Spirit Realty Capital Inc. Q1 2023 Earnings Call

Speaker 1: question, please press star, then 2. At this time, we will pause momentarily to assemble our roster.

Speaker 1: question comes from Michael Goldsmith with UBS. Please go ahead.

Speaker 2: Good morning. Thanks a lot for taking my question. Jackson, pretty considerable slowdown in the deal activity. I guess.

Speaker 2: what sort of visibility do you have that your acquisitions can pick up? Can you just talk a little bit about raising the disposition expectations? And you've been doing a good job with the capital recycling, but

Speaker 2: there isn't an offsetting increase in the acquisition. So can you just talk a little bit about the interplay between those two factors?

Speaker 3: Sure. First of all, you know, our acquisition pipeline continues to be very consistent. So don't expect us to have

Speaker 3: any challenge meeting the guidance that we put out for the rest of the year, but just a little color on the four deals that we acquired this past quarter. Two of them were actually deals that we had pursued.

Speaker 3: in the third quarter of last year in 2022 and were not you know the highest bidder and so the seller doing this during the sale is back pursued another bidder at a much lower cap rate just given some of the challenges in the financing market those deals came back around to us

Speaker 3: So we were able to secure those transactions at wider cap rates, candidly, than we did in the third quarter back in 2022. So, I felt like that was a good opportunistic opportunity for us. If you look at the shape of our.

Speaker 3: acquisitions this quarter, you know, there were two PE backed acquisitions. There was one private company and obviously one public company in the lifetime transaction where we have a very strong relationship with that company. I would just tell you like

Speaker 3: we are continuing to evaluate a number, large number of retail and industrial opportunities. And the governor for us is really, you know, we think cap rates at this point have begun to...

Speaker 3: Find a stable point at this point. I think they've moved a bit from the 3rd quarter last year to 1st quarter. And we expect probably a little bit more increased deal opportunity in the 2nd, half of this year. Just give them the things that we're seeing. So that's just on the top line.

Speaker 3: On the dispositions, the dispositions are an important part of our strategy this year. Just given where our equity multiple is trading right now, we're just not going to issue stock at this level. This doesn't make sense. What makes more sense is to sell what I'll call these granular assets that are created for us. 60 something mind,

Speaker 3: So, you know, if you think about what we disclosed to you all on the call, you know, those were 27 separate transactions that we completed in the first quarter.

Speaker 3: About a quarter of it was investment grade concentrated with Circle K, AT&T, and CVS. We sold the data center as part of one of those transactions. 30% of the rents excluded in the movie theaters.

Speaker 3: were flat, right? So no escalations.

Speaker 3: And of the 25 or so percent IG, the weighted average lease term of those leases were five and a half years. So you think about what we did, we increased spread, we increased duration. The average rent escalators that we acquired in the first quarter are 2.4 percent.

Speaker 3: So we're going to continue just to do that. We're just going to continue to recycle up, increase wall, increase mix, increase duration, and increase escalations.

Speaker 3: But I think we will continue to be successful there.

Speaker 3: the assets that we sold

Speaker 3: You know, we're very liquid. I mean they were sold in the 1031 market You can see the math on it. You know, it was we sold a lot of Sonics

Speaker 3: You know, the Red Lobsters and a CBS drug store and a couple of other retail assets, but they're all sold, you know.

Speaker 3: with varying different buyers all over the country. So we think we're gonna continue that playbook this year and we've got a number of different assets that we think fit the criteria where they're saleable. They're not our best assets by far and they just make sense given the opportunity we see on the investment side.

Speaker 3: I talked about increased wealth, increased rent escalations, get rid of flat leases.

Speaker 3: Build wall to the overall portfolio. I think I think that's a pretty good accomplishment if we're able to do that. Continue to do that this year.

Speaker 2: That's really helpful, Collard, Jackson. Just to follow up, the cash cap rate picked up 30 basis points sequentially, so you're now acquiring in the 7.6% range. Is that a function of moving higher up the risk curve or cap rate for the product that you're looking for? Or has that kind of...

Speaker 2: stepped up at that 30 basis points a quarter type of movement.

