Q4 2023 NNN REIT Inc Earnings Call

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Operator: www.TheBusinessProfessor.com Greetings. Welcome to the NNN Re-Ink Q4 and Year-End 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Greetings welcome to the NN NN NN re Inc, Q4, and year end 2023 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero.

Operator: A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Steve Horn, Chief Executive Officer. You may begin. Thank you, Holly.

Operator: On your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host Steve Horn, Chief Executive Officer, you may begin.

Steve Horn: Thank you Ali good morning, and welcome to your Internet rates fourth quarter 2023 earnings call. Joining me on the call as Chief Financial Officer, Kevin Habicht.

Steve Horn: Good morning, and welcome to NNN REIT's fourth quarter 2023 earnings call. Joining me on the call is Chief Financial Officer Kevin Hobbick. This morning's press release reflects NNN's performance in 2023 produced 3.8% core FFL growth, along with acquisition volume exceeding 800 million. In addition, the year concluded with high occupancy of 99.5%, and dispositions income-producing assets were 140 basis points lower than our acquisition cap rate, all driven by our best in class team here at NSF. The end-of-the-year surge positions the company well in the near term. But a few highlights of 2023 that I'm proud of what ended up on the count, the 34th consecutive annual dividend increase, the rebranding initiative, and the positioning of the executive team for the future.

Steve Horn: As this morning's press release reflects <unk> performance in 2023 produced three 8% core <unk> growth along with acquisition volume over $800 million in.

Steve Horn: In addition, the year concluded with high occupancy of 99, five and dispositions income producing assets were 140 basis points lower than our acquisition cap rate all driven by our best in class team here and there.

Steve Horn: The end of the year surge positions the company well in the near term.

Steve Horn: But a few highlights of 2023 that I'm proud of what <unk> accomplished.

Steve Horn: The 34th consecutive annual dividend increase the rebranding initiative and the positioning of the executive team for the future.

Steve Horn: While the name changed in 2023, the core philosophy to realize long-term value at below average risk for our shareholders remains in the most simplistic form. One, we continue to execute our strategy using a bottom-up approach, continue to increase the annual dividend, maintain the top tier payout ratio, and focus on growing FFO per share in the mid-single digits over multiple years. We maintain this core philosophy by keeping this, studying our acquisition activity, and our balance sheet management to achieve that objective. Before I get into day-to-day operations and current market conditions, I'd like to welcome Gina Steffens to the Executive Board. Gina assumed the general counsel role late in the fourth quarter.

Steve Horn: While the name change in 2023, the core philosophy to realize long term value at below average risk for our shareholders remain in the most simplistic form.

Steve Horn: One we continue to execute our strategy of using a bottom up approach.

Steve Horn: Continue to increase the annual dividend, maintaining a top tier payout ratio.

Steve Horn: C&I growing <unk> per share in the mid single digits over multiple years.

Steve Horn: We maintain this core philosophy by keeping discipline.

Steve Horn: In our acquisition activity and our balance sheet management to achieve that objective.

Steve Horn: Before I get into the day to day operations in current market conditions I'd like to welcome Gina Stephens to the executive team G&A assumed general counsel role late in the fourth quarter, who joins <unk> with a fantastic resume from public and private companies, bringing significant transactional experience I look forward to the partnership going forward is in a net.

Steve Horn: She joins NNN with a fantastic resume from public and private companies, bringing significant transactional experience. I look forward to the partnership going forward as NNN grows. As I alluded earlier, NNN is in great shape.

Steve Horn: Gross.

Steve Horn: As I alluded earlier other than is in great shape at year end <unk> had $132 million drawn on the $1 $1 billion credit facility.

Steve Horn: At year end, NNN had $132 million drawn on the $1.1 billion credit facility. After deploying over $800 million of capital for, based on our initial 2024 guidance, NNN has the ability to have minimal capital market activity in 2024. This is accomplished by using a nominal amount of the credit facility, the roughly $180 million free cash flow we generate, and $100 million from dispositions to execute 2024 strategies. Using these three sources I mentioned leaves NNN with potentially zero equity requirements. This strategy continues NNN's discipline of being selective while deploying capital and opportunistically raising capital over time. Management takes great pride in being best-in-class capital allocators, not asset accumulators.

Steve Horn: After deploying over $800 million of capital for the year.

Steve Horn: Based on our initial 2024 guidance and then has the ability to have minimal capital market activity. In 2024. This is accomplished by using a nominal amount of the credit facility.

Steve Horn: The roughly $180 million free cash flow, we generate and $100 million from dispositions to execute 2024 strategy user.

Steve Horn: Using these three sources I've mentioned leaves <unk> with potentially zero equity requirements for the year. This strategy continues <unk> discipline of being selective while deploying capital and opportunistically raising capital over the years.

Steve Horn: Management takes great pride in being best in class capital Allocators, not asset accumulators and that is a distinction that should not be overlooked for the company to execute in the long run.

Steve Horn: And that is a distinction that should not be overlooked for the company to execute in the long run. As we stand here in February, given the macroeconomic forces and the current state of the sector's equity markets, it makes sense for NNN to maintain its operational discipline while deploying capital. That being said, if there's a change in the markets as we progress throughout the year, NNN is well positioned and will capitalize on the right opportunity. Shifting to the highlights of the fourth quarter financial results, the portfolio now contains 3,532 freestanding single-tenant properties that continue to perform exceedingly well. Occupancy levels reached historic highs of 99.5, which is well above our long-term average of 99.5. The fourth quarter bankruptcy filing of Rite Aid will have a minimum to zero impact on NNN.

Steve Horn: As we stand here in February given the macroeconomic forces and the current state of the sector's equity markets. It makes sense for <unk> to maintain its operational discipline, while deploying capital.

Steve Horn: That being said if theres a change in the market as we progress throughout the year.

Steve Horn: <unk> is well positioned and we will capitalize on the right opportunities.

Steve Horn: Shifting to the highlights for the fourth quarter financial results. The portfolio. Now contains 3532 freestanding single tenant properties that continue to perform exceedingly well occupancy levels reached historic highs of 99, 5%, which is well above our long term average of 98%.

