followed by early childhood education.

At 12, 4%.

Quick service restaurants at 11, 4% and.

And medical dental at 10, 8%.

Of note.

Unit level rent coverage for our early childhood education portfolio continues to increase above pre pandemic levels as our operators have experienced strong pricing power due to a favorable supply demand imbalance.

From a diversity perspective, our largest tenant represents just 3% of ABR at quarter end and.

And our top 10 tenants account for only 17, 1% of ABR.

Both strong indicators of the growing diversity in our portfolio and tenant base.

Diversity is an important risk mitigation tool and differentiator for us and is a direct benefit of our focus on non credit rated tenant and middle market operators, which offers an expansive opportunity set and in our view superior risk adjusted returns.

In terms of dispositions, we sold 17 properties this quarter for $37 2 million in net proceeds at a weighted average cash yield of six 1%.

The weighted average unit level rent coverage ratio for the properties that were sold was two three times.

Owning fungible and liquid properties and capitalizing on that liquidity is an important aspect of our investment discipline and as and as we have consistently held it allows us to proactively manage our industry tenant and unit level risks within the portfolio.

We expect our level of dispositions to revert more closely to our eight quarter average for the remainder of 2023 as we selectively take advantage of favorable market pricing and Accretively recycle capital away from identifiable risks in support of our tenant relationships.

With that I'd like to turn the call over to Mark who will take you through the financials.

Thanks, Pete Pete.

Pete indicated we had a solid start to 2023 as evidenced by our reported results for the first quarter.

Our portfolio continues to demonstrate the high quality of our tenancy and consistent internal rent growth.

As I'll cover in a moment, our consistently conservative balance sheet and strong liquidity position support our aspirations for growth in 2023.

Among the headlines last night was our <unk> per share, which on a fully diluted per share basis was <unk> 40.

That's an increase of 5% versus Q1 of 2022.

On a nominal basis, our <unk> totaled $58 3 million for the quarter, that's up $9 $3 million over the same period in 2022, an increase of 19% and up over 4% comp.

Compared to the preceding fourth quarter of 2022.

We also reported core <unk> per share on a fully diluted per share basis of <unk> 42.

Also an increase of 5% versus Q1, 2022, and which Youll note excludes nearly $900000 of other income that we recognized based on two insurance recoveries we received.

Total G&A was approximately $8 6 million in Q1 2023 versus $8 1 million for the same period in 2022.

Our first quarter cash G&A moved higher sequentially by approximately $1 6 billion.

Of which nearly $900000 relates to the change between our reduction of the Q4 2022 bonus accrual to reflect full year results versus the accrual in Q1 2023 for the 2023 estimate.

In addition, you'll recall that the first quarter consistently has a higher level of payroll tax costs associated with the payout of bonuses that was an additional $300000 of the sequential change.

<unk>, our cash basis G&A as a percentage of total revenue decreased to 7% in Q1 2023 versus seven 3% in Q1 2022 and as I've noted before we continue to expect this percentage to rationalize quarterly in 2023.

Turning to our balance sheet I will highlight the following with our $207 million of investments in the first quarter of 2023 are income producing gross assets reached $4 $2 billion at.

At quarter end.

From a capital markets perspective, we had a very strong quarter from an equity perspective.

In February we completed an overnight offering that was upsized based on strong demand.

When physically settled will generate expected net proceeds of nearly $210 million.

The February overnight offering was executed all on a forward basis.

In March of 2023, we physically settled approximately $105 million.

Of the net proceeds and have nearly a $105 million remaining to settle some time. During 2023, we also generated approximately $21 million of net proceeds in the early part of the first quarter from our ATM program.

Our net debt to annualized adjusted EBITDA was.

Was four four times at quarter end.

When factoring in the proceeds that will generate by physically settling the remaining $105 million of the February offering our leverage at quarter end would equal four one times.

Our total liquidity at the end of Q1 2023.

<unk> totaled $775 million.

Our conservative leverage 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 2023.

Lastly, I'll reiterate that our current investment pipeline.

Our outlook for the core portfolio and our continued strong performance this quarter.

It is with the basis to refine our 2023 <unk> per share guidance range to $1 60 to $1 64 per share, which as Pete noted implies a 6% year over year growth at the midpoint.

With that I will turn the call back over to Pete.