Speaker 3: I'd say absolutely we have not taken risk up. Like I said two of the deals that we've been on

Speaker 3: The last quarter we were probably.

Speaker 3: 50 basis points inside. In other words, we did 50 basis points tighter in the third quarter of last year. And we were able to secure these deals in the first quarter 50 wider. Same transaction, same credit. So, I think it's just a step function of where cap rates are moving right now. As opposed to us incrementally.

Speaker 3: chasing more risk.

Speaker 4: on more risk. Thank you very much.

Speaker 1: The next question comes from Handel St. Just with Mizzoujo. Please go ahead. You're welcome.

Speaker 5: Hi, good morning. This is Ravi Vaidi on the line for Handel. Hope you guys are doing well. Just one other question about the acquisition cap rates here. We noticed that it increased heading into 1Q from 4Q, but over that same time period, debt costs have come down.

Speaker 5: Can you comment a bit about the competitive landscape and are you seeing less competition. For these assets right now, given that it's past the end of the year and there may be less demand from the 1031. Look, I feel like the things that we're buying are we're not competing with 1031 buyers just given the size of the of the assets that we're. Pursuing.

Speaker 3: From what we can see from our lens, there's a reasonable amount of competition. Clearly, sellers, people that are looking to do sale-leasebacks, if they're dealing with someone that needs bank debt or financing.

Speaker 3: They're probably going to look more to a company like ourselves or one of our peer companies that that don't finance with secured mortgage debt You know we have the ability obviously to buy property unencumbered through our line of credit, and I think we have a higher degree of certainty.

Speaker 3: And I used the reference of the two deals that we were able to secure on the industrial side. Those were deals where basically the seller didn't perform and the salee's back party, you know, tenants still needed to do a transaction. So I do think that I would say companies like ourselves or our peers probably are...

Speaker 3: preferred bidder today. Not necessarily the highest bidder but a preferred bidder.

Speaker 3: I also think that the 1031 market is very active as we've continued to demonstrate over the last several quarters and we plan on You know kind of launching a new tranche of assets Soon that that's the reason for increasing our guidance. So we think we've developed a good rhythm

Speaker 3: good relationship with brokers across the country and kind of a good idea of what really works relative to the marketplace and what makes sense for us to sell.

Speaker 5: Got it. That's helpful. Just one more here. Can you discuss your watch list? What is it as a percentage of AVR and what are some notable tenant categories that you are currently monitoring?

Speaker 3: I'm going to hand that over to Ken. Hey Robbie, so our watch list is actually very stable.

Speaker 5: You know, mention this before what you tend to see, you know, we had an expansion of our watch list in the fall of last year. Obviously, given everything going on, but since then. It's a typical every, you know, every month we're reviewing that watch list and.

Speaker 5: there are folks that we take off the watch list and maybe we add one or two folks. So, overall, it's pretty steady.

Speaker 5: What is it as a percentage of ABR? What is ABR?

Speaker 5: We don't really frame it that way, Robbie. I think what we look at is the typical operating metrics that everybody can see. Our loss rent, our leakage, which. Have been.

Speaker 3: Extremely good. Just probably doesn't make sense to go into what it is as a percent of the base rent in the portfolio.

Speaker 6: Okay, thank you.

Speaker 1: The next question comes from Keebim Kim with Truist. Please go ahead. To learn more or by convoy visit www.ykke NIH.org

Speaker 5: Hi, good morning. Can you just talk about the total basket of lower cap rate assets that you think over time you can sell? What does that total basket look like? And second, from a practical standpoint, obviously you probably wouldn't want to sell all of it. So when you think about...

Speaker 5: what is realistic to assume how much dry powder do you have in terms of dissolations.

Speaker 3: Well, we obviously have a lot of properties, just if you think about it, we disclose our retail properties. In our supplemental, you can see it's quite a large number. Of of opportunities, I guess what I'm stepping back, what I'd say is. Obviously, we don't.

Speaker 3: We think our portfolio is a lot more diverse and stable than what the market must think at this point.

