Q2 2019 Earnings Call
5% increase over the comparable period of 2018.
On a per share basis, AFFO was 74 cents, an increase of 4.7% year over year.
General and administrative expenses in the second quarter totaled $3.9 million.
Gene a expense was 8.6% of total revenue or 8.1%, excluding the noncash amortization of above and below market lease intangibles.
We continue to anticipate GNS <unk> as a percentage of total revenue to be an approximate 50 basis point improvement from 2018 or in the upper 7% range for 2019.
Excluding the impact of above and below market lease intangible amortization in total revenues.
Income tax expense for the second quarter was approximately $195000 for the full year inclusive of the onetime tax credit of $475000 realized in the first quarter. We anticipate total income tax expense to be in the range of 350 to $400000.
On a quarterly and year to date basis core FFO per share and AFFO per share were impacted by dilution required under GAAP related to the forward equity offerings. We completed in September of 2018 and April 2019.
Treasury stocks is be included within our diluted share count in the event that prior to settlement our stock trades above the deal price from the offerings.
Since our average stock price for the second quarter was above the deal price for the September and April forward offerings. We included dilution related to both transactions.
The aggregate dilutive impact related to these offerings as a penny to both core FFO and AFFO per share for the three month period and roughly two cents for the six month period.
There will be no additional treasury stock dilution for future quarters related to the September 2018 forward equity offering given we settled the transaction in conjunction with the April forward offering.
Now moving on to our capital markets activities, we had another active quarter further strengthening our balance sheet and positioning the company for continued growth.
We continue to maintain significant capital both debt and equity to execute on our robust pipeline.
On May Onest, we settled the entirety of our September 2018 forward equity offering and received net proceeds of $186 million.
In conjunction with the settlement of our September forward offering we completed another follow on public offering of 3.2 million shares of common stock in connection with the forward sale agreement.
Upon settlement the offering is anticipated to raise net proceeds of approximately $200 million after deducting fees and expenses.
To date the company has not received any proceeds from the sale of shares of its common stock in connection with the April offering.
We retain the ability to settle the transaction in whole or in tranches at anytime between now and May Onest of 2020.
The settlement of the September 2018 forward equity offering and the launch of the subsequent April 2019 forward equity offering provides the company the capacity to invest an incremental amount of approximately $700 million and remain within our stated leverage range of five to six times net debt to recurring EBITDA.
During the quarter. We were also active in sourcing long term debt financing in June we entered into an agreement for a private placement of $125 million of senior unsecured notes.
Once the agreement is funded the notes will bear interest at a fixed rate of 4.47% and have a 12 year term.
We can elect to fund the private placement and received the $125 million of gross proceeds anytime between now and October Thirtyth of this year.
I would note that we continued to execute on longer term fixed rate debt that matches, the underlying duration of our asset base.
In March we entered into forward starting interest rate swap agreements to fix the interest of $100 million of long term debt until maturity. The company terminated the swap agreements at the time of pricing the $125 million senior unsecured notes.
Taking into account the effect of the terminated swap agreements the blended all in rate for the $125 million private placement is 4.42%.
As of June Thirtyth, our net debt to recurring EBITDA was approximately 4.4 times well below our stated range of 5% to six times.
Pro forma for the settlement of the approximately $200 million and proceeds from our April 2019 forward equity offering our net debt to recurring EBITDA is approximately 3.2 times.
Total debt to enterprise value was approximately 21.6% and our fixed charge coverage ratio, which includes principal amortization remains at a very healthy 4.1 times.
The company paid a dividend of 57 cents per share on July 12 to stockholders of record on June 28, 2019, representing a 5.6% year over year increase.
This was the company's 101st.
Consecutive cash dividend since its IPO, just 25 years ago.
For the first six months of the year, the company declared dividends of $1.12 and a half cents per share a 6.1% increase over the dividend of $1.06 per share declared for the comparable period in 2018.
Our quarterly payout ratios for the second quarter were 76% of core FFO per share and 77% of AFFO per share.