Thanks Mark.

As reflected in our results that we released last night, our portfolio continues to perform exceptionally well and our relationships are increasingly valuing our consistency and reliability and a very challenging capital market environment. We are encouraged by what we see in our opportunity set and we will remain disciplined as we continue to.

Execute.

Operator, please open the call for questions.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad you start using a speakerphone. Please pick up your handset before.

Thank you.

To withdraw your question. Please press Star then Q.

At this time, we will pause momentarily to assemble our roster.

Our first question comes from handles than just with Mizuho. Please go ahead.

Hey, good morning out there.

Peter Good morning couple of questions.

The activity in the first quarter I guess I'm curious on that.

More car washes.

Portfolio.

And while.

While the top category here, and then we'll kind of avionics.

So are you inclined to add more equal and then maybe some color on the range of cap rates involved.

Sure well as.

We said as we've said in the past car wash is one of our top industries and as a tier one industry, we're kind of comfortable in the.

<unk> the 15% range. So you can see where our current.

<unk> exposure is.

We are a little more selective on the incremental carwash deals that we're doing.

Representing the fact that we are almost full.

Ed there's no hard and fast guidelines and we continue to want to do good business with good operators and we have a.

A nice opportunity set of car washes.

I would say about a year ago, a lot of the car wash operators, we're pricing away from us and we were choosing to do business elsewhere.

But given the overall.

Environment and diminished competition, we're seeing more and more a carwash opportunities.

And so we'll be selective and we will continue to invest in carwash and maybe lighten up some on the backend in terms of a range of cap rates really depending upon.

The size of the operator, the the price point of the assets in the market. The assets are in it can be anywhere from a low of a seven cap to a high of <unk>.

775, and maybe up into an eight if we're if we're looking at doing some development deals.

But.

We like the industry has great.

Cash flow dynamics and good rent coverage.

But we'll be selective as we continue to grow there.

That's very helpful. Thank you and similarly, maybe you could talk a bit about the decision that fitness.

Portfolio is a bit of a label surprise given the perfect broken I'm curious why fitness the why now.

How you're underwriting.

Yes in the fitness space.

We've always kind of like the kind of newer mid tier operators.

And with new construction and new facilities, and we have a couple of relationships in that space that have.

Proving themselves to be real good.

Operators and developers in and had a very positive experience in.

And so we've had the opportunity to continue to invest with them and and we've done that.

Fitness was a <unk>.

Small part of the <unk> <unk>.

Investments.

Going back to Covid or experience.

Our negative experiences limited limited to the bigger boxes that were purpose built facilities in <unk>.

Not as new and so we've been selectively going into some some of the newer mid tier fitness centers.

With proven operators and getting good risk adjusted returns.

That's great. Thanks, and last one I guess, maybe just on the improved terms overall that you are seeing some of the basketball pumps.

I think you've seen.

And your relatively brief history, but I guess is that a function of your emerging as a buyer choice and I know you mentioned that you're seeing more sale leaseback I guess I'm curious if this is.

And maybe the new paradigm and reflective of less competition out there and your ability to be more selective.

Yes, listen we feel really good about the terms were getting 2% Escalations for 19 years is pretty powerful.

And its really is the fact that there is some dislocation in the capital markets and the competition.

We would expect that to ebb and flow in I wouldn't stop short of saying Thats new paradigm.

I'd imagine as competition normalizes, we'll see more pressure both in terms of the Escalations, we achieve in and the lease terms that we're able to get but for the time time being it feels pretty good to.

Kind of realize those terms on a long term basis.

Thank you.

Thanks Linda.

Thank you. Our next question comes from RJ Milligan with Raymond James.

Hey, good morning, guys.

Just curious given some of the headwinds are the major headwinds that we're seeing in the banking world I'm just curious in.

Two part question what are you seeing from a tenant perspective in terms of their access to capital or refinancing risk and any potential risks that you are seeing emerge from what's going on in the banking World and then two what youre seeing from an opportunity standpoint.

Given the fact that interest rates have moved up and theres less liquidity out there.

Yes.

Just tackling the second part of that RJ and that kind of goes to handhelds last question is.

Our operators have fewer capital alternatives in.

Are increasingly turning to us to do deals in the quarter, we did 94% of our business was existing relationships in a 100% sale leasebacks and I think that's indicative of what's going on out there.