Speaker 3: So we've designed this plan, Keebun, that we think doesn't need equity. We can be opportunistic, improve the portfolio, do all those things that we talked about, and still actually grow earnings. And actually, you know, this plan does work going out into the future. We wouldn't want to do this forever. It wouldn't be very fun.

Speaker 3: But this plan does continue to work because.

Speaker 3: We've got such a large asset base across this country in retail where, you know, that's just gives us good opportunity to kind of continue to improve our portfolio. So, you think about the things that I mentioned I saw, we talked about what we sold, they're all shorn or dated wall properties.

Speaker 3: Shorter data wall properties doesn't mean they're bad, right? They're just, you know, we're trying to maintain a certain level of portfolio, weighted average lease term in the portfolio. So, you know, you have to sort of wait for your natural opportunity to do a blending extent. Well, we're able to actually sell a very attractive pricing.

Speaker 3: With Walt that's sub six years, right? So we approve of that. So I think you know, we'll continue to pursue this

Speaker 3: This year, my hope is as the year progresses and we continue to show very little volatility in our rent stream, which we believe we will, that the market will start to appreciate the benefits of the diversification of the portfolio and the opportunities that we're able to secure with our tenant base on the growth side.

Speaker 5: Okay, and I might have missed this, but what was the interest rate on the loan just for the theaters? And if you can talk about...

Speaker 5: I guess a medium term game plan. Are those, is the, imagine, are they planning to refinance that loan at some point? Or what is the end game?

Speaker 3: Sure. So, look, the, uh, Mendoza comments on the call, but.

Speaker 3: You know, we the reality is we got 25% of our basis back in cash the imagine operator

Speaker 3: basically got a bridge loan for us. It's a two year loan, it's personally guaranteed by the operator, the individual. Our expectation is he's gonna refinance the loan because obviously it's a very high interest rate.

Speaker 3: But that being said, we've reduced our basis in the asset. The other thing is, we said this a lot of times, we said in past calls, our theater portfolio of operators is very different than maybe some of our peers. We have nine tenants, separate operators.

Speaker 3: now an additional 10 with the mortgage to imagine.

Speaker 3: You know, we've said in the past that these operators that were regional were able to recapitalize their balance sheets during COVID and are candidly in really good shape financially, probably in better shape than some of the larger national players, international players. So we just saw this as an opportunity.

Speaker 3: opportunity to

Speaker 3: sort of recycled these assets out. We believe that the operator has the ability to refinance those assets.

Speaker 3: And I think I just kill you the endgame, you know, we put

Speaker 3: We put this new slide in page four, which is what titled progress at Spirit portfolio and balance sheet If you get a chance to look at that, it's a pretty interesting slide actually one of our shareholders

Speaker 3: You know helped us put that together. That's a great idea. So we took it But just if you focus on what Spirit was like at the IPO, you know movie theaters were one of our top five industries.

Speaker 3: In 2018, after the spinoff, movie theaters were still a top five industry.

Speaker 3: Obviously today they're not and they're continuing to reduce. They're about three and a half percent of our ABR right now.

Speaker 3: So, we're continuing to reshape this portfolio. We know we love the distribution manufacturing that's increasing. We also love a lot of the retail tenants that we're focused on that makes sense for for the diversification makes in our portfolio, but. You know, we will continue to evaluate.

Speaker 3: creative opportunities to monetize some of our theater exposure. And I think this is a good one. It mitigates risk. We've got the operator that's got the ability to come up with the cash. They're incentivized to refinance our mortgage.

Speaker 3: And we believe they will be able to. So we think it's a real win-win for both us and Imagine, Imagine Operator.

Speaker 6: Okay, thanks, Tex.

Speaker 1: Our next question comes from Ronald Camden with Morgan Stanley . Please go ahead. Music

Speaker 7: Great, just a couple quick ones on the raise disposition guidance. Apologies if you mentioned it already, but is there going to be more retail, some industrial? Have you guys sort of given a little bit of color on what's on the selling block and sort of cap rate thoughts would be helpful?