For the first six months of 2019, our payout ratios were 76% of core FFO per share and 77% of AFFO per share respectively.
These payout ratios are at the low end of the company's targeted ranges and continue to reflect a very well covered dividend.
With that I'd like to turn the call back over to Joey.
Thank you clay to conclude I'm very pleased with our performance in the first half of the year. We're in excellent position for the remainder of 2019 and I look forward to updating you in the quarters ahead at this time, operator, we will open it up 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 Touchtone phone.
If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Rob Stevenson with Janney. Please go ahead.
Hi, Good morning, guys Joey how much did the wawa and Cosco transactions pulled down the cap rate for the quarter.
Hi, Good morning, Rob you're talking of approximately 25 basis points between the Wawa flagship in the Costco ground lease incrementally I tell you the three Walmart Super centers, two of which were ground leases one of the very low.
Rental rate on a Walmart supercenter to former smaller format. The demolition did they demolished and added.
A full size center supercenter to brought out incrementally as I mentioned in our in the prepared remarks, we fully anticipate that cap rates going forward absent any unique transaction will be back at the 7% range.
Okay, and then after selling the 24 hour fitness I guess more than 70% of the health and fitness buckets now la fitness are we likely to see more non Ali fitness.
Assets.
Sales of will we be seeing in la fitness sale as well how are you feeling overall about that segment.
Given your comments.
Yes, it's a good question I'll be honest, we're we're really watching that space continue to develop I think it's the fragmentation of just all the concepts that continue to proliferate across this country. You mean population is getting older in this country and one thing that many more people frankly are working out.
So you have the low price point operators the planet fitness is of the world and the like as well as the La fitness 24 hour fitness the specialty operators in the high end operators like lifetime fitness, which we don't invest capital and so I tell you. We're very pleased to sell the 24 hour fitness that had about seven and a half years of term left.
We're comfortable with where our health and fitness exposure is today I think it's more we just want to watch and see the space develop.
How much of the the non la fitness bucket is 24 hours at a bunch of other sort of smaller operators, comprising the $2 million or so of annualized rent.
Right. So we just have one additional 24 hour fitness I believe in Colorado.
And then we have three or four planet fitness is so the vast majority of the L.A. fitness, mostly urban locations or early extensions.
That that comprises all of our health and fitness facility.
Okay, and then you said that you sold three sonic franchisees during the quarter what percentage of the portfolio today is franchisees.
We're down to.
3.9% as of 630 at franchise restaurants, and so we really focused on reducing that I tell you. The IR ours that we're achieving on these franchise restaurant disposition are typically in the 12% to 14% on an unlevered basis.
And so we're selling these opportunistically, obviously, most likely to 10 31 market will continue to look for opportunities Burger King Wendys, a few sonics remaining in the portfolio as well as Taco to divest of those at approximately six cap or lower and really redeploy the capital into higher quality.
Operators as well as real estate.
Is that part of the increase in disposition guidance.
Right.
So really it's the bottom end of the disposition guidance, we brought up from from 25 to 50 million year to date inclusive of the Walgreens sale in Grand Blanc. The closed subsequent to quarter end, we've disposed of almost $32 million in that our disposition pipeline includes additional franchise restaurants, and then noncore assets, we will recycle the capital. So we thought it would be appropriate as of today at $31 million to bring that bottom end up.
Okay and last one from me Clay one share in unit count should we be using for third quarter estimates.
Sure.
In terms of for fully diluted share count Rob.
Inclusive of.
Inclusive of units, we should be at.
42.3 million shares.
Okay perfect guys. Thank you.
Thanks, Rob.
Our next question comes from Christy Mcelroy with Citi. Please go ahead.
Good morning, This is Katy Mcconnell Ms. Christie.
So with good morning, guys and great tenant exposure moving up a good amount again this quarter can you just give us an update on what you see at the target level and has your view on that changed much in light of the retail bank.
Yes.
As I mentioned in the prepared remarks, I would tell you our investment grade exposure is really is predominantly a function of our of our really our targeted sandbox to that 30 year, plus or minus retailers and so investment grade exposure is up almost 800 basis points quarter or year over year excuse me, we anticipate our debt to continue to trend upward.