In terms of our tenants' ability to obtain financing in the bank market that's diminished.

As we're doing deals we're seeing less use of that capital in and more just traditional sale leaseback, coupled with equity and so overall the incremental deals that our tenants are adding on to their businesses.

Are better capitalized and with equity and sale leasebacks.

It does create some refinancing risk and that's something we're watching very closely.

To the extent that.

The tenant has refinancing issue that's going to manifest itself in the implied credit rating and so our credit distribution would be something.

Important to monitor.

But overall, we're continuing to see rent coverage is at high levels.

De minimis credit issues and so.

It's a good environment to invest and we're going to watch our tenants very closely.

Okay. That's helpful and then a question for Mark.

Obviously, you don't need additional equity to fund the growth this year, which is part of your comments, but given the stock price performance one of the few net lease Reits and the Green. This year, how do you think about lining up another forward to just take advantage of the current attractive cost of capital.

I mean.

I think.

The way I'd look at it from the standpoint of the rest of the year.

More likely than not we'd really be looking at the AGM when do that opportunistically.

Obviously, we can do ATM.

On a forward basis that might be.

Do anything right now with the second half of our.

Current forward still out there so.

But doing another forward offering I, just don't see that as something that would be as likely.

Okay, Great. That's it from me guys. Thank you.

Thanks RJ.

Yes, I'm not hearing anything.

Okay.

Thank you. Our next question comes from Greg Mcginniss with Scotiabank. Please go ahead.

Hey, good morning.

So just to ask it Greg.

Taking my question.

Addressed a couple of times here, but looking at it from a different angle.

So given these challenges in the financing market and I realize the vast majority of deals at least in this quarter and generally are from prior relationships, but are you starting to see any new players or verticals looking for sale leaseback capital.

And is that enough to offset any slowdown in deal flow that we might be seeing on the private equity side.

Yeah listen.

When you look at this quarter or.

94% last quarter, and 95% and 94% for that we're leaning into our existing relationships because they're increasingly valuing us.

These are guys, we know and trust and they are providing us with ample opportunities as opposed to really having to venture out and do different industries or different.

Structures.

And let's say, while there is overall a decreased level of transaction volume.

We're winning a higher percentage of the deals that come in and particularly deals with people that know us and trust us in place of high reliability high premium on reliability. So.

I think about.

The rest of the year, it's more likely that we're leaning more disproportionately into our existing relationships than really trying to venture out and find new things to do.

Okay.

And then on the acquisition cap rates, which were up 10 basis points from last quarter, which was already a nice bump from the trailing three year average does it feel like cap rates have settled down at this point.

And maybe this is kind of the expected level going forward or is there still room for upside.

Yes, it feels like we've tapped out.

I would say.

Any given quarter the average cap rate is going to be heavily impacted by the mix of transactions.

Where we're paying lower.

Lower cap rates for things like <unk> and higher cap rates for things like early childhood blend of industries is going to influence that.

Overall cap rate, but it does feel like.

We've capped out and if anything I would probably have.

I have an expectation more in the mid 7% range.

Can you just remind us what your kind of targeted spread is.

Yes, we don't we don't have an articulated targeted spread.

And we've really price deals based upon the individual risk risk returns of that deal looking at the credit the industry.

The coverage in the markets and the.

The relative return on that given the overall opportunity set so that's really not a number we think a lot about.

Okay. Thanks.

Thank you thanks Craig.

Thank you. Our next question comes from Eric <unk> with Citi.

Thanks, Nick.

Nick Joseph here with Eric.

Just wondering as you talk to your tenants or underwrite current yields are you seeing any indications of a slowing economy or changes to consumer behavior kind of on the ground.

We really haven't I mean, we've seen reflected in the kind of first quarter reporting and then yearend numbers that we've been analyzing we have seen inflation pressures.

Kind of creep into the numbers and seen some.

Some pressure on margins.

And.

Yes.

Some resistance to push the push through these increased costs.

But we have not seen I have not seen any indication of changing consumer behavior.

In the industries that we're in.

Thanks in terms of the inflation pressures are there any specific tenants or industry.

Talk a bit more.

Yes, I think.

The <unk> are having some challenges that we've heard and seen pushing it through an.

