Q2 2023 Spirit Realty Capital Inc Earnings Call
Good day and welcome to the Spirit Realty Capital second quarter 2023 earnings Conference call.
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Now I'd like to turn the conference over to Pierre <unk> Senior Vice President of corporate Finance and Investor Relations. Please go ahead.
Thank you operator, and thanks, everyone for joining us for spirits second quarter 2023 earnings call.
Today's call will be president and Chief Executive Officer Jackson shape.
Chief Financial Officer, Michael Hughes.
Our chief investment officer will be available for Q&A.
Before we start I want to remind everyone that this presentation contains forward looking statements.
Although we believe these forward looking statements are based on reasonable assumptions. They are subject to known and unknown risks and uncertainties that can cause actual results to differ materially from those currently anticipated due to a number of factors.
I refer you to the Safe Harbor statement.
Most recent filing with the SEC for a detailed discussion of risk factors relating to these forward looking statements.
This presentation also contains certain non-GAAP measures reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures are included in the exhibit furnished to the SEC under form 8-K, which includes our earnings release and supplemental investor presentation.
These materials are also available on the Investor Relations page of our website.
For our prepared remarks, I'm now pleased to introduce Jackson Hsieh Jackson.
Thanks Pierre.
Thanks to everyone for joining our call this morning.
At the beginning of this year, we outlined a plan for 2023, consisting of two primary objectives.
First implement a capital deployment strategy that utilize this free cash flow.
Dispositions and existing debt to yield favorable investment spreads without issuing new capital.
Second demonstrate the strength and diversification of our portfolio through consistent operating performance.
Halfway through the year, we are on track to meet our goals with our second quarter results building on what we accomplished in the first quarter.
During the quarter, we acquired $138 million in assets.
Comprised of 11 properties across five transactions at a cash cap rate of seven.
Six 3%.
And an economic yield of 8.88%.
This is the highest cash cap rate and second highest economic yield we have achieved in the last eight quarters.
And higher than those achieved in the second quarter of 2022 by 129, and 180 basis points respectively.
In addition, we invested $30 million in revenue producing expenditures primarily related.
Related to the development and tenant improvements.
On a 9.87% cash cap rate.
Resulting in total capital deployment of.
169 million the cash cap rate of 8.13%.
An increase of 166 basis points.
From the same period last year.
We sold 18 occupied properties during the quarter to $41 million and a cash cap rate of 6.27%.
The average size of these transactions was $2 3 million and consisted of <unk> <unk>.
C stores drugstores and Red Lobster's.
We generated a 176 basis points spread between the cash cap rate on capital deployed and are occupied dispositions.
We also sold 12 vacant properties for $26 million.
Resulting in total disposition proceeds of $67 million.
Our capital deployment net of dispositions was $102 million.
Excluding bacon sale, the net effective cap rate was.
It was eight point.
Six 1%.
Consistent with our 'twenty to 'twenty three plan, we didn't raise any equity this quarter and funded our capital deployment with disposition proceeds in place debt and free cash flow with no change in our leverage.
The strength and diversification of our tenants the industries they operate in and.
And the quality of our real estate portfolio.
Bind with better than anticipated investment spreads.
Are allowing us to surpass our previous forecasts and revise our <unk> per share guidance upwards for the second time this year.
As we transition into the back half of the year, we remain dedicated to achieving our 2023 goals.
We will maintain a disciplined approach to our investments.
We used to see sees the most favorable opportunities that will yield optimal returns for our shareholders.
With that I'll turn the call over to Mike.
Thank you Jackson and good morning, everyone.
We are very pleased with second quarter results.
<unk> per share was 91, two cents higher than last quarter.
I can see remain high at 99, 8% and.
Our acquisitions and dispositions were accretive to our earnings and portfolio metrics, putting Walt and lease escalations.
During the quarter ABR increased by $5 5 million, reaching $694 6 billion with industrial growing to 26% of our portfolio.
Other operating income increased by $1 3 million from last quarter.
Approximately half the increase resulting from two small lease terminations.
Half from higher interest income.