Theres really no targeted level.
I think frankly more investment grade is obviously better.
No no no distinct targeted level I'll tell you our pipeline is of superior quality for Q3.
With even higher investment grade exposure than Q2, hence the the upward trajectory, but our focus remains on those top.
Omnichannel ecommerce resistant operators.
Their respective sectors that it's about it's about 30 retailers and frankly, the majority of those retailers carried investment grade credit ratings, because they're large publicly held companies.
Okay, Great and then can you also just update us on the watch list tenant exposure, including I think you had a few Fred sorry.
And at this point no.
Our plan to close.
Yes, no we were our watch list continues to shrink the biggest piece of our watch list frankly was our Petsmarts, which I believe we have six or seven in the portfolio, though the chewy IPO and the subsequent pay down of debt and petsmart upgrade.
Really gave us some breathing room, we think with their with Petsmart and gave the company.
Continued runway.
In terms of the friends, we have three or four the portfolio, we don't have any finite outcomes with freds.
It's only three or $400000 in annualized DVR.
Okay, great. Thanks.
Thank you.
Our next question comes from Collin Mings with Raymond James. Please go ahead.
Thanks, Good morning, Joey good morning Clive.
Good morning, Tom.
First I just wanted to start with the increase in the acquisition guidance I know in the past Joe You've noted the company typically has caught about 60 70 days of visibility on deal flow.
In the prepared remarks, you made the point that guidance does not reflect any larger transactions. So just as we think about.
Going forward are you thinking about call it 150 million per quarter of acquisitions as being a run rate the platform should be able to execute on on a go forward basis, or maybe just talk a little bit more again in context of the increased guidance and really no.
Larger scale transactions being included in the back half the year at this point.
Yes, and those are all those are all the logical data points for us in terms of that 60 to 70 days visibility from Ela execution to close.
Transactions by their very nature are lumpy I'll tell you right now we have visibility into our Q3 pipeline, hence the 70 days.
And the cubic the Q3 pipeline is quite substantial as I mentioned earlier, it's superior quality, it's over 80% investment grade today.
And it is really.
Number of unique transactions.
Additional potential urban infill urban retail transactions.
Some blend and extend opportunities really leveraging our relationships with our retail partners and the acquisition team has done a fantastic job originating those opportunities. So today I can tell you we have visibility into Q3, we don't have any visibility into Q4 asps in a couple of smaller transactions.
But we're obviously confident that we're going to be able to achieve that guidance.
Okay.
I also wanted to touch on it there wasn't measurable uptick in your exposure to best buy during the quarter can you maybe just discuss those specific opportunities.
Yes, we best buy continues to be a fantastic partner, we're really pleased with our relationship with best buy and the opportunities today in the portfolio. We have four best buys we added one in Brasilia, California, it's a relocation of an existing store.
Immediately adjacent to a high performing target.
Typically the predominantly how we what our best buy exposure looks like similar to Hillsboro, Oregon relocation of a former store adjacent to a high performing target just outside of Portland. So we continue to work with best buy obviously, the last man standing in the consumer electronics space, you Joey and the team has done a fantastic job turning around the company and positioning it for future growth and we will continue to work with best buy across all three platforms.
Got it one last one from me just again in context of the increased acquisition guidance and the continued growth of the platform just any sort of updated thoughts on DNA as we go through the balance of the years, we look forward.
Go ahead Greg.
Sure. So we maintained our DNA guidance for the year Collyn for guiding exclusive of or excluding the impact of the amortization of above and below market lease intangibles within total revenue, we're guiding to a 50 basis point in or a 50 basis point decrease to last year, which is in the upper 7% range.
All right I will turn it over thanks guys.
Thanks Collyn.
Our next question comes from Ki bin Kim with Suntrust. Please go ahead.
Thanks, Good morning, guys.
Can you just talk a little bit more good morning can you talk more about the acquisitions you made this quarter beyond just the cap rate on touch on things like if I try to ground leases.