That price sensitivity tends to be more regionalized.

And we're seeing the early childhood education guys facing.

Sure.

The increasing labor costs.

And the inability to push that through on a real time basis.

They are bumping their prices up but it's.

It's not they can't kind of mark to market is labor increases.

Thank you very much.

Thanks, Nick.

Thank you. Our next question comes from Kevin Kim with Suntrust.

Thanks. Good morning, just wanted to go back to the Carwash topic could you give us a little tutorial on what makes this business attractive to you guys and maybe some potential downsides and historically speaking how sustainable are these businesses.

And lastly, the rent per square foot is about 60 Bucks.

Square foot and I'm, just curious how much of this rent is.

Being basically paying back capex for you to build out costs.

Yes, there's a lot to Atlantic even but.

First off.

Personally never experienced a loss in the Carwash space and and so I've had a very positive experience and in general.

There has been a very powerful.

There've been two dynamics in the space that has really helped improve our cover R. R.

Our exposure our tenants and the coverage one is consolidation where operators that we've invested with have grown from call. It 10 to 20 unit operators to the 100 to 200 unit operators over time.

Creating a larger more stable credit.

As well as the kind of.

The bigger operators in Cree.

Creating systems, where they can implement.

Membership pricing and create a more durable and steady revenue base. So those combined trends of a growing credit in a more stabilized revenue base with improved margins is really made the investments that we made stronger than we.

We've seen increasing coverage over time.

We're just looking at.

One of the early car wash operators that we invested with.

That has grown in the sites, we have invested with them really went from what was a two times coverage at the time, we purchased them to what is it four times coverage today and.

Over the course of 567 years, which is which is pretty nice to see.

In terms of the rent per square foot.

Carwash.

<unk> is somewhat unique in that youre going to have a large land parcel.

Well travelled corridor.

That's kind of their business model is to.

Place themselves, where a lot of cars are as you would imagine and have big lots for the queuing in circulation and then you pro rate the cost of that land over.

What is the smaller building footprint and largely what is a tunnel.

So you have a high land component and generally we're not in.

Investing in you talked about capital improvements.

Try to limit our investments to pure real estate value.

What it costs to buy land and build and improve the real estate in and avoid financing.

Specialized equipment to the extent that we do feel ourselves.

Putting in placing value to the equipment and we would have a lien on that so that in a downside scenario.

We're able to capture that equipment and re tenant that site pretty readily.

So overall, we like the space is great cash flow dynamics that are that have been strong and improving and.

We continue to see good opportunities.

Thanks for that color and just curious what is the approximate coverage ratio for car washes.

Yes.

I would say.

And Im giving you a rough number here two and a quarter as I said, we have some of the early ones up around over four and we have some of the newer ones.

To maybe mid twos or something like that it's not we don't we.

When we look at individual exposures and don't spend a lot of time thinking about.

The overall industry exposure.

Thanks Pete.

You got it.

Thank you. Our next question comes from Spenser, <unk> with Green Street Advisors.

Thank you the last question.

But beyond tenants are industries that are facing ethane in place on clusters.

Segment of the portfolio that are on your watch.

I know the portfolio rent coverage is high and certainly at a healthy level, but again just trying to.

What's left.

Yes, so our watch list as we define as the intersection of credit risk with unit level coverage risks so that would be.

A single B minus credit coupled with coverage of under one five times.

So as we said.

That is roughly 90 basis points.

Of ABR and.

Really consisting of.

For operators, but that 60% of that.

A single B minus credit coupled with coverage of under one five times.

That exposure is with our AMC theaters as we have two of those theatres under one five.

The rest is spread out across the us.

<unk> guys, but overall thats.

A very good spot and historically low level.

Okay. Thank you and can you just remind us of the parameter is utilized to identify disposition candidate.

Yes, I mean.

There is no hard fast parameters base.

Basically if my asset managers sees long term risks that can be current coverage levels are declining coverage levels.

Okay. Thank you and can you just remind us of the parameter is utilized to identify disposition candidate.

Or.

Hi basis that would indicate.

Yeah, I mean, it's.

Less.

Lower probability of renewal.

There's no hard fast parameters.

We often will lighten up on credits that we see in outperforming as we would've expected and so.

<unk> if my asset manager sees long term risk that can be current coverage levels are declining coverage levels.