Please note that the higher interest income, which resulted from unusually high cash balances related to the drawdown of $300 million in term loan proceeds was mostly offset by the corresponding interest expense so no impact to ask though for sure.
Cash G&A fell to $10 1 million from pinpoint 6 billion last quarter.
Really driven by the timing of certain employee benefit expenses that fall into the first quarter.
Our cash G&A margin fell to five 3% approximately 30 basis points lower than full year 2022.
Turning to our balance sheet, we closed the quarter with liquidity of $1 6 billion comprised of cash and availability under our credit facility and delayed draw term loans or <unk>.
Leverage, which we define as adjusted debt to annualized adjusted EBITDA remained flat at five three times compared to the first quarter and dropped by one turn of our preferred equity.
Regarding our guidance, we are revising our ASP per share range to $3 56 to $3 62 sets and our disposition range to approximately 400 million or.
While maintaining our capital deployment range of 700 to 900 million.
Consistent with our 2023 plan do.
We believe these targets allow us to achieve our capital deployment objectives absent any capital markets activity.
While maintaining low leverage levels.
With that I will turn the call back to the operator to open it up for Q&A.
Later.
We will now begin the question and answer session.
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In the interest of time, please limit yourself to one question and one follow up.
At this time, we will pause momentarily to assemble our roster.
Yeah.
The first question today comes from Joshua <unk> with Bank of America. Please go ahead.
Yeah, Hey, guys. Thanks for the time, one one thing I've kind of noticed as a on the acquisitions. It looks like the Walt I was trying to get longer. This year. This quarter was $15. Three years is that something you guys are pushing to achieve are just like the the market is getting a longer Walt these days.
Hey, Josh It's Jackson I'll take that one I mean, we're focused on primarily.
Looking at new sale leaseback opportunities. So I'd say at a minimum we'll start with a 15 year and generally it can be up to 20 year, new leases on our lease form.
So that's that's what's primarily driving that.
That that Walt.
Okay, Okay good to know.
And then maybe just one follow up just the that the cap rates do you do you think we're still.
They were gonna see more cap rate adjustment higher where do you think that's kind of.
At a stabilized rate at this point.
I can tell you what we're seeing it's Jenny.
Generally I'd say that they're pretty stable right now the thing that we're noticing is that you know we have.
Two investment pipeline meetings to investment committees are weak and the volume of things that are coming into our pipeline are increasing and that they've continued to increase.
The last quarter.
So I wouldn't say the cap rate is increased by the volume of.
Opportunity seems to be increasing them so.
That's encouraging for us.
Thanks Jackson.
Thank you.
The next question comes from Michael Goldsmith with UBS. Please go ahead.
Yeah.
Good morning, Thanks, a lot for taking my question, just and just to follow up on your last comment was.
When you said the volumes are picking up is that specific to one asset class or industrial or retail or is it just across the board in any further detail you can talk about in terms of where there are greater opportunities would be helpful.
I mean, I think I would say across the board generally from what we see.
I feel like there's a little bit less competition in the industrial space that we're focused on right now.
And I think if I would I guess, you know just to pick up.
One of the reasons why you're seeing more volume is I think people.
The companies are looking for liquidity right and they're trying to find the most efficient way to get it.
Clearly theres.
Challenges in the debt markets corporate debt markets bank markets very selective.
The sale leaseback opportunity is really a great source of liquidity and really hits right in the middle of it but we're trying to accomplish.
So I think some companies probably sat on the sidelines, hoping things might get better.
And I think they're just deciding hey, these are the rates, we need to move forward and so the thing that's most encouraging presses.
So we're seeing really good real estate opportunities good credit opportunities at what we believe are attractive cap rates. I mean, these are cap rates a year ago that would've been in the mid sixes low sixes.
Same type of opportunity.
So so in some regards I think companies are just deciding to move forward and.
I think that's gone up.
That's gonna help us says as we get into the back half of this year in terms of our acquisition volumes.
Got it that's really helpful.
The opposite side of the coin.
During the quarter, how did your cost of capital trend are you seeing any movement up or down or any visibility in the near to intermediate term about the trajectory, where where you think you can be back in the market and start to.