How do you guys feel to view the full all in LTV when you do a ground lease.
And what type of rent escalators are you getting versus regular fee simple type of acquisition.
So escalators vary across the board typically fixed every five years that you expect from most national.
Really superior tenants, just a little color on on acquisitions during the quarter three Walmart Super centers as I mentioned, one in Red Lake Geneva, Wisconsin Yorke, Pennsylvania.
As well as a third one in Wichita, Kansas across from the airport the best buy in the Valley of California, the read the relocation store.
We acquired and also.
Ross for TJX is that includes two home goods, a marshals and a flagship a number of auto zones O'reilly.
A couple of quick trip.
Obviously, a dominant in large format convenience store also was in there.
We continue to work with tractor supply so really again those industry leading operators in terms of your ground lease question, we ask that again.
Steven.
Yeah sure how do you view the fall of the LTV all in LTV on a ground lease including the building costs.
So just I guess I kind of get a sense of.
Yes, I'm trying to get a sense of like if you do a ground lease what percent of the actual building on land that represents the ground lease value.
So just for clarification for everybody, but it's a point of confusion often for investors. So these are ground leases, where the tenant constructed the building in the improvements at their own expense, we buy the fee simple interest typically from a third party unless we develop it these aren't sale leaseback transactions of course.
So the Walmart the Walmart transactions, we acquired approximately a 20 acre parcel each transaction Walmart is constructed approximately 990000 square foot supercenter at their expense, including improvements as well as the building.
What we look for as high performing stores and dominant retail corridors no outlast in front of the Wal Mart or in front of the Costco as we talked about with Newport News.
And then we look for the potential to redevelop that property, if walmart were to ever or cosco were to ever vacant. So we have no basis in the building.
We have no depreciation tied to it or book value tied to it we simply own the land.
With with Walmart or Costco or home depot, or lowes, having an obligation to pay rent on an annual basis that makes sense all right.
Yeah.
And on your in terms of your balance sheet leverage dropped to 4.4 times, obviously you guys.
Seem to have over Equitize the deals in the short term.
It sounds like there's a lot more coming in the Threeq you and later in the year.
But on a medium term basis.
How do you think about that leverage ratio and.
As we go into next year should we see a if you go back into that 5% to 6% five to six times range.
Well I think look we haven't changed our stated range of 5% to six times, we will continue to maintain the dry powder or the capability to execute on our platform I think when we when we did the most recent equity offering we started to gain visibility into the really into the transactional market.
Our role in that space and the depth and breadth of the relationships that the team here has created and so we'll continue to maintain a conservative balance sheet be opportunistic in terms of capital sources, but at the same time be able to deploy that capital.
In the short term when and if we do raise equity or debt capital and their quick.
And then just last question.
Hi, obviously, the 10 year going down it's good for your cost of capital, but if I also creates a little bit more competition with traditional lenders.
And you've seen a couple of them report already wish shrinking NIM margins.
Is that our alternative capital sources for your tennis, becoming more competitive and relative to your business.
No again being a third party aggregator we've only executed on a single sale leaseback transaction this year with national tire in battery being an aggregator in this in the third party space.
Really our tenants cost of capital our access to capital doesn't impact our ability to source opportunities.
Alright, thank you.
Thanks, Kevin.
Our next question comes from Todd Stender with Wells Fargo. Please go ahead.
Thanks, guys and just to keep on the Walmart theme, just because theyre. Your second largest tenants. So is three separate investments can you tell us how you've got these.
And can you discuss maybe described the yields or if you don't want to talk about specific yields maybe just the spreads between the ground lease and then the true real estate acquisitions.
Yes, the three three separate transactions Wichita, Kansas Lake Geneva, Wisconsin, Yorke, Pennsylvania, all through different frankly, all through different sourcing mechanisms one off transactions.
One through a local broker in Wichita, Kansas went through a joint venture partnership between a developer.
And investment fund.
And frankly, the third I can't recall, where where where it originated from I think direct from the seller. So our Walmart portfolio today as you mentioned, our number two tenants almost $8 million and GAAP baby are to Sam's clubs.