So there's no hard and fast rules.

Or.

But anywhere anytime we see risk that may manifest itself in the portfolio down the road.

Hi basis that.

Would indicate.

You know a less a lower probability of renewal.

We're trying to lighten up on that exposure because when.

We often will lighten up on credits that we see not performing as we would've expected and so there's no hard and fast rules.

When you see imminent risk right when if it's going to default in the near term or coverages sub one that becomes illiquid and you really don't have the ability to move that risk out of the portfolio. So it is really being proactive and trying to get in front of potential problems.

But but anywhere anytime we see.

Risk that may manifest itself in the portfolio down the road.

We're trying to lighten up on that exposure because you know what.

Okay very helpful. Thank you.

When you see imminent risk right when if it's going to default in the near term or coverages sub one that becomes illiquid and you really don't have the ability to move that risk out of the portfolio. So it's really being proactive and trying to get in front of potential problems.

Thank you.

Thank you, ladies and gentlemen, as a reminder, if you wish to ask a question. Please press star one.

Our next question comes from Joseph <unk> with Bank of America.

Yes, good morning, everyone.

Okay very helpful. Thank you.

Just kind of curious if theres any.

Thank you.

<unk> seen any changes in the market.

Thank you, ladies and gentlemen, as a reminder, if you wish to ask a question. Please press star one.

<unk> backed financing after FCB like anything on the deal flow Bryan for underwriting compares receiving competition.

Our next question comes from Joshua <unk> with Bank of America.

No I mean listen Thats been kind of recent and with.

Yeah, good morning, everyone.

No.

Just kind of curious if theres any have you seen any changes in the market.

60 to 90 day transaction cycle, it's going to take a bit.

I think overall the.

Salaries backed financing after SCB like anything on the deal quote fraud for underwriting from peers or just even competition.

I think that SVP is just a symptom of a.

No I mean listen it's been kind of recent and with.

Bigger problem in the capital markets of lack of liquidity and challenging that environments.

The 60 to 90 day transaction cycle, it's going to take a bit.

That was persisting before and continues to persist.

I think overall the.

Okay.

I'll leave it there thanks guys.

Yes.

Thanks, Jeff.

<unk> SVP is just a symptom of a.

Yeah.

Thank you. Our next question comes from Jim Cameron with Evercore.

Bigger problem in the capital markets of lack of liquidity and challenges in that environment.

Good morning, Thank you.

That was persisting before and continues to persist.

On most of your tenant financial reporting at the entity level is that on a quarterly or predominantly annual basis.

Okay awesome.

Thanks, guys.

Thanks, Jeff.

Mostly it's going to be quarterly.

Okay good to know.

Thank you. Our next question comes from Jim Cameron with Evercore.

And have you seen any behaviors where they're.

A little tardy in filing as it is.

Indicators of financial troubles et cetera, or are they pretty promptly providing the financials.

Good morning, Thank you.

And most of your tenant financial reporting at the entity level is that on a quarterly or predominantly annual basis.

Theyre pretty prompt I mean.

The real.

Mostly it's going to be quarterly.

The real problems, if they are tardy in paying rent.

Okay good to know.

Primarily sensitive sensitive problem, but generally people.

And have you seen any behaviors where they're.

A little tardy in filing as indicators of financial troubles et cetera, or are they pretty proppant, providing your financials.

It's an obligation and the underlying lease agreement and failure provide and.

When live up to that obligation as a lease default.

Theyre pretty prompt I mean.

And so we have the hammer, but generally tenants are compliant in.

The real the real problems, if theyre tardy in paying rent, that's where we're going.

Primarily sensus sensitive problem, but generally people.

These are long term arrangements.

So there is not an issue with getting it.

It's an obligation in the underlying lease agreement and failure to provide and when live up to that obligation is at least a fault.

That's terrific as I ask obviously, helping if we go on E. Commerce slowdown do you want to keep his time here at pulse as you can on their financial circumstance, which I know you continue to do.

And so you know we have the hammer, but generally you know tenants are compliant and these are long term arrangements and so there is not an issue with getting it.

Thinking back historically, you've done a great job on the sale leaseback structure to grow your business yields have been creeping up in terms of initial cap rates for essential is there any bifurcation or would you be able to provide a bifurcation between say were essential in terms of the yield we're essential is.