Speaker 3: Sure, pass it on to Ken. He's very involved right now. I'd say the expectation that obviously it's lean retail, granular type retail and would expect it would Kind of continue down that road if An opportunity presents itself on the industrial side or

Speaker 1: Any of the other assets, obviously, we're going to look at that. Like we've done in the past last quarter, we sold an industrial property for sub 5%.

Speaker 1: cap rate. That just made a lot of sense.

Speaker 1: But in general, I would expect it to lean to the retail granular type properties.

Speaker 1: Last comment though, we're it's not dependent on that retail granular investment grade. Type of properties, you go back to the 4th quarter. We had a 50Million dollar sale of medical property that at a creative cap rate. Jackson mentioned we sold at

Speaker 1: a data center at a very, you know, an accretive cap rate. So, you know, it's not dependent on any one particular asset, but because we have such a diverse portfolio, it allows us to be selective. Yeah, we don't disclose our cap rates, but.

Speaker 3: The lowest cap rate sale in the first quarter was actually not the industrial deal. It was actually a sonic location. It was a four cap with a seven and a half year vault.

Speaker 3: individual buyer like the location.

Speaker 3: There's a lot of different ideas about what people think sells or doesn't sell. We have a pretty good handle on it. We're trying to

Speaker 3: Utilize our rankings and all the work that we do, we've talked about in the past and we've got rankings, all this stuff. We've kind of don't just randomly self stuff. It's very, very.

Speaker 7: It's very very intentional on the disposition pools that we create One that fits the market what the market wants and also what makes sense for us, you know, making sure it's a creamer for us Great, sir. My next one was just on just on the cap rate. So you seven nine in the quarter

Speaker 7: I know the company has sort of been focused on waiting for CapRace to move more. Just where are we in that sort of process? How much have they moved? How much have they moved?

Speaker 7: How much more do you expect to move from here or have we sort of leveled out? and so forth

Speaker 3: Well, like, anecdotally, like I mentioned, like the 2 deals we did in the 1st quarter that were industrial.

Speaker 3: Well, like anecdotally, like I mentioned, like the two deals we did in the first quarter that were industrial. They were deals that were originally.

Speaker 3: We were chasing after the third quarter of 2022 and they widened out just caught an average of 50 basis points the two of them

Speaker 3: I think today what we're seeing is You know candidly we're getting beat out by other bidders You know we were bidding on things where we think fair value is so there is there's definitely a market That's out there. I wouldn't call it a robust buying market but

Speaker 3: I think there's what I would say right now that feel like there's more there's limited quality opportunities So when those show up, there are definitely people that come But our expectation is is that later this year as companies continue to look at their financing needs We just think there's going to be more volume quality volume coming

Speaker 3: Whether that means cap rates move out or get wider, hard to say. I think there's a lot of other factors that impact that, but our belief is that there's going to be a higher volume of...

Speaker 3: actionable opportunities that fit our risk criteria and tenant criteria and industry mixed criteria.

Speaker 8: But so I don't know if that's a. If that answers that for you.

Speaker 5: Great, that's helpful. That's it for me. Thanks. Thanks. Our next question comes from Linda Zao with Jeffries. Please go ahead.

Speaker 9: Hi, thanks for taking my question. In terms of dispositions, I guess you said you're selling more retail, but then you also sold some industrial. But on the flip side, in terms of wanting to increase while and going after higher escalators, does that lend itself more so to industrial? Again building towards scouting to anyone who knows what is a generational frontier is not going to be the cause of the future. How could we ever say we established trade accord with Smith &

Speaker 3: Well, the industrial asset that we sold had less than nine years of Walt and you know, the escalators were 2% So we're actually we're actually doing better on the industrial bills. We're doing now. They're actually two and a half to three percent escalators

Speaker 3: That one just was just a, you know, just a. We another proof of concept that we want to try to continue to.

Speaker 3: Show people sort of have the ability we think we've developed an ability to.

Speaker 3: improve our

Speaker 3: Aptitude on industrial acquisitions at this point. But, you know, look, the retail is the easiest. It's the largest. Firebase out there. So I think that's a no brainer for us.

Speaker 3: on industrial acquisitions at this point. But, you know, look, the retail is the easiest. It's the largest buyer base out there. So I think that's a no brainer for us. You know, we're going to continue to.