A number of Walmart Super centers than a single Walmart neighborhood market on a ground lease in Rio Beach. The average the average cap rate on the Walmart Supercenter transactions was in call. It the six seven range for these these three transactions all high performing stores, obviously walmarts made significant investments in these assets and we're very happy to add to the portfolio.
So none of which were sale leasebacks and then can you address the Costco too because costco ones are real estates, and so that was that seller.
Yes, no sale lease those sale leaseback this quarter again, the only sale leaseback, we've executed on year to date was with TPC national tire in battery I believe and it was a six store portfolio in Q1.
So no sale leasebacks, all all all private sellers.
All very low rental rates given the nature of the ground lease for for example in Wichita, Our York, Pennsylvania, they're paying $3.31 a foot in Wichita, Kansas, they're paying $2.22 a foot. So these are very very low basis assets for for Walmart and for US if we were ever to get the real estate back the Costco Similarly, a ground lease and build their own store, we're very familiar with the Newport news Mark into a number of number of transactions there.
And so again third party seller, you're correct they own the vast majority of the real estate significant barriers to entry.
So its a phenomenal store in every piece of real estate.
Are these anomalies I mean, it's rare to see the walmarts transact and certainly you got them all at once.
Should we expect more are really there's not many that do transact in your in your pricing area.
Yes, just for just for clarification three different transactions different sellers not all at once so these are.
I'd say of Walmart owns the majority of the real estate that being said as a significant number of walmarts in third party hands typically on ground leases. Our focus is on high performing Super centers select neighborhood markets.
But yes, I mean I would tell you they are fairly rare, but look the acquisition team doesn't has fantastic relationships and continues to source these opportunities and and we've seen the result, Walmart is our number one ground lease tenant it at 21% of our total ground lease exposure approximately followed by Lowe's home depot Wawa in Costco now so we'll continue to look for and execute on high performing ground leases to.
Industry, leading retailers.
Great. Thank you Joey and then clay I guess just for modeling purposes. When we look at the private placement on the debt side from last month.
It's Q3 looks to be heavy on the acquisition front is it fair to assume maybe you will you will use the line at this point, maybe a higher propensity to draw down the line and then.
Tap the private placement proceeds as we get close to that October deadline.
Yes, I think that's right Todd we have me, we have ample liquidity under the line of credit.
Just given where the balance was at the end of Q Q and we have up until the end of October two two draw on the debt private placement so.
Our funding of the debt private placement will either be late third quarter or certainly early fourth quarter.
And then you have a year on the forward equity agreement is that right.
Correct may onest of 2020.
Okay, great. Thank you.
Thanks Todd.
Our next question comes from John Massocca with Ladenburg Thalmann. Please go ahead.
Good morning.
Good morning, John .
So is there maybe touching on the ground leases again, a maximum exposure to ground leases you want as a percentage of the portfolio and just kind of thinking how do you balance kind of the quality of that rent versus maybe the ground lease transactions.
Inherently kind of coming in at lower cap rates, and therefore being less accretive.
Yeah, maybe limiting how much of your portfolio is and kind of come from ground leases.
Well I'd say, there's no cap and we think the best risk adjusted transactions in retail net lease buyout by a vast margin. There's there's certainly no cap frankly, we're surprised to be able to be north of 9%, but again. The team continues to source these opportunities and keep and we can continue to hit them.
Well I think the ground lease the ground lease transactions our unique it's a unique part of our portfolio will continue to add assets to the portfolio and if we look at total comprehensive investment strategy.
And we pick out the best risk adjusted returns on there I mean, I think thats really thats really the key.
Okay.
And then you highlighted how low your exposure to franchise restaurants is today.
Is that property or tenant type kind of you basically redlined, even from kind of a development piece, yes perspective in terms of.
Acquiring more of these assets.
And just kind of asking because.
You had kind of franchise restaurant assets in your development pipeline.
As recently as kind of a year and a half ago. So is it a structural change or is it more kind of cap rates or are driving out of that space.