Steve Horn: The fourth quarter bankruptcy filing of Rite aid will have minimal to zero impact on the internet at the time of the filing and then was the order of six assets and as of the end of January two of those leases had been rejected by the tenant in any event the rate on those assets or near market. So I expect that around recovery within our.

Steve Horn: At the time of the filing, NNN was the owner of six assets, and as of the end of January, two of those leases had been rejected by the tenant. In any event, the rent on those assets is near market, so I expect the rent recovery within our historical average. Turning to acquisitions, during the fourth quarter, we invested nearly $270 million in 40 new properties at an initial cap rate of $7.6 million, with an average lease duration of 19.6 months. Nearly all the capital deployed for the quarter was provided to our relationship business partners.

Steve Horn: Circle averages.

Steve Horn: Turning to acquisitions.

Steve Horn: During the fourth quarter, we invested nearly $270 million in 40, new properties at initial cap rate of seven six with an average lease duration of $19 six.

Steve Horn: Nearly all the capital deployed for the quarter was provided to a relationship business partners. In addition to the long term projected yield on those acquisitions is eight 9%, which is a reflection of the sale leaseback acquisition model versus buy an existing shorter term leases.

Steve Horn: In addition, the long-term projected yield on those acquisitions is 8.9%, which is a reflection of the sale-leaseback acquisition model versus buying existing shorter-term loans. In 2023, the market was constantly in price discovery mode with the bid ask spread fluctuating, but we continue to maintain our thoughtful and disciplined underwriting approach.

Steve Horn: 2023, the market was constantly in price discovery mode with the bid ask spread fluctuated, but we continue to maintain our thoughtful and disciplined underwriting approach.

Steve Horn: Throughout the year, NNN picked up 20 basis points for the last three quarters in acquisitions. That trend continued with the pricing of deals in the fourth quarter that will close in the first quarter. There was a moment within the last 60 days when passing through cap rate increases became more challenging. I suspect the pressure from our competitors' acquisition needs hindered that cap rate expansion to a certain extent. Slowing down the cap rate expansion is resulting in the second quarter cap rates being similar to the first quarter, but that change could continue as we move through the year. Also, during the quarter, we sold 19 assets at a 6.5 cap, which included 14 vacant assets, raising $26.5 million of proceeds to be reinvested in new equity. For the year, we raised approximately $115 million in proceeds from the sale of 45 properties for $5.9 million, which included 21 vacant properties.

Steve Horn: Throughout the year, and then picked up 20 basis points for the last three quarters and acquisitions.

Steve Horn: That trend continue with pricing of deals in the fourth quarter that will close in the first quarter.

Steve Horn: There was a moment within the last 60 days that passing through cap rate increases became more challenging.

Steve Horn: Despite the pressure from our competitors' acquisition needs hindered that cap rate expansion to a certain extent.

Steve Horn: And down the cap rate expansion is resulting in the second quarter cap rates being similar to the first quarter for that change could continue as we move through the quarter.

Steve Horn: Also during the quarter, we sold 19 assets at a six five cap, which included 14 vacant assets raising $26 5 million of proceeds to be reinvested in new acquisitions.

Steve Horn: For the year, we raised approximately $115 million of proceeds from the sale of 45 properties a five nine which included 21 vacant properties. The $5 nine as I stated in the opening was 140 basis points inside where we deployed capital for 2023, which proved enhanced excellent execution with managing the portfolio.

Steve Horn: The $5.9 million, as I stated in the opening, was 140 basis points inside where we deployed capital for 2020, which proved Eminent's excellent execution with managing the portfolio. Job one is always to release the vacancies, but we'll continue to sell non-performing assets if we don't see a clear path to generating rent at www. NationalRetailers.com: With that, let me turn the call over to Kevin for more detail and color on our quarterly numbers and 2024 guidance. Thanks, Steve.

Kevin: So job one is always a released the vacancies, but we will continue to sell nonperforming assets. If we don't see a clear path to generating rental income within a reasonable time period.

Steve Horn: With that let me turn the call over to Kevin for more detail and color on our quarterly numbers and 2020 for guidance.

Kevin Hobbick: And as usual, let me start with a cautionary statement that we will make certain statements that may be considered to be forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we may not release revisions to these forward-looking statements.

Kevin: Thanks, Steve and as usual, let me start with the cautionary statements that we will make certain statements that may be considered to be forward looking statements under federal Securities law. The company's actual future results may differ significantly from the matters discussed in these forward looking statements and we may not release revisions to these forward looking statements.

Kevin Hobbick: Reflect changes after the statements were made factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC. This morning's press release.

Kevin Hobbick: Okay, with that out of the way, headlines from this morning's press release reported quarterly core FFO results of 85 cents per share for the fourth quarter of 2023. That was up five cents or 6.3% over a year ago results of 80 cents per share. I will be quick to point out, as detailed in the footnote below the earnings table on page one of the press release, that the fourth quarter included three cents of accrued rental income in connection with the reclassification of one tenant from cash-basis accounting to accrual-basis accounting as a result of continued improvement in that tenant's financial condition post-pandemic.

Kevin Hobbick: Okay with that out of the way headlines from this morning's press release report quarterly core <unk> results of <unk> 85 per share for the fourth quarter of 2023 and was up five or six 3% over year ago results of <unk> 87 per share.

Kevin Hobbick: I will be quick to pointed out as detailed in the footnote below the earnings table.

Kevin Hobbick: One of the press release.

Kevin Hobbick: The fourth quarter included <unk> <unk> of accrued rental income in connection with the re class of one tenant from cash basis accounting to accrual basis accounting.

Kevin Hobbick: As a result of continued improvement improvement in the tenants' financial condition post pandemic.

Kevin Hobbick: So it was outflows three per share the fourth quarter core <unk> would have been 82 per share or two 5% over a year ago. The result.

Kevin Hobbick: So without those $0.03 per share, the fourth quarter core FFO would have been $0.82 per share, or 2.5% over the year-ago result. For the full year, as Steve mentioned, full year 2023, we reported core FFO of $3.26 per share, which is 3.8% over year-ago results. Now, if we exclude the same three cents from the accounting reclass, full-year results would have been $3.23 per share, or 2.9% over year-ago results, which was at the top of our guidance range last provided. AFFO results, which are not impacted by accrued rent, were $3.26 per share for the full year, or 1.6% over prior year results, again, at the top of our guidance. As we've disclosed since 2020, the last page of our press release provides details of the pandemic deferred rent. And so, as those tenants fulfill their deferred rent obligations, the repayment amounts are slowing from $14.5 million in 2022 to just $3.1 million in 2023.