Speaker 3: look at opportunities where they make sense. I mean like we sold a camping dealer, a camping world dealership last quarter. Sold a supermarket, right? A couple supermarkets, you know, LA Fitness location. So we'll continue to like to find things that...

Speaker 3: That we think makes sense to sell without getting any details about those properties. Those those made sense for us to sell.

Speaker 9: But in terms of what you're buying.

Speaker 9: Is it, you know, with the higher rent escalators, does that fall naturally into industrial?

Speaker 10: I'd say.

Speaker 3: I'd say yes with a little, but we still think owning retail is important. We've got obviously.

Speaker 3: a lot of retail tenants and capability.

Speaker 3: I think what you'll see us probably start to really lean into is more repeat business with our existing retail tenants.

Speaker 3: The challenge we're finding right now is that retail opportunities that come by that are just where we don't have a relationship with a tenant just.

Speaker 3: The math is just not as compelling from an escalating standpoint or a cap rate. Based on the perceived risk, we think we're...

Speaker 9: that's involved in the transaction. And then just between manufacturing and industrial.

Speaker 9: Where is your pipeline bigger and where do you see the better opportunities near term?

Speaker 3: I'm sure it's very credit dependent and locational. So, you know, look, we.

Speaker 3: I can't really would like to do more distribution. It's just trying to be able to line up our cost of capital. And win those opportunities. We certainly have.

Speaker 3: We have certainly pursued a number of different distribution real estate opportunities just we're not successful this past quarter I've just given kind of where we are pricing things right now, so

Speaker 3: You know, in time, maybe we'll be able to increase that. Hopefully over the rest of this year, but if I were to tell you, I think we're going to continue to do retail. We're going to do. Sort of a good mix of distribution and light manufacturing throughout the rest of the year. So.

Speaker 5: But I think that's been our cap rates in that mid 7 area. Thank you. Our next question comes from Josh. Tenor lean with Bank of America please go ahead. Hey guys, it's Josh.

Speaker 5: I think last quarter you mentioned in guidance there was five cents of reserves. Did that change at all from last quarter? I don't think you had to use any of that in one queue, but if you confirmed that, that would be great.

Speaker 5: Yeah, Josh, this is Mike. I mean, that's come down a little bit, so let's say we're a little less than 1%. We didn't post any loss rent in the first quarter. We did talk about last quarter that that was a little more back half-weighted in the year because that's just where we have less visibility, but we did have some of that reserve in the first quarter and we didn't use it. So, we have taken that down a little bit. So, it's a little bit less than 1%.

Speaker 5: at this point. Okay. And then I wanted to follow up on the seller financing on the theater sales. Was the usage of the seller finance driven just by like, like just what the theater market is like today? Or is it something different?

Speaker 3: going on with maybe just like the banking sector in general for debt at the time? It was more that the latter you know it's just really hard you know it's hard to get financing out there you know in the bank market at the moment. I believe that our belief is is that that this borrower has the ability to finance it it just you know this has been a kind of a rough month in bank land.

Speaker 3: Last couple months and so our expectation is that.

Speaker 3: That this operator that's close on the property will refinance that loan.

Speaker 3: It's a reasonable loan to value, you can get it done. It's really more of a combination by us.

Speaker 5: Do you expect to utilize seller financing a little bit more in this environment for the dispositions that you're talking about? I guess I'm just asking to see if it's something we should be on the watch out for or just kind of expect. I would say that's more.

Speaker 3: This is a very unusual one-off situation. Like we're not we're not really in the business of you know, making loans like that This just happened to be like I said like this win-win This operators got obviously liquidity It makes a lot of sense for that operator to basically cancel the lease, right? That's what they're doing

Speaker 3: and they'll basically refinance either with a mortgage or corporately later. I mean, don't forget, this is a larger operator, regional operator, so they have the ability to finance at the corporate level. So our expectation is, we just saw this as a win-win for both of us..

Speaker 3: in a kind of very unsettled debt market. So I don't expect us to be, this is not a strategy of like providing seller financing. That's not really what we're gonna do. It's just, you wanna talk about trying to get theater sold? They're not using the sale right now.