Starts to drive accretive growth through borrowings.
And acquiring.
Yeah.
The only thing I'm sure we saw some marginal improvement in our cost of capital both on the equity and instead, the longterm debt side, nothing that would make us want to go explore issuing where long term capital. You'll remember we have we're very early in the term loan market. We have a lot of turmoil capacity fast we haven't drawn yet all of it is fixed at very low rates of maturity.
So we haven't had that to really take us that's fixed to take us into next year. So we can be patient on that and you know again, we have got cash on the balance sheet. We have a good disposition program. So you know it will be inquisitive at the right time, we have seen some incremental improvement, but not enough to.
It makes us want to get out there yet in bus yields on our acquisitions go materially higher.
Thank you very much good luck in back half.
Thanks, Michael.
Your next question comes from Greg Mcginniss Scotiabank. Please go ahead.
Hey, good morning.
Jack will given the substantial investment yield on the revenue producing capex can you just provide some details around those investments what's the opportunity.
Looks like there in terms of continued investment.
And the types of yields you expect over the next year.
Yeah, I mean look I think on.
Our our Capex investments.
Investments, yeah, they're always going to be a smaller portion of.
Of what we do in a given year.
The what we're seeing is tenants, where we have existing.
Well sit master leases or sale leaseback business.
They're they're meeting.
Changes to their facilities, either expansion or new facilities or adding on some facilities.
And coming back to us as it is one efficient because they know well.
A very credible source of funding.
But more importantly for our shareholders are you getting paid.
To put this capital out now finally.
And it also opens the door to give us an opportunity to have discussion around our lease term provisions elyse.
So it's a kind of a give and take but it's a very positive one for us.
And so.
Yeah, well, we'll continue to be very selective about it.
But it's not going to be a.
A material part of our business going forward.
It's a pretty high bar right now, but most importantly, I do think you know we used to talk about forward commitments being 50 basis points premium people used to talk about that I'd say that premium is much higher now if you can afford commit we'll provide any type of development Capex funding. It's I'd say, it's it's closer to 100 basis points.
Premium to a stabilized cap rate.
So I guess and then just thinking about where those investments are going is that primarily industrial so maybe as the industrial percentage of portfolio increases that level of opportunity increases.
I think it's less it's it's we're kind of agnostic to property type. It's really how good is the customer how good is the real estate, what our position of far.
Our real estate within that Master lease. So we look at it really less less focus on industry type, but Morris how can it improve our or.
Our yields as well as potentially improve.
Certain aspects of our master lease well well look at it that way as well.
Okay, and just one more from me if I could given this increasing volume of potential acquisition opportunity days, coupled with the low low cap rate achieved on dispositions does full year investment guidance potentially feel conservative, especially given the other liquidity.
Available on the term loans.
I wouldn't I wouldn't say it's conservative.
We've been pretty methodical about what we've been doing as you can tell through the first two quarters.
I'm, saying that the volumes are things that we're seeing are increasing so you probably see that in the fourth quarter, but I'd say our guidance. We felt good about where it is right now I wouldn't say, it's conservative or aggressive it's right in the middle of all this be selective.
Okay. Thank you.
Okay. Thanks, Glenn.
The next question comes from Handelsbank.
Please go ahead.
Hey, guys good morning.
I have a few questions I guess more broadly on the tenant the health of the tenants.
Guess first discuss how you've seen the portfolio performance versus expectations categories that aren't doing well and maybe better than expected in categories that you work with.
We're concerned and watching more closely and how your watch list has changed over the past quarter or two.
I mean look I'll start with I think portfolio is doing great.
Not concerned about any aspect of it you.
You know of course from time to time, you'll focus on particular tenants.
But I feel like our industries, our mix right now are ideal.
We've got a really good balance of retail mission critical industrial industrial outdoor storage industrial is it's very very well diversified I mean, if you look at our square footage where over 55 million plus square feet industrial position is 50% of that so were happened half of our GLA.
Right now as it was in industrial space. So I would say overall, we're very comfortable with our industry mix.
But if we can lighten up our movie theaters I think we would do that as I've said in the past, but we're in no rush because our movie theater tenants are extremely diverse and are doing well so.