Kevin Hobbick: For the full year as Steve mentioned full year 2023.

Kevin Hobbick: We reported core <unk> of $3.26 per share, which is three 8% over a year ago results now if we exclude the same <unk> suddenly accounting request all year results would've been $3 23 per share or two 9% over year ago results, which was at the top.

Kevin Hobbick: All of our guidance range last providers.

Kevin Hobbick: <unk> results, which are not impacted by crude Ryan were $3 26 per share for the full year or one 6% over prior year results again.

Kevin Hobbick: Top of our guidance range.

Kevin Hobbick: As we disclosed in 2020, the last page of our press release provides details of the pandemic deferred rent repayment and so.

Kevin Hobbick: So as those tenants fulfill their deferred rent obligations. The repayment amounts are slowing from 14 and a half million dollars in 2022 to just $3 1 million in 2023, so at the bottom of page 13 of the press release.

Kevin Hobbick: And so, at the bottom of page 13 of the press release, we have provided pro forma or adjusted per-share amounts, including these repayments in both 2022 and 2023, to provide a look at, you know, what the recurring fundamental per-share performance was. And so these adjusted results show full-year 2023 per-share growth of 4.9% for poor FFO and 3.5% for AFFO, both notably better than the reported headline. We think this gives a better picture of the core fundamental operating results of our business. But overall, a good quarter in line with our expectations.

Kevin Hobbick: Have provided pro forma or adjusted per share amounts.

Kevin Hobbick: Excluding these repayments in both 2022 and 2023 to provide a look at what the recurring fundamental per share performance was and so these adjusted results. So full year 2023 per share growth of four 9% for <unk> and three five.

Kevin Hobbick: 5% for ASF, so both notably better than.

Kevin Hobbick: The reported headline number.

Kevin Hobbick: We think this gives a better picture of the core fundamental operator operating results of our business, but overall a good quarter in line with our expectations.

Kevin Hobbick: And as can be seen, again, on page 13, those deferred rent repayments are now 93% completed, and so they will have a much smaller impact in 2024 and beyond. All right, with that moving on, our AFFO dividend payout ratio for 2023 was 68.4%. And that resulted in approximately 187 million dollars of free cash flow for the year, and that's after the payment of all expenses. Occupancy was 99.5% at year-end.

Kevin Hobbick: And as can be seen again on page 13, those deferred rent repayments are now 93% completed and so they will have a much smaller impact in 2024 and beyond.

Kevin Hobbick: Alright with that moving on our <unk> dividend payout ratio for 2023 was 68, 4% and that resulted in approximately $187 million.

Kevin Hobbick: $1 of free cash flow for the year.

Kevin Hobbick: The payment of all expenses and dividend.

Kevin Hobbick: Occupancy was 99, 5% at year end G&A expense was $10 5 million for the quarter at $43 7 million for the full year, representing a five 3% of revenues for the year, which again was in line with our guidance.

Kevin Hobbick: G&A expense was $10.5 million for the quarter and $43.7 million for the full year, representing 5.3% of revenues for the year, which was, again, in line with our guidance. We ended the year with $818.7 million of annual base rent in place for all leases as of December 31. Today we also initiated our 2024 Core FFO Guidance at a range of $3.25 to $3.31 per share and 2024 AFFO guidance at a range of $3.29 to $3.35 per share. Page 7 of the press release gives you some details on the key assumptions underlying the guidance, and they include $400 to $500 million of acquisitions and 80 to 120 million dollars of disposition. G&A expense of $46 to $48 million, and Property Expenses Net of Tenant Reimbursements of $9 to $11 million.

Kevin Hobbick: We ended the year with $818 $7 million of annual base rent in place for all leases as of December 31 2023.

Kevin Hobbick: Today, we also initiated our 2024 core <unk> guidance at a range of $3 25 to $3 31 per share.

Kevin Hobbick: In 2024, <unk> guidance with a range of $3 29 to $3 35 per share.

Kevin Hobbick: Page seven of the press release.

Kevin Hobbick: Gives you some details on the key assumptions underlying the guidance.

Kevin Hobbick: Include $4 to $500 million of acquisitions.

Kevin Hobbick: $80 million to $120 million of dispositions G&A expense of $46 million to $48 million and property expenses net of tenant reimbursements of $9 million to $11 million.

Kevin Hobbick: We do have $350 million of three 9% debt coming due in June of this year 2024, and so the refinance.

Kevin Hobbick: We do have $350 million of 3.9% debt coming due in June of this year, 2024, and so the refinance of that debt will create nearly a couple pennies of headwind on 2024 results. Hopefully, as the year progresses, and consistent with what we've done in the past, we will have the opportunity to drift our guidance higher. Switching over to the balance sheet, I'll maintain good leverage and a liquidity profile with $968 million of availability on our $1.1 billion bank credit facility. And as Steve mentioned, despite a near record-high acquisition volume in 2023, we funded approximately 37% of our $820 million of acquisitions with free cash flow of $187 million plus the $116 million of disposition proceeds. We continue to be sensitive to our external capital market footprint in this environment.

Kevin Hobbick: That will create nearly a couple of pennies of headwind on 2024 results hopefully as the year progresses.

Kevin Hobbick: Consistent with as we've done in the past, we will have the opportunity drift fair guidance higher.

Kevin Hobbick: Switching over to the balance sheet are maintained good leverage and liquidity profile with $968 million of availability on our $1 $1 billion Bank credit facility.

Kevin Hobbick: And as Steve mentioned, despite near record high acquisition volume in 2023.

Kevin Hobbick: We funded approximately 37% of our $820 million of acquisitions with free cash flow of $187 million plus the $116 million of disposition proceeds.

Kevin Hobbick: We continue to be sensitive to our internal capital market footprint in this environment.

Kevin Hobbick: Based on the midpoint of our acquisition and disposition guidance for 2024, we should fund approximately 60% of our 2024 acquisitions with free cash flow and dispositions. Our weighted average debt maturity remains 12 years, which will help us slow the coming refinance headwind that all REITs are facing in the coming years. Net debt to Gross Book Assets was 42% at year end, and net debt to EBITDA was 5.5 times at December 31st.