Yes, I think it's both I would hate to see we ran line anything is a real estate underwriter, who focuses on really a bottoms up approach I would hate to say, we read Lai anything is certainly isn't at the top of our list.
A friend the franchise restaurant space the restaurant space in General I personally believe it's become overheated because of the low price point nature of those assets and the 10 31 market.
And we will be happy to sell into those assets into that market and continued to deliver 12% to 14% Unlevered IR ours and frankly in a short period of time in terms of developing for franchise restaurants or restaurant in general.
I'll be honest. This is a really busy team here today, we have approximately 40 people that are really focused.
Developing a million and a half or up $1.2 million franchise restaurant. It really isn't the best use of our time, we really almost grown out of it and so when we look at our relationships and our tenant relationships, we really want to be able to deploy $10 million on an annual basis into any relationship with the three year run rate. So we want visibility into third the ability to deploy obviously on an accretive basis, hitting our hurdles and objectives $30 million over three years, and so developing seven franchise restaurants per year at 1 million 300 million for on average I mean these are basically stick build houses with drive thru is probably not the best use of our time and given that given where those cap rates have gone, we think it's opportunistic imprudent to sell into that space.
Okay.
And then apologies if I missed this in the prepared remarks, but what drove the impairment in the quarter.
Sure we recorded a 1.2 million dollar impairment for the quarter.
That was related to.
Assets that were being marketed for sale and really just reflects.
And entry to adjust the previous book value, what we view market value to be today.
Okay.
That's it for me thank you very much.
Thanks, John .
Our next question comes from Jon Petersen with Jefferies. Please go ahead.
Great. Thank you.
So on the Wawa transaction, obviously that street retail, which is different than most of the rest of your portfolio Im just kind of curious the availability.
Out there of street retail type.
I guess opportunities like that and how you underwrite that versus add kind of standalone piece of real estate.
Yes, good morning, John again, we it's an area of interest for US, we're not going to stretch absent outside of our of our sandbox and we have a number of assets that our street retail urban asked the Ann Arbor, Walgreens, The Harris Teeter in downtown Charlotte, the Dave and Busters and downtown New Orleans.
Obviously this wawa in Philadelphia.
And we have a couple of we have a couple of opportunities that we're looking at that are really urban infill locations with retailers that fit within our sandbox with superior underlying real estate. So.
It's a unique subset of our portfolio similar to the ground lease not as big as the ground lease subset of our portfolio, but but an area where we continue to look.
For additional opportunities to either develop or acquire typically redevelop or acquire.
Okay, all right Thats helpful and then.
On on dispositions and you mentioned, some I guess specific areas I guess 24 hour offences and franchise faster that you're trying to reduce exposure to but I'm kind of curious higher level. How you think about dispositions in the long run like is there a certain age of a building or remaining lease duration, where.
It makes sense to look to dispose of the building.
No no. It's a good question its real its property specific all real estate is local with a calibration of where is the market where can we dispose of the asset what's our cost basis, how does that fit within our portfolio from a concentration perspective, where do we see that patent tenant sector our industry trending.
And then most importantly does it fit within a 20 for the leading 20 onest century retail portfolio, which we have constructed.
Here at this company so I will tell you Sonic.
Sonic franchise restaurants, the Burger King franchise restaurants, I can sit here to say everyday we decide to hold an asset as it is the day, we decide not to sell and so we will continue to be aggressive.
With assets that we don't fit that we don't believe fit within that context.
All right makes sense Sonic does have the best ice in the industry It's amazing.
If you got some good ice and look we like Burger King's French fries, but at a six cap or a five nine cap more power to the purchaser absolutely all right. Thank you very much.
Thank you.
As a reminder, if you have a question. Please press Star then one.
Our next question is a follow up from Christy Mcelroy with Citi. Please go ahead.
Hi, good morning, guys.
Just sort of a follow up from Keven leverage question, but how should we think about the equity capital raising strategy would you expect to continue to do these bigger sort of forward deals and then reset the balance sheet periodically or when would you consider moving to more of a slower.