Maybe I don't care, if you want to talk about credit watch list.
Credit Watch list and now continues to be very <unk>.
Manageable, it's relatively stable.
We're in a position now where we have a much deeper relationship with all of our tenants so but overall, it's a very stable not seen it increase.
Okay, great great. Thank you for that.
All the theaters I guess I've noticed I think there was a.
$2 million straight line reserve in the cube from a bankruptcy not sure what that was but assume that tied to movie theater sales does that is that right.
No no no.
Sorry that was not up maybe that was.
Another small operator, one off that you guys ran into some issues that we put on a cash basis last quarter.
Got it got it okay.
And then in the Q. You also think you bought 10 million of term loans for 79 cents on the dollar and note that our big novel amount, but just curious on.
It's the the bar is an existing tenant or anything you could tell us about it.
Yeah, but I'm just glad that is because it's an existing tenant from time to time in the past week, we bought debt of tenants you.
You've got a different kind of reporting.
And what you see in a lease.
So sometimes we see that as a as a tool to get more insight into our company's credit which gives you a different.
Our relationship versus landlord.
And I'd also say that that's not going to be an expanding part of what we do it's a super select and one offs.
Got it appreciate the color. Thank you.
Sure.
The next question comes from Anthony Petrone with J P. Morgan. Please go ahead.
Hi, Thank you good morning.
Jackson can you talk about just your thoughts on how much runway you have as you start to look out to 'twenty four to continue to be able to sell at lower cap rates than what you're.
Basically invest in.
How much of that to be honest with you we could do it for a long time, that's not to say, we will do it for a long time, because I'd like to be issuing.
Issuing equity and financing the normal way.
You know the things that we're selling.
We laid out a plan earlier this year that we thought the spread might be something like 100 basis points between our dispose cap rate acquisition cap rate.
And that mixes in you know what I'll call accretive sales there will be some defensive sales that are part of that mix.
But you know we went with us with the size of portfolio that we have.
Anthony.
There are a lot of assets, obviously, we can sell the things that we've been selling I've described is really middle of the fairway type of assets, they're not the best obviously.
We don't have a lot of worst so they're just generally pretty average.
You know the dispose cap rate range. This quarter was on the low side for nine five cap rate.
Up to a seven cap with the majority being in the low sixes in terms of the cap rates that we were able to execute.
Well a lot of at least you know we sold a lot of properties that.
A couple of properties had flat leases lower bump structures.
Oh, yeah non reporting yes, there were things that you.
We feel like we can.
They're they're right to be sold in and we can reinvest in things that have longer Walt we think have a lot of cap rate compression.
We're buying growing.
Businesses.
Across the country, especially in the industrial side, where we think that'll be that'll be much more accretive for our shareholders not just from earnings but also from any of these standpoint.
But to answer your question Yeah, there's there's a long runway to do this strategy.
I'm hopeful that this is just this year's strategy next year, we'd go back to the normal things in and I think we're getting closer to the obviously the cost of capital is getting closer to the point, where we can move forward, if we want to pursue that.
Well I'll call regular way financing via the capital markets.
Okay, and then Mike just for you.
Can you I think you'd mentioned it but what was the lease termination in the quarter I'm just trying to understand in your guidance for the second half of the year. It implies you know a little bit of a drop down from the 91 central reported to about 89 cents and so just wondering if that's a part of it or kind of what the what the items driving that or.
Yeah.
Yeah.
Obviously, there's some rounding there. So you know we did have.
About 500000 of lease termination income in the second quarter that caused us around 91 sense without that you'd be about 90, if you look at the <unk>.
Second couple of quarters Q3, Q4, its kind of rounding I know, it's like right. There at that eight nine and half the midpoint of our guidance got rounding to 90, so you're kind of flat.
I removed that other income and the.
Back half of the year the interest income piece of that.
That was offset by higher interest expense, we actually made about a 20000 dollar spread on having that extra debt drawn and having cash our balance sheet. Ironically, our invested cash is making a little bit more than four.
475, they would get charged on that term loan today I haven't seen that.
2008.