Kevin Hobbick: Based on the midpoint of our two.

Kevin Hobbick: Our.

Kevin Hobbick: Acquisition and disposition guidance for 2024, we should fund Approx.

Kevin Hobbick: Approximately 60% of our 2024 acquisitions with free cash flow and disposition proceeds.

Kevin Hobbick: Our weighted average debt maturity remains 12 years, which will help us slow becoming refinance headwinds that all regions are facing in the coming years.

Kevin Hobbick: Debt to gross book assets was 42% at year end net debt to EBITDA was five five times at December 31.

Kevin Hobbick: Interest coverage and fixed charge coverage was 4.5 times for 2020. All of our properties owned by In-N-Out are unencumbered by... For more information, visit www. FEMA.gov. We remain focused on working to appropriately allocate capital, which to us means ensuring we are getting what we believe are appropriate returns on equity while controlling risk through property underwriting and maintaining a sound balance. We believe it's one of the more fundamental issues for any reader, and frankly, any company. Valuing equity adequately, whether that equity is produced by free cash flow or disposition proceeds or new equity issuance, is at the heart of growing per share results over the long term in our business. So, in closing, I think we're in a relatively good position to navigate the economic and capital markets uncertainties and to continue to grow per share results, which we view as the primary measure of success. We are mindful that this is a long-term, multi-year endeavor, but the fundamentals of our business remain in good shape.

Kevin Hobbick: Interest coverage and fixed charge coverage was four five times for 2023.

Kevin Hobbick: All of our properties owned by Internet are unencumbered by mortgage mortgages.

Kevin Hobbick: We remain focused on working to appropriately allocate capital, which to us means ensuring we are getting what we believe are appropriate returns on equity while controlling risk through property underwriting and maintaining a sound balance sheet.

Kevin Hobbick: We believe it's one of the more fundamental issues for any REIT or frankly any company.

Kevin Hobbick: Valuing equity adequately whether that equity is produced by our free cash flow, our disposition proceeds or new equity issuance is at the heart of growing per share results over the long term in our opinion. So in closing I think we're in relatively good position to.

Kevin Hobbick: To navigate the economic and capital market uncertainties as they continue to grow per share results, which we view as the primary measure of success.

Kevin Hobbick: And we are mindful that this is a long term multi year endeavor.

Kevin Hobbick: The fundamentals of our business.

Kevin Hobbick: Remain in good shape.

Operator: With that, we will open it up to any questions, colleagues. Sure. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question zone. You may press star 2 if you would like to remove your question from the queue.

Speaker Change: With that we will open it up to any questions as always thanks.

Operator: Certainly at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Operator: A confirmation tone will indicate your line is in the question queue.

Operator: Press Star two if you would like to remove your question from the queue.

Steve Horn: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Your first question for today is coming from Spencer Alloway on Green Street. Thank you. Can you guys talk about how cap rates are trending thus far into 24? And similarly, how deal volume is trending just based on what you've sourced and what you can see maybe looking out the next 30 to 60 days? Hey Spencer, Steve.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Steve Horn: One moment, please while we poll for questions.

Steve Horn: Your first question for today is coming from Spencer Alloway at Green Street.

Spencer Alloway: Thank you and can you talk about how cap rates are trending thus far into 'twenty four and similarly, how deal volume is trending just based on what you've stores and what you can see maybe looking out the next 30 to 60 days.

Steve Horn: Hey, Spencer Steve.

Steve Horn: So going into 2024, as I alluded in the opening remarks, we were picking up 20 basis points each quarter. And then I expect that, if not a little bit higher for the first quarter for the deals that got priced in the fourth quarter. But we kind of noticed it felt like the other REITs put some pressure because they have to do acquisition volume, which kind of plateaued the cap rates that we're seeing that might close in the second quarter. I kind of see the first half of the cap rates being the same. But they're definitely trending up for the first quarter.

Steve Horn: Yes.

Steve Horn: Going into 2024 as I alluded in the opening remarks.

Steve Horn: We're picking up 20 basis points each quarter, and then I expect that if not a little bit higher for the first quarter for the deals that got priced in the fourth quarter.

Steve Horn: But we kind of noticed it felt like there is.

Steve Horn: Yes. The other reached puts some pressure because they have to do acquisition volume, which kind of plateaued the cap rates.

Steve Horn: That we're seeing that might close in the second quarter Sky kind of see the first half of the cash cap rates being the same but they are definitely trending up for the first quarter as far as deal volume, there's definitely not as much deal volume out. There is there was kind of in the second and third quarter and I think thats more from the seller side the supply side.

Steve Horn: As far as deal volume goes, there's definitely not as much deal volume out there as there was in the second and third quarter. And I think that's more from the seller side, the supply side, when there are discussions of rate cuts coming, some sellers are holding off from hitting the market, anticipating better cap rates in the near future. But that being said, where NNN, our acquisition guidance, there's plenty of deal volume out there for NNN to hit its numbers. Okay, great.

Steve Horn: When there is discussions of rate cuts coming that some sellers are holding off hitting the market anticipating better cap rates in the near future.

Steve Horn: But that being said, we're in and then our acquisition guidance Theres plenty of deal volume out there for and then to hit its numbers.

Speaker Change: Okay, Great and then.

Steve Horn: And then just any specific industry within your existing tenant base that's showing more appetite to grow or maybe, on the flip side, downsize their current footprints, just based on discussions you've had? The latter part of the question: no, we're not hearing anybody wanting to downsize in our sectors. You know, everybody's always reevaluating their business models, but as far as growth through M&A or adding stores, there's still a big push in the auto service center from our client base is still growing, and we're starting to see a little bit of the QSR momentum pick up. And then lastly, there is some activity in the C-store market again that we're kind of filtering through. Great. Thanks so much.

Steve Horn: Just any specific industry within your existing tenant base and selling more appetite to grow or maybe on the flipside downsize their current footprint just based on discussions you've had.

Steve Horn: Yeah.

Steve Horn: A latter part of the question no. We're not hearing anybody wanted to downsize in our sectors.