That's terrific as I ask obviously, helping if we get an economic slowdown do you want to keep his time here at pulse as you can on their financial circumstance, which I know you are intending to do I'm thinking back historically, you've done a great job on the sale leaseback structure to grow your business yields have been creeping up in terms of initial cap rates for essential is there any bifurcation.

The predominant landlord for one of your tenants versus maybe equipment share with dozens of landlords just trying to get a sense of how important that is when you are a big part of the wallet share if you will for that given tenant.

Would you be able to provide a bifurcation between say were essential in terms of yield or essential is.

Yeah listen I think.

What you see in a situation like that as we do deals with them early on and then as they grow in.

The predominant landlord for one of your tenants versus maybe equipment share where they have dozens of landlords just trying to get a sense of how important that is when you are a big part of the wallet share if you will for that given tenant.

In size and become more attractive to a wider range of capital providers.

We tend to get priced out.

Yeah listen I think.

People come in and we will do deals Ed.

What you see in the in the in the situation like that as we do deals with them early on and then as they grow and you know in size and become more attractive to a wider range of capital providers.

What can be 50 to 100 basis points inside of US, we're generally not going to lose a deal with a relationship over 25 basis points.

It'll be closer to a 50 to 100, where they say.

We tend to get priced out and.

You guys had been good to US you helped us in the past <unk> been reliable and straightforward and trustworthy, but.

People come in and we will do deals Ed.

What can be fit.

<unk> to 100 basis points inside of US, we're generally not going to lose a deal with a relationship over 25 basis points.

Your capital is too expensive I got it.

Do a deal with someone else and so and that's fine with US right in that we have growing 10 growing credit and the diversity of capital sources.

It'll be closer to a 50 to 100, where they say you know what.

Guys you guys have been good to US you helped us in the past you've been reliable and straightforward and trustworthy, but.

<unk> it helps our our exposure.

And so it evolves over time, it's not a static analysis.

Your capital is too expensive I got it.

Sometimes that.

Do a deal with someone else and so and that's that's fine with US right in that we have a growing tenant.

<unk> attracted 50 to 100 basis points tighter bid falls out and they end up coming back or that fire exits the market and they end up coming back but.

On credit and the diversity of capital sources.

Overall it helps our.

It's usually pretty dynamic and it's particularly dynamic in the current environment.

Our exposure.

And so it evolves over time, it's not a static analysis, sometimes that attracted 50 to 100 basis points tighter bid falls out and they end up coming back or that buyer exits the market and they end up coming back but.

Yes, that's helpful context. Thank you and then a quick final up.

Follow up it sounds like most of your capital recycling from the earlier question is really driven more tenant specific issue.

Opposed to essential looking to feed some of your 16 industries is that a fair statement.

It's usually pretty dynamic and it's particularly dynamic in the current environment.

Yes. It is.

No that's helpful context. Thank you.

My commentary around car washes earlier, yes to the extent that we are have an exposure whether industry tenant or.

Quick final up.

Follow up it sounds like most of your capital recycling from the earlier question is really driven more tenant specific issue as opposed to essential looking to feed some of your 16 industries is that a fair statement.

Sure.

Or individual asset that we want to lighten up we'll use capital recycling to do that and we have plenty of carwash opportunities to invest in fresh deals and so we're likely to sell some off out in the back end. So it's a variety of factors.

Yeah, It is but.

My commentary around Carwash is earlier to the extent that we are you know.

Have an exposure whether industry tenant or or or.

Terrific. Thank you for your time.

Thank you.

Individual asset that we want to lighten up we'll use capital cycling to do that and we have plenty of carwash opportunities to invest in fresh deals and so we're likely to sell some of the back end. So it's a variety of factors.

Thank you. Our next question comes from John <unk> with Ladenburg Thalmann.

Good morning.

Hey, John .

So I know you don't give investment volume guidance, but maybe in the near term how should we think about kind of acquisition volume cadence in <unk> versus later in the year just given the.

Terrific. Thank you for your time.

Thank you.

Thank you. Our next question comes from John in the silica with Ladenburg Thalmann.

Around $8 million to close quarter to date.

Yeah.

And a lot less than you had closed quarter to date.

Good morning.

Hey, John .