But you know for the.
Back half of the year, we do have again, some rent disruption built and consistent with our guide you've got beginning of the year that was a little more back half weighted so we saw that assumption there. There's some conservatism built in there and also as you saw we took up our disposition guidance and we typically have a view that our decisions are going to come in a little quicker than the aqua.
So the acquisitions are a little more weighted towards Q4, our dispositions were a little more weighted to Q3 Johnson with a little pressure just on a quarter over quarter F. O for sure. So it was just you know some assumptions like that moving around the causal about flattish in the back half of the year. If you look at the midpoint of guidance.
Okay, great. Thank you.
Thank you.
Your next question comes from Keybanc, Ken Richard Please go ahead.
Thanks, Tom I was wondering if you can just provide an update on at home and how their sales or EBITDA productivity has trended over the past couple of quarters and it is anything concerning.
Hey, keeping this can.
Basically now where we're not concerned with the the long term aspect of that who obviously, they're normalizing after running just the incredible run up in sales.
During COVID-19.
They are obviously everybody's I'm sure has seen the risi recently completed some debt transactions or they got incremental liquidity.
$2 million to $300 million.
Very importantly, they pushed out their maturities to 2028, but.
No. We're still you know we still believe in the underlying business model.
No no concerns.
And on party city, there was some news that the claim.
Company might consider spending a lot of his balloon business, which I believe is.
One of your warehouses focuses on any kind of high level thoughts you can share on how.
That might impact you guys.
Yeah, you know well.
Party City, you know they expect them to emerge from bankruptcy during the third quarter. Yes. There are some last minute things back and forth going on but.
At the end of the day I would submit that.
Our path on party city really confirms what we've always believed in you know you're less in mission critical real estate.
Everything turns out okay. We have had zero disruption in any of our lease obligations.
Taxes or anything so yeah. There are some things going on right here at the end of the bankruptcy, but we don't expect those will have any factor in us getting rent payments going forward.
Zero concerns, but I would say just on that facility, but I've been in size that balloon manufacturing facility and its I'd describe it as a it's just a turnkey operation that you design procurement distribution out of that facility, it's a very sophisticated.
<unk> manufacturing facility that can kind of punch out different designs painted on mylar.
It's it's it's we're super comfortable with that that's gonna be a business can be around a long time in episode.
And as Ken said, whether it spends out or doesn't spend out really doesn't matter, it's going to just be a very valuable business without a very valuable piece of real estate that we own in that little sub market and Oh Claire.
Okay. Thank you.
Yep.
Sorry, the next question.
The next question comes from Rob Stevenson with Janney. Please go ahead.
Good morning, guys just one for me.
Jackson, despite comparable operations that a solid balance sheet. The stock continues to trade one of the lower multiples and higher dividend yields in the peer group other than maybe increasing the industrial exposure. The I G tenant base, what do you think drives at least relative revaluation, if not a absolute one here.
I mean I think.
For me what I believe is we just keep doing what we say we're going to do which is try to punch out solid acquisitions fund ourselves accretively.
So it's it's it's a mystery sometimes why we're trading at this multiple when the portfolio is so solid so diverse.
I think in time, we'll be able to close that gap.
So we believe that we have a plan that.
And demonstrate the the.
The ability of our of our team as well as the performance of our underwriting and our real estate assets and tenants. So that's that's that's our playbook right now.
Okay, and then when you're looking at the back half of the year on the stuff that you guys are either negotiated on a contract is highly likely that the acquisitions are going to continue to be tilted towards industrial or are there. Some big sale leasebacks in the retail space it'll sort of even that out how should we be thinking about that in terms of the asset.
Asset base at year end.
I mean for what we see right now it's it's if I were to guess it probably be industrial but that being said there are some large portfolios in the retail side that are floating around out there and we're evaluating them well.
You know one of the things that we're starting to just see just the amount of repeat business coming out of our existing tenant base.
We don't break it down.
Every quarter, but I can just tell you it's increasing.
And we're getting better.
Investment opportunities from existing owners and operators.
Our tenant base.
Okay. Thanks, guys I appreciate the time.
Sure.