Steve Horn: Yes, everybody is always reevaluating their business models, but as far as growth through M&A or adding stores. There is still a big push into auto service center from our client base is still growing and we're certain to see a little bit of the <unk> momentum pick up and then lastly.

Steve Horn: There is some activity in the C store market again that we're kind of filter through opportunities.

Speaker Change: Great. Thanks, so much.

Kevin Hobbick: Your next question is coming from Joshua Dennerlein with Bank of America, www.NationalRetailProperties.com. Yeah, sure. This is. Yeah. So, as usual, for us, we've assumed in our guidance 100 basis points of rent loss baked into our guidance, and that... I would say what is typical and what is not.

Steve Horn: Your next question is coming from cashless Denner lean with bank of America.

Speaker Change: Hi, This is on behalf of Josh I was wondering if you could elaborate on any bad debt assumption.

Joshua Dennerlein: Especially compared to historical.

Joshua Dennerlein: Yes sure. This is.

Kevin Hobbick: So as usual for US we have assumed in our guidance of 100 100 basis points of rent loss.

Kevin Hobbick: Baked into our guidance.

Kevin Hobbick: And that.

Kevin Hobbick: I would say what is typical in water.

Kevin Hobbick: Included in 2023 is that we typically run a kind of 40 to 50 basis points and a typical year. Yeah, you know, for us, it's in one sense, it's a fairly simple kind of model. Rent growth, we assume in our portfolio is going to be internal growth of about 1.5%, so that would add about $12 million, 1.5% of $800 million or whatever the number was called. I call it 12 million, and we've assumed we'll lose 100 basis points of rent loss, which I like to indicate is probably, hopefully, a So that's negative $8 million, and then you've got three... $4 million in G&A creep, and then, as I mentioned, we'll have interest expense for the year will probably be about $5 to $6 million higher as it relates to the refinance of that $350 million. And so that, and then you layer in acquisitions, if you assume, you know, the mid-point, $450 million, you know, then those are kind of the pieces, I think, that got us to where we are in terms of our guidance. And like I said, hopefully, we'll have the opportunity to do that.

Joshua Dennerlein: Included in 2023 that we typically run kind of 40% to 50 basis points.

Kevin Hobbick: In a typical year so yes.

Kevin Hobbick: Yes.

Kevin Hobbick: Okay.

Speaker Change: You walk me through maybe some of the internal external drivers of growth given your lower acquisition guidance.

Kevin Hobbick: Yes for us it's one.

Kevin Hobbick: <unk>.

Kevin Hobbick: Fairly simple cost model.

Kevin Hobbick: Rent growth.

Kevin Hobbick: We assume.

Kevin Hobbick: And our portfolio is going to be internal growth will be about one 5%. So that would add about $12 million one 5% of 800.

Kevin Hobbick: $18 million or whatever the number was call it $12 million, but we've assumed we will lose 100 basis points of rent loss, which I like.

Kevin Hobbick: <unk> indicated is probably hopefully a conservative assumption, so thats negative $8 million and then you've got three four.

Kevin Hobbick: $4 million in G&A Creek.

Kevin Hobbick: And then as I mentioned will have interest expense for the year will probably be.

Kevin Hobbick: About $5 million to $6 million higher as it relates to the refinance of that $350 million.

Kevin Hobbick: And so that.

Kevin Hobbick: And then you layer in acquisitions, if you assumed midpoint $450 million.

Kevin Hobbick: You know.

Kevin Hobbick: Those are kind of the pieces I think that that got us to where we are in terms of our guidance and like I said, hopefully we will have the opportunity to.

Steve Horn: Drift that guidance higher as the year progresses, consistent with what we've done in the past. That's where we were comfortable starting out with guidance. Your next question for today is coming from Smedes Rose at Citi. Hi, thank you.

Kevin Hobbick: The drift that higher that guidance higher as the year progresses.

Smedes Rose: Consistent with what we've done in the past but.

Smedes Rose: That's where we're comfortable starting out there.

Steve Horn: Your next question for today is coming from Smedes Rose.

Steve Horn: City.

Smedes Rose: Hi, Thank you I just wanted to go back for a moment to the acquisitions outlook. It just was a little bit light at least relative to our.

Steve Horn: I just wanted to go back for a moment to the acquisitions outlook. It just was a little bit light, at least relative to our expectations and, I think, relative to some of your 3Q commentary. And you mentioned earlier that sellers are kind of holding off, maybe looking for better prices for them later in the year. I was just wondering, is that something that sort of changed maybe over the last, you know, since your last call? Or maybe could you talk a little bit more about, you know, the opportunities on that front? Yeah, I mean, as far as the outlook and our acquisition volume, I think we've been pretty consistent over the course of the last six months that we are looking at a light capital markets footprint, so the $400 million to $500 million range of acquisition is pretty consistent.

Steve Horn: Expectations, then I think maybe relative to some of your <unk>.

Steve Horn: <unk> commentary and you mentioned earlier that sellers are kind of holding off maybe looking for better pricing for them later in the year. I was just wondering is that something that sort of changed maybe over the last.

Steve Horn: Consider lapses last call or maybe you could just talk a little bit more about.

Steve Horn: The opportunities on that front.

Steve Horn: Yes, I mean as far as the outlook our acquisition volume and I think we've been pretty consistent over.

Steve Horn: Over the course of the last six months that we are looking at a light capital markets footprint.

Steve Horn: The Florida $500 million range of acquisitions pretty consistent what has changed from the last call.

Steve Horn: What has changed from the last call is that the market was expecting rate cuts coming in March. That was the probability, but during the last call, that was not on the table. That was more of a mid-December discussion item, and at that point, we felt that sellers weren't coming to the market expecting those future rate cuts, but now they're being delayed. And Smeets, this is Kevin.

Kevin Hobbick: Does the market was expecting rate cuts coming in March that was the probability.

Steve Horn: But during the last call that was not on the table that was more kind of a mid December discussion item and at that point is where we felt that sellers weren't coming to the market expecting those future rate cuts, but now they are being delayed.

Smedes: And Smedes. This is Kevin one other thing.