<unk> with the kind of the <unk> earnings call, but.

I know you don't give investment volume guidance, but maybe in the near term how should we think about kind of acquisition volume cadence in <unk> versus later in the year, just given that around $8 million you closed quarter to date.

Back year generally impact.

Volume, we ended up closing in <unk> 'twenty two so just kind of maybe any kind of thoughts you have as to where deal flow maybe might fall over the course of the year.

Yes.

We got a lot less than you had closed quarter to date.

As you know one of the reasons, we don't provide acquisition guidance is because we rarely have visibility to our pipeline out beyond.

Yes.

One key with the kind of the <unk> earnings call with you.

But back year generally impact.

90 days.

So as we think about the.

<unk> pipeline, we recognize it's off to a slow start but as we sit today. The pipeline is full and I would expect <unk> to kind of be.

As you know one of the reasons, we don't provide acquisition guidance is because we rarely have visibility to our pipeline out beyond <unk>.

At or around our eight quarter average as an indicator.

90 days, so as we think about the.

As I think about the back half of the year.

There is nothing that would suggest that our eight quarter average as a decent proxy.

<unk> pipeline, we recognize it's off to a slow start.

But we will just have to see how the year plays out.

Okay, That's fair and then.

At or around our eight quarter average as an indicator and as I think about the back half of the year.

We're kind of splitting hairs here, but I noticed.

Equipment share exposure fell a little bit.

Was that driven by dispositions or something else and if it was.

There is nothing that would suggest that our eight quarter average as a decent proxy.

Disposition is that just an attempt to kind of.

But we'll just have to see how the year plays out.

Diversified portfolio further or just maybe kind of what was the thought process there.

Okay. That's fair and then I know, we're kind of splitting hairs here, but I noticed your equipment share exposure fell a little bit.

Yes, so we did sell an equipment share.

During the quarter.

Is that much like my commentary around Carwash, yeah to the extent that we can sell assets off in the low six to free up capacity to invest with.

Was that driven by dispositions or something else and if it was.

Disposition is that just an attempt to kind of.

Diversified portfolio further or just maybe kind of what was the thought process there.

With guys in the mid Sevens that makes sense to us and so.

Yes, so we did sell an equipment share during the quarter and.

Sure.

We like equipment share theyre, great tenants they've been a good relationship they continue to grow and continue to.

Is that much like my commentary around Carwash, you know to the extent that we can.

Bring us opportunities and so.

Sell assets off in the low six to free up capacity to invest.

And hang up.

Through some asset disposition.

Disposition and capital recycling made sense to us.

With guys in the mid Sevens that makes sense to us and so.

I guess can you remind us on an individual tenant basis is there kind of a relative maximum exposure you want in the portfolio.

We like equipment share theyre, great tenant they've been a good relationship they continue to grow and continue to.

Yes.

Bring us opportunities and so lightening up.

We have a soft ceiling of 5%, we certainly feel good with our top 10 sitting at 17 just around 17%.

Through some asset disposition and capital recycling made sense to us.

Which is continues to trend down.

I guess can you remind us on an individual tenant basis is there kind of a relative maximum exposure you want in the portfolio.

I feel good looking at not really having any material exposure over 3%.

So I mean, those are all soft guidelines, but.

Yes, we say we have a soft ceiling of 5%, we certainly feel good with our top 10 sitting at 17, just around 17%, which is continues to trend down and I feel good looking at not really having any material exposure over 3%.

Diversity is a key part of our portfolio construction.

Okay.

That's it for me thank you very much.

Thanks, Jeff you guys John Thank you very much.

Thank you. This concludes our question and answer session I would like to turn the conference back over to Peter <unk>.

So I mean, those are all soft guidelines, but.

For any closing remarks.

Diversity is a key part of our portfolio construction.

Great well. Thank you all for your questions and time today.

Okay. That's it for me thank you very much.

We have a busy conference season coming up so I'm sure. We'll see many of you in the coming weeks and we look forward to that.

Thanks, Joe you guys John Thank you very much.

Thank you. This concludes our question and answer session I would like to turn the conference back over to Peter <unk> for any closing remarks.

Everyone have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

Great well. Thank you all for your questions and time today, we have a busy conference season coming up so I'm sure. We'll see many of you in the coming weeks and we look forward to that.

So everyone have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

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