The next question comes from Wes Golladay with Baird. Please go ahead.
Hey, Yeah. Good morning, everyone. I'm just curious if you have any developments that you're funding that will open in the second half and maybe a question for offline, but if you have it would be great. Do you have the amount of I guess, what we call C. I P that you spent the money, but you're not really getting any income at the moment.
You know this this is Ken I there's no.
Huge meaningful project that opens up in the back half of the year.
Jackson mentioned that.
You know that revenue producing capex one it has a mix of Ti dollars. So that's obviously folks that are already open. We're just improving our real estate. There are a couple of development projects, but whether or not any of those open.
Before the end of the year not.
I'm not quite sure, possibly but nothing I would suggest that is going to move the needle.
Okay.
Okay, and then provided.
Yes.
Yeah.
Okay.
I mean, theres not theres like one one project.
Darryl.
The next question, Hey guess what.
Well in Canada.
Like Morgan Stanley . Please go ahead.
Hey, just two quick ones. So one on the disposition guidance raised just could you talk a little bit about.
Just the activity that you're seeing and what you're putting out what youre looking to put out.
And you know what are the likelihood of actually hitting the top end of that guidance in this environment.
Yeah look we we are the reason why we increase that guidance well, we actually went into the market with a larger tranche of properties.
And they're very strategic in terms of.
What they are in terms of targeting different small retail buyers are temporary one type buyers.
So you've got that out there.
Got some risk mitigation assets into the market, which who knows time will tell whether those will get sold or not.
And I'd say like it's Oh.
The other thing I mentioned about what we're seeing most recently.
Is.
Some of these small retail buyers are actually now able to get debt commitments again, which is little encouraging.
For a while there.
It was a game where it was getting very challenging from some of the regional banks, but we've noticed.
And recently.
Disposition effort the ability of our potential buyers to get 60% LTV banknotes that's.
As part of Oh, just thought process.
Which I think is encouraging from what we're what we're trying to do.
Great if I could ask one more just so looking at the and I think I'm looking.
Looking at the acquisitions in the quarter.
I think the question came up already on the work I'll add to that in terms of the rent bumps as well and I think about that 8% plus cap rate. The question is how do you get comfortable and how do you sort of make investors comfortable that youre not going too far out on the risk curve and you're still sort of balancing.
Basically the acquisitions that you're doing at a cost of capital that makes sense.
But not reaching too far out on the on the risk curve.
Yeah.
I mean look I think I'll just tell you anecdotally.
You know the assets that we're selling in the six's, probably a year ago would have been in the fives.
Or the.
The.
Some of the retail assets that you can.
By right now even investment grade will be closer to the high fixed cap rate if the walls. If the Walt was sort of say 10 years.
The things that we're seeing are just in my opinion very very solid.
A set of investments.
You know one of the deals that we did this past quarter was.
For a distributor of the original OEM parts.
But the automotive industry very very successful business very sticky business.
We did a sale leaseback for a company that does that manufacturers pipe fittings and flanges.
Down in the Houston area.
We did.
Our food manufacturer will come.
Company up in the Boston MSA area that does confection cakes convection in cakes and bagels.
It Didnt entertainment assets. So all of these are really solid businesses the price per square foot is reasonable market rents make lot of sense.
And their mission critical for these companies.
These same opportunities like like I say it would've been in the mid sixes.
Last year and so we don't believe we're going out on the risk spectrum at these cap rates. He's a well underwritten credits in very very viable industries at really attractive price per square foot.
And just all cap rates have increased so you.
In a week, we could clearly stay in the high sixes and sevens, but.
So youre not going to get the unit reporting you're not going to get the wall youre not going to get the master leases.
Or necessarily the mission critical aspect of what we're seeing on the investment we're doing.
So I don't believe we're taking more risk at all.
That's your question.
Great. That's it for me thanks, so much.
Yep.
The next question comes from Linda Tsai with Jefferies. Please go ahead.
Hi, just a few questions and you're once you supplemental you showed unreimbursed property cost of one 5%, but we didn't see it this quarter just wondering why it was taken out.
Hey, Ryan this is Mike.