Speaker 6: All right, thank you.

Speaker 1: The next question comes from Brad Heffron with RBC Capital Markets. Please go ahead. Our next question comes from

Speaker 1: Hey, thanks. Good morning, everyone. I think you own another nine theaters where imagine it's a tenant. Is there a potential for more deals like this, or was this a special situation in some regard?

Speaker 1: I would submit that that was the transaction that we did was very germane to that relationship and that dynamic.

Speaker 1: We're very happy with our other Imagine theaters and that operator, phenomenal operator.

Speaker 1: So, right now there's no expectation.

Speaker 11: Michael, on the increasing guide, can you go through the underlying reason for that? Obviously, the disposition number went up, but presumably that would take the guide down. What was the offsetting factor there?

Speaker 5: Yeah, I mean the main reasons for the increase for God were, you know, one the performance in the first quarter we didn't, you know, have any loss rent, right? So we had some reserves set aside for that that we didn't use and then we had very accretive acquisitions in the first quarter which flowed through the rest of the year. So what you do in the first quarter does have an impact on the rest of the year. The increase in dispositions really aren't an offset.

Speaker 5: you know, we're shaping up those additional incremental dispositions to take out to market now. About time you get those out to market, get them done. It's going to be in the latter part of the year.

Speaker 5: So it doesn't really have the impact to earnings this year. What it really does is it positions our balance sheet well going into 24, which we think will be a very good year for us. But those positions don't have a huge impact on earnings this year. But again, the acquisition in the first quarter coupled with just good operating performance is what really drove the increase in sky.

Speaker 5: the impact to earnings this year. What it really does is it positions our balance sheet well going into 2024, which we think will be a very good year for us. But those positions don't have a huge impact on earnings this year. But again, the acquisition in the first quarter coupled with just good operating performance is what really drove the increase in the guide.

Speaker 5: The next question comes from Wes Galladay with Baird. Please go ahead. Hey, good morning, everyone. Sticking with the theaters, how should we think about percent rent going forward? You did only sell before theaters, as Brad was talking about in his question. Were these theaters different in any way, like the next generation theaters?

Speaker 5: And then when you look at your vacancy, you only have a few. Are those any regals in there? And how should we think about a fully loaded loss given default for those theaters?

Speaker 1: What I can tell you is one part of that answer is the five vacants that we had at the end of the quarter, none of those were theaters.

Speaker 1: What I can tell you is one part of that answer is the five vacant set we had at the end of the quarter, none of those were theaters. I'm not.

Speaker 5: I'm not sure what the... Yeah, and on percent rent, I mean, we did have percent rent on the four that we sold. That was a special situation because we did re-tenant those during COVID. So with the new operator coming, they did have a ramp up here. That period ended at the end of last year. We don't have any other situations like that. So no other theaters are on.

Speaker 5: into the first quarter since they were sold. So our ABR is, you know, snapshot at the end of the quarter. So our ABR does not include those four theaters. And then on the, I guess the loss given default, I guess you don't have any theaters for Regal. So that's a moot question at the point. My next question would be. No, I do have one.

Speaker 3: Yeah, we do have theaters with Regal, but we're still in the process with the bankruptcy with those guys. At some point when they're done, we'll explain it.

Speaker 3: But as we said, we expect to get we expect to lose a couple of theaters.

Speaker 5: Okay, and then you have ClubCorp, they're debt trading a little bit weaker, but from what I recall on past calls, you have pretty good operational momentum at the assets you bought. So you maybe give us an update there on how they're performing operationally for you.

Speaker 3: Sure, look, as you guys know, they invited their headquarters here in Dallas. We are very, very closely aligned with them and Apollo. We spend time with both entities.

Speaker 3: We are very bullish on the golf business, very bullish on the industry, very bullish on those guys.

Speaker 3: We are very bullish on the golf business, very bullish on the industry, very bullish on those guys. And that's about the performance.

Speaker 3: our master lease has continued to strengthen. So our master you our master lease coverage right now is 2.8 times.