PM type strategy to match trying to buy and how does your broader view of the capital markets factor into that.
No. Good morning, Good morning, Christy look I think people people tend to forget that we raised 200, almost $240 million off of the ATM in Q4 and Q1 so.
The forward instrument is a tool for us to lock in an attractive cost of equity when we have visibility into a pipeline, where we'll be there to be able to deploy it.
In the near or medium term at the same time I think most important and I think most interesting frankly is it doesn't preclude the ability to use the ATM.
Or any other capital raising tools on the debt or equity side. So it's.
It's almost you can look at it almost as an insurance policy if anything we're pretty confident in our ability to source transactions as weve demonstrated this quarter with the increased guidance.
At the same time, it's almost setting a floor on the cost of the cost of your equity which is the most important component.
In the net lease space in for recent general.
Okay, and then you mentioned that you expect cap rates closer to 7% just following on some of the earlier questions about potentially doing more ground lease deals.
Growing that portfolio at lower cap rates are maybe doing more flagship deals like wawa.
You know more philosophically does your cost of equity and debt capital today currently warrant buying more at lower cap rates today in the market.
Actively giving you license to do more of these deals.
It's a good question, we really honestly, we don't think the proverbial green light or red white or license to do and we focus really on the underlying real estate and how it fits within our 30000 perspective of of retail retail real estate and operator so.
We will continue to execute on unique transactions, we work with our retail partners and we have unique expertise to really bring those transactions to fruition for Latam of hair on them. For example, the Wawa took six or seven months. My transaction theme was was very deep into that transaction for a long time.
At the same time, we're not only focused on those types of deals and so there's a there's a broad range of the transactions were interested in and that we're executing on and I think the ground leases the urban infill the street retail stuff.
Really just fits into the larger picture of what we think again, the leading for a leading portfolio of retail should resemble in this country. It should have urban assets suburban assets. It should have hard corners and should have dominant outlast his should have boxes next to super targets.
And the like and so Thats really thats really our focus is that make sense.
Yes, and then.
Just lastly, congrats on the Simon Leopold addition, you've made a lot of progress on border allocation over the last year or maybe you could just provide your updated thoughts on the potential for.
De staggering the board and then also.
Providing FFO guidance at some point.
Yes, we're very excited to have Simon joined the board as I mentioned, we've had three new directors in 12 months as far as really an ongoing aboard transition and so we've temporarily expanded the board we anticipate contracting it while this transition takes place and so with Simons addition, Craig Ehrlich's addition, and Greg Glenn Pools addition, weve really brought what we think is three high quality really fantastic directors on board in terms of in terms of providing earnings guidance again with the small denominator.
With the small denominator and frankly with the ramping company with the growth trajectory. We have we just we just continue to believe that it would be such a wide band.
Given the visibility of 60 to 70 days that it would be almost really counterproductive to what we're doing today.
Hey, Jim It's Michael Bilerman.
I guess, what yes can you hear me.
Yes, right here.
Yes can you I mean, so I guess the deed de staggering will that be put forth.
Next proxy season.
Not not currently on the radar, possibly Havent had any heading recent discussions with the board has always considering.
Any potential.
Why wouldn't I mean and in this day and age the majority of companies in corporate America. The majority of Reits have de staggered boards why wouldn't you.
As a CEO be telling your fellow board members.
They should be staggered.
I think well I think there are multiple different perspectives on de staggering. The boards I think I think there is obviously there is a perspective that de staggering and classified boards.
People believe that they no longer makes sense at the same time I think there is there is there is really a truly a flip side to that coin and I think that shareholders today through say on pay all the other mechanisms that they have I think frankly de staggering the board today could potentially provide for activism could potential disruption.
Can can could get in the way of the continued execution of our operating strategy now if we were if this if this company has not performed voters shareholders can vote ultimately with their wallets and then also with their with their shares. If this company had in performed over the short medium or long term.
Then I think there will be a much more validity to potentially opening yourself up to disruption short term investors.
Or frankly, just just activists that are looking for pops.