Kevin Hobbick: One other thing I'd, you know, add is that that's our style and our approach. I think if you look back over history, you know, I'm guessing our initial acquisition guidance has always looked like, relative to where the year ended up, 2023 included. And so, you know, in our business, as we've said, you really have, you know, three months, maybe four, but not very much of a look into the future in terms of a pipeline, I mean, a real pipeline. And so we tend to be a little more cautious on the front end going in until we have a better sense of how the year is going to play out. Thanks. And then I just wanted to ask you about the tenant that moves back to accrual rents from, I guess, cash payments. Is that sort of just, I guess, more or less unusual or something that you might expect more of as we move through the year? Yeah, yeah, yes, it's unusual.

Smeets: And is that that's our style and our approach.

Kevin Hobbick: I think if you look back over history.

Kevin Hobbick: Guessing our initial acquisition guidance is always looked like relative to where the year ended up 2023 included so.

Kevin Hobbick: It's funny in our business as we've said you really have three months may be four but not very much.

Kevin Hobbick: Look into the future in terms of the pipeline I mean, a real pipeline and so.

Kevin Hobbick: We tend to be probably a little more cautious on the front end going in until we have a better sense of how the year is going to play out.

Speaker Change: Thanks, and then I just wanted to ask you on the the tenant that moved back to accrual rents from from I guess cash payments is that is that.

Kevin Hobbick: Excluded just.

Kevin Hobbick: It's more or less a mutual or or something that you might expect more of it as we move through the year.

Speaker Change: Yeah, Yeah, yes, it's unusual it was unusual due to the pandemic for us to actually go from accrual to cash basis, and then it's unusual to reverse it.

Kevin Hobbick: It was unusual, you know, due to the pandemic, for us to actually go from accrual to cash basis. And then it's, it's unusual to reverse it. And it's gap accounting unusual that you would recognize revenue or income when you do always do this. And so, we currently have about 5% of our base rent is still on a cash basis. So there's the potential for, you know, more of that in the future. Now that 5% consists of, you know, 90% of that 5% is two tenants, AMC and Frisch's. And so I don't sense in the near term that there's going to be that reclassification that we just did. So I'd say in the near term, I wouldn't expect anything on that front. Great, thank you. Your next question is coming from Alec Fajan with the Bears. Hi,

Alec Fajan: <unk> GAAP accounting unusual that you would recognize.

Kevin Hobbick: Revenue or income when you do always do this and so so we currently have about 5% of our base rent is still on cash basis. So there's the potential for more of that in the future.

Alec Fajan: Now that 5% consist <unk>.

Alec Fajan: 90% of that 5% is two tenants AMC and flourishes and so I don't sense in the near term, there's there's going to be that.

Alec Fajan: Reclassification that we just did so so.

Alec Fajan: I'd say in the near term I don't I wouldn't expect anything on that front.

Alec Fajan: Great. Thank you.

Alec Fajan: Your next question is coming from Alex <unk> with Baird.

Alec Fajan: Hi, Thank you for taking my question today, So I wanted to ask about the size of the development pipeline right now and how you see a trend.

Steve Horn: Thank you for taking my question today. I want to ask about the size of the development pipeline right now and how you see it trending. I would say 2023 was a bit of what we call a split-funded program. Just to be clear, we don't develop assets.

Alec Fajan: I would say 2023 was.

Alec Fajan: A bit what we call split funded program, yes, just to be clear, we don't develop assets were more of a funding source to our current tenants on that so we're not having any speculation permits and leases at all in place by time, we deploy capital.

Steve Horn: We're more of a funding source for our current tenants on that, so we're not having any speculation. Permits and leases are all in place by the time we deploy capital. Now, that being said, the 2024 pipeline currently is not as large as 2023, but 2023 was a historic high for us, and that was a result of the banking market where our tenants in the regional banks weren't deploying capital, so they came to us for money. So we had a very strong year in 2023. Okay, I got it.

Steve Horn: Now that being said.

Steve Horn: The 2024 pipeline currently is not as large as 2023 by 2023 with a historic high for US and that was a result of the banking market, where our tenants on the regional banks weren't deploying capital. So they came to us for money. So we had a very strong year in 2023.

Speaker Change: Okay got it and the second question is.

Kevin Hobbick: And the second question is, what are you thinking for the capitalized interest in 2024? Yeah, and so based on that, that activity in our split-funded program, we'll continue to have capitalized interest. And so, you know, for last year, it totaled $4.3 million for 2023. I think it'll be somewhat less than that. So let's call it around $3 million, maybe. But we'll see how it plays out. I will note, just for everybody, as a reminder, we do deduct capitalized interest in our calculation of AFFO. I don't think everybody does that, so I just wanted to kind of highlight that.

Kevin Hobbick: What are you thinking for capitalized interest in 2024.

Kevin Hobbick: Yeah, and so based on that.

Kevin Hobbick: That activity in our splits funded program.

Kevin Hobbick: We'll continue to have capitalized interest.

Kevin Hobbick: And so.

Kevin Hobbick: Last year it totaled $4 3 million for 2023, I think it will be somewhat less than that so let's call it around $3 million maybe.

Kevin Hobbick: But we'll see how it see how it plays out.

Kevin Hobbick: I will note just for everybody.

Kevin Hobbick: And as a reminder, we do deduct capitalized interest in our calculation of <unk>.

Kevin Hobbick: That's probably.

Kevin Hobbick: I don't think everybody does that and so I just wanted to kind of highlight that.

Speaker Change: Thank you have a great day.

Steve Horn: Thank you. Have a great day. Your next question is coming from Linda Tsai with Jeffrey. Yes, hi. Could you discuss some of the trends you're seeing in the sale-leaseback market? How are you doing, Linda?

Linda Tsai: Thanks, Alex.

Linda Tsai: Your next.

Steve Horn: Question is coming from Linda Tsai with Jefferies.

Linda Tsai: Yes, Hi can you discuss some of the trends youre seeing in the sale leaseback market.

Steve Horn: Yes.

Steve Horn: Linda.

Steve Horn: Yeah, the trend is pretty much similar to the way it's been the last few years. Yeah, I think with the banks pulled back, there was more of an opportunity for sale leaseback funding. I'm not going to say 2024 is going to be a larger opportunity than 2023 because the regional banks are starting to lend a little bit more. But the cap rate, it's always a pricing question, as you know, and the bid-ask spread was fairly large throughout 2023. It has narrowed substantially, just a case in point of us doing nearly 270 million in the fourth quarter. But we're being very selective going into 2024 until the capital markets on the equity side, you know, as we feel are a little bit more open.