Speaker 3: That's 0.4 times higher than 2019. So you should sort of imply revenues are higher. Than pre COVID levels right now for those for our properties.

Speaker 3: You know, those, you know, our lease generates about 10% of invited corporate EBITDA. So it's a meaningful part of their business.

Speaker 3: And our units on the top line have increased 28%, 28% since 2019. So I can tell you like the performance of the units that we bought are very, very strong.

Speaker 3: And, kennel, they're very consistent with.

Speaker 3: I believe the experience with the rest of their portfolio.

Speaker 3: And so I personally am very confident in their ability to refinance that debt, which is due in September of 2024. I know there's some whatever articles out there, but

Speaker 3: We have pretty good insight into their business and believe that.

Speaker 8: believe that they will be able to refinance that and we're not worried about it.

Speaker 5: Got it. And if I could just take one more in, you do have that $500 million delayed draw term loan. So how should we think about drawing that down and use the proceeds for that?

Speaker 5: Yeah, I would model that we mask that with our acquisition needs. We're in the process of

Speaker 5: working with our lenders to amend that to be able to push out some of that commitment so that we don't have to draw it all in July , so we'll update you and that is complete. So we'll be able to better match that with you know, the needs to actually draw it. So I would now assume that we draw the entire $500 million in July .

Speaker 5: We'll be able to push that commitment out a little bit, stagger it to truly match it up with our funding needs.

Speaker 5: to push that commitment out a little bit, stagger it to truly match it up with our funding needs. Thanks for the time everyone.

Speaker 12: Thank you. Next question comes from John Masocha with Landenburg-Thalmann. Please go ahead.

Speaker 12: Thank you. Next question comes from John Masocha with Landenburg-Thalman. Please go ahead. Good morning. Good morning.

Speaker 13: So, just quickly touching on that last point about the debt.

Speaker 13: Should we kind of assume the goal is to get that to match up with the swap timing? Would that be kind of the ideal situation or is...

Speaker 13: Maybe looking to get it even more granular than that. No, I think that's a fair assumption. Okay. And then on the theaters, I think you actually heard, um, you were looking to kind of continue monetizing those assets. I mean, what are some kind of creative solutions to monetizing, particularly some of your non-big theater assets beyond, you know,

Speaker 13: things like solar financing, any other kind of strategies that you have out there that you're working on today.

Speaker 3: No, I would say the answer is no. This worked out well for both us and the Imagine operator because, you know, the performance at his theater is going really well. He's got other theaters and corporate facilities, debt facilities. It just made a lot of sense.

But would we sell to other operators? Maybe, you know, and so we'll continue to see, you know, we obviously have a lot of good visibility on performance at the unit level and corporate level. For our theater operators, so, um. Yeah, look, you know, maybe we could do another one like this. So maybe doesn't.

Maybe it's not seller financing, maybe it's something else. But there's clearly, you know, as negative as people are out there, some people about movie theaters, you know, our operators are actually quite bullish, you know, and, you know, especially the regional ones that are not hampered with some of the cost structure of the larger, you know, bigger...

international kind of players. I guess in that context, it's fair to assume there aren't any additional theater dispositions and kind of disposition guidance today.

kind of players. I guess in that context it's fair to assume there aren't any additional theater dispositions and kind of disposition guidance today? Not right now.

I actually want to make a quick correction I mentioned. Out of the five vacancies we have, there is one small theater. The first Regal that we previously disclosed that they did reject. It's got a resolution here within a matter of days. Other than that.

We have to wait until the end of the regal until it gets wrapped up this quarter. Probably late this quarter. As we think about assumed credit loss through the remainder of the year, is there any change in the outlook for some of the tenants that are

undergoing bankruptcy right now. Regal is the most obvious one, but maybe Party City as well. Party City is zero loss for us. So, no, we don't see a lot of pressure there at the moment.

That is it for me. Thank you very much. Thank you. The next question comes from Spencer Aloue with Green Street Advisors. Please go ahead. Thank you. Just circling back to the theater assets that were sold, and I'm sorry to belabor this point, but was there any cutbacks that was...

much consideration around shared buybacks just given where the stock is trading.