Thank you the first person three years, its actually asked us about it. So we just got dropped it and we do have that information in our Sip recalculate it but it was one 7% for the quarter and it's driven a little harsh but timing of it.
Some real estate tax Reimbursable and Cam expenses, but you know I would expect to migrate around that one apt, 1.7% well under the 2% that we had to kind of put out investor day, a few years ago.
But the information and there are we just too.
No one really book so no none of our peers report itself.
Okay got it.
And the strategy of not increasing your leverage using free cash that in acquisitions to fund acquisitions.
I know, it's not exactly ideal, but the hand, that's been dealt for now how do you think about the level of earnings growth. This can support.
You know it's interesting because this year, we were hit with some pretty big interest headwinds extra headwinds wrote the step up from last year. In fact, if you go back to your original guidance in February .
We gave you Q4 annualized which was at $3.50.
Did that because Q4 had the full impact of rising rates on us for last year.
That's our midpoint of guidance that would imply 2% growth this year.
So right. There you can see that even this strategy of recycling can produce some growth we're pretty bullish about next year given that all of our debt is fixed at pretty low rates.
But we feel like we have a good plan for growing going forward. So I'd like some help on the equity side to grow more and faster.
But we do feel like the way our balance sheet is locked in the yields and spreads that we're producing we can produce better growth going into 'twenty four.
Thanks.
Thank you.
The next question comes from Michael Gorman with D. T. I G. Please go ahead.
Yeah. Thanks, Good morning, I just wanted to go back to some of the prior comments and just ask about the the the current tenants in the portfolio kind of looking at your new investment opportunities coming from increasing sale leaseback volume because of what's going on in the financing markets.
How good of a read through do you have on your existing tenants and how they're handling the challenges in the financing markets and understanding the coverages are still strong you know what's going on below the EBITDAR line for for your existing tenants that are I would assume facing the same financing markets that the new sale leasebacks are.
Yeah, but it's hard to generalize and say good question. We we monitor it every day basically is the answer.
It's just in our normal dialogue.
And you know we have a we have a CRM that that we are utilizing lots of salesforce. That's that's really helping us out on the at the senior management level.
So what I can tell you we're seeing is.
The companies are doing better than people expect there's real onshoring happening theres real manufacturing happening.
I still think that labor is still issue for some of our.
Tenants that are in that manufacturing sector in terms of getting people on the job to.
Procure and finish out.
Items that are being manufactured and.
And on the retail side you are generally the way our tenants are set up.
They largely we're pretty.
Pretty smart during Covid in terms of recapitalize their balance sheets.
Getting debt termed out.
<unk> going public.
So we felt really good about it.
Very sophisticated and they're good operators, so we have largely been.
Pleasantly surprised with the credit worthiness of the portfolio at this point no of course, you've got a couple of areas you're always a couple of tenants are always watching but more carefully but generally it's not because of necessarily the financing that got them into trouble or interest rates. Yeah, theres. Some other kind of issue that that might be affecting them.
But I'd say overall overall, we felt very very good about the health of our portfolio and it's reflective in our ability to generate very little let disruption last Brett we talked about was plus 2%.
Great. That's very helpful. And then Jackson, maybe just on that same vein and I'm sorry, if I missed this but as you're thinking about investment opportunities and an investment volumes, how does that look coming from the existing tenants and existing relationships. The volume that's coming through that that pipeline recently.
Yeah, it's coming from all but it's it's a good healthy mix between coming from existing tenants.
Which are really led by our asset management team and and also just third party new opportunities new tenants that are looking for financing, our new sponsors and that's being procured by our acquisition teams. So let's say, it's a healthy mix that we're seeing that's why I said like the pipeline.
The investments that we're evaluating as increased meaningfully over the last several weeks.
And 80% of the business this quarter I think as existing tenants. So.
Okay.
Great. Thank you for the time.
Great. Thank you.
This concludes our question answer session I would like to turn the conference back over to Jackson shape for any closing remark.
Thank you operator, and thank you all for participating I'll also like to thank our professional colleagues over at Spirit Realty.
Good quarter, and we're quite enthusiastic about what we see right now.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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