Linda Tsai: The trend is pretty much similar to what it's been in the last few years.

Steve Horn: Yes, I think with the banks pulled back there was more of an opportunity for sale leaseback funding I'm.

Steve Horn: I am not going to say 2024, it's going to be a larger opportunity in 2023, because the regional banks are starting to lend a little bit more.

Steve Horn: But the cap rate is always a pricing question as you know and the bid ask spread was fairly large throughout 2023.

Steve Horn: Has narrowed substantially just case in point of us doing nearly $270 million in the fourth quarter.

Steve Horn: But we're being very selective.

Steve Horn: Going into 2024 until the capital markets on the equity side as we feel are a little bit more open.

Steve Horn: But the sale leaseback market, again, there's plenty, it's undefined by size, and there's plenty of opportunity out there to do deals. And then the delta between acquisition and disposition cap rates, where do you think that trends each quarter? You know, historically, it's always been kind of 100 basis points for us. We try to get a little bit more than that.

Steve Horn: The sale leaseback market again, theres plenty, it's undefined by size and there is plenty of opportunity out there to do deals.

Steve Horn: And then the Delta between acquisition and disposition cap rates, where do you think that trends each quarter.

Steve Horn: Historically, it's always been kind of a 100 basis points for us.

Steve Horn: Try to get a little bit more in that 140 basis points was a significant year for us and Thats why we kind of highlighted on the call.

Steve Horn: 140 basis points was a significant year for us, and that's kind of why we kind of highlighted it on the call. But, you know, in our model, we look at 100 basis points. Just one last one.

Steve Horn: In our model, we look at a 100 basis points.

Speaker Change: Just one last one I know our bad debt expectations are low but could you just compare the tenant watch list for you today versus a year ago.

Steve Horn: I know bad debt expectations are low, but could you just compare the tenant watch list for you today versus a year ago? I think about a year ago, but I'd say it's pretty good. The list is consistent. There are no real new names popping up, you know, it's, You know, a couple have dropped off, for better or worse, in terms of, you know, we had three Bed Bath & Beyonds, we've got a handful of Rite-Aids, and so they'll die a natural death, I believe. But, you know, others that we've talked about in recent quarters, you know, are still You know, at the At Homes, we've got two big lots, or three big lots, and two Joann's.

Steve Horn: Oh.

Steve Horn: Think about a year ago, but.

Steve Horn: I'd say, it's pretty the list is consistent there is no real new names popping up.

Steve Horn: <unk>.

Steve Horn: A couple of dropped off which were better or worse in terms of we had three bed bath and beyond we've got a handful of rite AIDS and so they are there.

Steve Horn: Sure.

Steve Horn: Die a natural death I believe.

Steve Horn: But.

Steve Horn: Others that we've talked about in recent quarters, we are still on the list the at homes.

Steve Horn: We got two big lots are three big lots and two Joanne we.

Kevin Hobbick: We also own some Frisch's Restaurants, which is a restaurant concept, Big Boy's, the Mid-West Big Boy Hamburger concept that we have, you know, concerns about, and we've talked about. And then, you know, of course, the theater exposure, but that's kind of, I put in a separate bucket a little bit, and to be honest, I don't feel, we feel pretty good about where they are at the moment in terms of their liquidity and their ability to pay us rent in the near term. But yeah, so all that to say is, yeah, no real change in the list or the composition or size of the wood.

Steve Horn: We also own some refreshes restaurants, which is a restaurant concept Big boys Midwest Big Boy Hamburger concept that we have concerns about and we've talked about.

Kevin Hobbick: And then of course.

Kevin Hobbick: Theater exposure, but thats kind of I've put in a separate bucket, a little bit and to be honest.

Kevin Hobbick: Don't feel like.

Kevin Hobbick: We feel pretty good about where they are at the moment in terms of liquidity and the ability to pay us rent in the near term so.

Kevin Hobbick: But yes, so all I can say is yes, not no real change in the list.

Kevin Hobbick: Or the composition of our size of the loans.

Steve Horn: Great, thank you. Your next question is coming from Ronald Camden with Morgan Stanley. Hey, just staying on the tenants a little bit, I know you get sales that have a lag, obviously from the tenants, but are you sort of seeing anything suggesting that the low end consumer is slowing? I think we hear a lot about it.

Speaker Change: Great. Thank you.

Steve Horn: Your next question is coming from Ronald Camden with Morgan Stanley.

Ronald Camden: Hey, just staying on the tenants a little bit.

Ronald Camden: I know you get sales, but with a lag obviously from the tenants, but are you sort of seeing anything suggesting that that low end consumer is slowing I think we hear a lot about it but.

Steve Horn: But curious if any of your concepts or tenants are showing a sort of softness there. From the data, exactly. It is stale.

Ronald Camden: Curious if any of your concepts or tenants are showing sort of softness there.

Steve Horn: No I mean, it started from the data exactly this scale it takes time to get it in and process it and not every tenant devolves a quarterly sometimes it's annually, but more through discussions I think is more live real time data that we obtained is we're not seeing the sales.

Steve Horn: It takes time to get it in and process it, and not every tenant devolves it quarterly. Sometimes it's annually. But more through discussions, I think, is more live, real-time data that we obtain. We're not seeing the sales of our tenants dropping, so I'm not thinking it's getting soft by any means currently. They're all performing.

Steve Horn: <unk> of our tenants dropping so not.

Steve Horn: Thinking is getting soft by any means currently they are outperforming.

Steve Horn: I'm not going to say they're killing it out of the park, but they're performing well. We do see some margin expansions within the QSR, meaning that they can still get the price through, and their labor costs are not eating them up. But overall, we're not seeing a significant softness within our tenant base.

Steve Horn: If I can say is killing it.

Steve Horn: Out of the park, but they are performing well, we do see some margin expansion within the <unk>.

Steve Horn: Meaning that they still can get the price through in their labor costs are not eating them up but overall, we're not seeing a significant softness within our tenant base.

Speaker Change: Great and then just switching gears to the acquisition market a little bit maybe talk a bit more about the competition today versus previously I know you mentioned some of the Reits maybe in your opening comments, but curious about 10 31 private buyers just today versus 612 months ago, what does that where you can.