We look at it, talk to the board about it, and we'll continue to evaluate it. At this point, we feel like

Look, we're generating 10% incrementally on our net acquisitions. And like I said, we believe that what we're doing is improving the overall portfolio from a credit and stability standpoint. Diversification obviously, Walt, I talked about and escalation.

So, yeah, I mean, we always look at buying back stock, but buy back stock doesn't really improve your portfolio. These net lease portfolios, if you just leave them be, you know, walk those down. So you sort of have to kind of continue to refresh the mix of assets in these kinds of companies, in my opinion.

But yeah, we do look at stock buybacks and we'll continue to evaluate it. We have done in the past, obviously, since I've been here in a meaningful way, but at this point, we feel like there's still good work to be done in how we're thinking about the recycling of assets given the market opportunities to deploy.

at what we think are really good cap rates and candidly with the duration that we're buying, you know, we believe that when when the Fed eventually finishes and interest rates stabilize, there's going to be a lot of uplift and pricing if we decide to go sell some of the things that we've been buying last year.

Thanks so much for the color Jackson. Sure.

The next question comes from Greg McGinnis with Scotiabank. Please go ahead. The next question comes from

Hey, good morning.

So the portfolio continues to go through some pretty substantial changes with industrial exposure at nearly 25% up 20% since 2018. How are you thinking about the ultimate diversity of exposure to each asset class or industry?

We don't have a target out there. We like both. We think. We'll find out it.

you know having a at the current mix level we think it provides you know a great deal of diversification geographic industry unit real estate you know size of real estate

And takes advantage of some of the on showing that's coming into this country and. You know, we just see a lot of interesting positives in that manufacturer that light manufacturing industrial portfolio.

I mean, I'm not going to tell you that we're going to take it significantly higher or lower. We're going to continue to evaluate that healthy mix. But there are certain retail lines of businesses that we're just not going to be market for anymore.

Either they're too expensive from a weight average cost standpoint or don't match up in our heat map the way we see, the way we kind of want to build this portfolio long-term. So that mix, you know, go back to page four and look at it. It's changing quite a bit.

you know, like lifetime fitness, for example, I mean a lot of people were Criticizing us about the concentration being number one tenant Look, we're big believers in that concept big believers and the CEO They're just it's a phenomenal business and a lot of confidence in them. So So that's very different than Walgreens right Walgreens is our number one tenant at the end of the spin-off and you know, we're not We're not We're not We're not We're not We're not We're not We're not We're not We're not

Quite honestly, Walgreens, we can't be a big enough partner with Walgreens to make a difference. So why should I go compete to buy developer Walgreens deals, right? Just give it our size. Whereas with someone like Lifetime invited, we can be a real partner. We can help them and they can help us to have a very additive relationship.

We're looking at our portfolio as a combination of trying to create that diversity, but also those win-win opportunities with what I'll call best-in-class operators in those industries that we believe have that really long runway for stability. That's really kind of what we do. I didn't answer your question about the mix.

on those assets. And finally, just as a reminder, are all the Invite to Club assets under a single master lease?

Yes, first of all, yeah, on the invited, the answer is yes. Look on the.

On the Shutterfly deal, what I can tell you about that is it's great real estate. Actually, the tenant has increased.

The usage the manufacturing usage by kind of taking out some of the office. Component that's in that building, so that that's, I think it would be a super sticky building. And looking on Tupperware, I'm not going to comment.

directly on that. I mean, I can just tell you they paid rent this month and you know, we're very close, continue to evaluate that situation.

And when we have more to say, we'll do it. Okay, and are you willing to disclose ABR to the Senate? Oh, I mean, it's less than 50%. 50 basis points, sorry. Yeah.

Thank you. This concludes the question and answer session. I would like to turn the conference over to Jackson Shea for any closing remarks.

All right, thank you operator. Thank you very much for participating on a call and I just bring you back to the new page that we put into our supplemental back that talks about. The progress at Spirit on page four if you look at it we're really focused and excited about.

the progress we've made since the IPO. This company's quite different, and we feel quite enthusiastic about the prospects for the rest of this year. Thank you.

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