Yeah, I think the proxy advisory firms the majority of long only as well essentially fund investors institutional investors would disagree with those comments. So thats why the majority of companies do have de staggered board.
If that's the way you guys won't operate that's the way you want to operate.
In terms of Fs. So I mean, you are north of $3 billion company you are no longer.
A couple of hundred million dollar company, where I would argue back a number of years ago, providing individual details in terms of.
Gionee capital raising in all the various components.
You would have wide arrangements, but you are a.
Now a much larger organization.
Were providing that detail.
Would allow given that your shares are owned by a variety of constituencies and much broader constituency today than they ever were providing and being in that.
Way of expectations would be I think very helpful.
So I don't think you can hide behind we're still a small company thats growing where you are.
You're playing are now within the net lease space.
Yeah, I don't think I don't I don't think I have no intent of hiding behind anything I think what we tried to do is be as forthrightness forthright as potentially possible.
We do that with our initial guidance for the year for $350 million to $400 million I Didnt expect to be sitting here say, increasing guidance is $625 million to $675 million I mean this company. While it has what has grown and you're right. It is it is no longer a couple of hundred million dollar company. The company is still growing top line approximately 30%.
Even with that even with that denominator and frankly, we are still we are still learning about our capabilities across all three platforms and I think we give the components I know clay work with everybody to give the components of how to build.
Appropriate models and expectations, but but but but at the same time I have I have continued continued concerns about providing benchmarks out there.
That necessarily could skew perspective, and we have no interest in providing benchmarks out there that would simply be beaten raise on a quarterly basis. We run we run a business with a long term perspective here and.
Quarterly numbers and short term guidance to me really defy.
Retail net lease real estate.
Right I think people would be very interested in how you think about sources and uses in terms of the acquisitions that you are targeting and then the uses of capital and how management and the board thinks about both debt and equity the relative cost.
The term of that debt when you're going to raise it how much equity here racing before to replenish the pipeline all of those are important inputs and if people model.
And think about the cash flow and earnings growth that the company produces and so having that insight even at the beginning of the year. If you had targeted $300 million of deals. This is the way. We're planning on financing is how we think about our debt and equity components. This is when we'd want to raise it and then as the deals have accelerated you can then update that to the market I think having that capital discipline and and communicating to the street only be gets a higher multiple.
Which will allow you to do more accretive deals.
Well I'll be honest I would never want to telegraph to the street, how we anticipate raising debt or equity on a go forward basis in a volatile environment like we have today I never anticipated the tenure being at 2% today. We were the first net lease company do forward equity offerings. We have had a number of companies subsequently to execute on them. We've done three we will also want the ability to take advantage of capital markets and cost of capital and provide that fire power for our balance sheet on a whim.
And take advantage of those windows inclusive of the ATM forward equity offerings block trades debt private placements so to telegraph how were going frankly to source.
Capital for the year I would tell you we go into every year with conservative assumptions internally and then we look for opportunities both on the on the U side as well as the source side.
To take advantage of them provide return for our shareholders that makes sense.
Yes.
So I think look I think the most important thing we can do is continue to do historically, what we have been doing chopping wood day in day out focusing on underlying real estate constructing the highest quality portfolio, we think in the retail and in the retail world today in this country and providing a balance sheet for the continued growth that we anticipate that is conservative that is nimble that is flexible and it allows us to execute on our operating strategy and frankly anything that gets in the way of that whether its shareholder activism or noise or setting expectations and playing the game with wall Street, we really want to avoid it. This is a real estate company to its core its an entrepreneurial environment with 40 people that put blood sweat and tears in day in day out and we want to we want to put our heads and we want to put our heads down and get to work on real estate.
And not placate all of the different constituencies out there it's impossible everybody's happy than we probably got a problem.
Okay. Thank you.
Thanks.
This concludes our question and answer session I would like to turn the conference back over to Jerry a agree for any closing remarks.
Well. Thank you everybody for joining us we look forward to speaking with you soon and hopefully you got to get through earnings season talk you soon thanks.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.