Steve Horn: And then just switching gears to the acquisition market a little bit, maybe talk a bit more about the competition today versus previously. I know you mentioned some of the REITs in your opening comments, but I'm curious about 1031's private buyers just today versus six, 12 months ago. What does that mean? Who are you competing with now? Thanks. Because we go after the sale-leaseback approach, that's our model, we think it's a lot better risk-adjusted return that we don't play in the 1031 market. So we don't run into the 1031 guys at all, to speak of.

Steve Horn: Eating less now yes.

Steve Horn: Yes.

Steve Horn: Because we go after the sale leaseback approach that's our model, we think it's a lot better of our risk adjusted return that we don't play in the 10 31 market. So we don't run into the 10 31, guys at all to speak of.

Steve Horn: But we would run into the private equity buyers that have been on the sidelines for a while. We are hearing rumblings that they're starting to think about getting back in the market, but they're not the groups I would lean on that were hurting the price cap rate expansion. It was more our competitors. But Ron, to be honest, that happens typically in late in the fourth quarter or early in the first quarter when companies are coming out with their guidance for the year. They feel the pressure to do the volume.

Steve Horn: But we would run into.

Steve Horn: The private equity buyers that had been on the sidelines for a while we are healing hearing rumblings that theyre starting to thinking about getting back in the market, but theyre not the groups I would lean on that were hurting the price.

Steve Horn: Cap rate expansion it was more our competitors, but ron to be as that happens typically in the late in the fourth quarter early in the first quarter when companies are coming out with our guidance for the year.

Steve Horn: They feel the pressure to do the volume so we see that year over year.

Steve Horn: So we see that year over year. Great, thanks so much. As a reminder, if you would like to ask a question, please press star 1. Your next question is coming from Connor Siversky with Wells Fargo. Good morning.

Connor Siversky: Great. Thanks, so much.

Connor Siversky: As a reminder, if you would like to ask a question. Please press star one.

Connor Siversky: Your next question is coming from Connor Seversky with Wells Fargo.

Connor Siversky: Good morning. Thank you you can talk a quick question for Kevin on the balance sheet I'm just looking at this $350 million maturity in June.

Kevin Hobbick: Thank you for your time. Quick question for Kevin on the balance sheet. I'm just looking at this $350 million maturity in June. I'm wondering how the swaps are set up.

Connor Siversky: I'm wondering how the swaps are set up can you just roll that over and keep the same rate and or should we expect the kind of cash outlay associated with paying down that stack.

Kevin Hobbick: Can you just roll that over and keep the same rate, or should we expect the kind of cash outlay associated with paying down that stack? Yeah, so yeah, we have no derivatives or swaps connected to that debt or any debt at the moment. And so any swaps that we had or derivatives that we used were only pre-issuance, if you will, and those were terminated at the time we issued the bond.

Kevin Hobbick: Yes.

Kevin Hobbick: Yes, we have no derivatives or swaps connected to that are any debt at the moment and so.

Kevin Hobbick: Any swaps or derivatives that we use where only.

Kevin Hobbick: Pre issuance if you will and those were terminated at the time, we issued the bonds. So.

Kevin Hobbick: So any cost or gain associated with those gets amortized over the life of the bond. But, like I say, all those derivatives get terminated at the time of debt issuance. So there is nothing outstanding there, so yeah, you should think about that as a true $350 million debt maturity. We'll see what we want to do in terms of accessing the debt market. They're obviously open right now, and they're, I would say, reasonably priced at the moment.

Kevin Hobbick: Any cost or gain associated with those get amortized over the life of the bond, but but like I say all of those derivatives.

Kevin Hobbick: Get terminated.

Kevin Hobbick: <unk> at the time of that issuance. So so nothing outstanding there. So yeah, you should think about that as a true $350 million.

Kevin Hobbick: Debt maturity.

Kevin Hobbick: We will see what we want to do in terms of accessing the debt markets.

Kevin Hobbick: There are obviously open right now they are I would say reasonably priced at the moment.

Kevin Hobbick: For us today, we're probably kind of a mid-5% for a 10-year kind of issuance, my guess. But we do love the optionality, and this may or may not be plan A, but, you know, we can use our bank line too. We have sufficient capacity on our bank line that if the markets weren't where we might like them, or we wanted to wait, we could easily pay off that maturity just using our bank credit.

Kevin Hobbick: For us today, we're probably kind of a mid 5% for 10 year kind of issuance would be my guest.

Kevin Hobbick:

Kevin Hobbick: And.

Kevin Hobbick: But we do love the Optionality.

Kevin Hobbick: This may or may not be plan a but.

Kevin Hobbick: We can use our bank line too we have way it is.

Kevin Hobbick: Is sufficient capacity on our bank line.

Kevin Hobbick: The markets were or where we might like or we wanted to wait we could easily pay off that maturity just using our bank credit facility.

Speaker Change: Okay. Thank you for the clarification, that's all from me.

Kevin Hobbick: Okay, thank you for the clarification. That's all from me. Your next question is coming from John Masaka at Be Riot. Good morning, John.

John Massocca: Your next question is coming from John Masada at B Riley.

John Massocca: Good morning Gordon.

Kevin Hobbick: John.

Kevin Hobbick: Sorry if I missed it in some of the responses to earlier questions, but do you have like brackets around the amount of contractual rent you have in place from cash basis tenants today just given the movement of one tenant to an accrual basis? Yeah, so yeah, 5% of our annual ABR annual base rent is on a cash basis. And like I say, 90% of it consists of two tenants, AMC and Frisch's. You know, through the year 2023, they were all current. And so there was no delta between cash and book basis or book revenue as it relates to that.

John Massocca: Sorry, if I missed it some of the responses to earlier questions, but do you have like brackets around the amount of.

Kevin Hobbick: Contractual rent you have in place from cash basis tenants today, just given the.

Kevin Hobbick: Movement of one tenant to an accrual basis.

Speaker Change: Yes, so yes, we have.

Kevin Hobbick: 5% of our annual ABR annual base rent as well.

Kevin Hobbick: On cash basis, and like I say it really.

Kevin Hobbick: 90% of our consists of two tenants AMC and flourishes.

Kevin Hobbick: And.

Kevin Hobbick: But.

Kevin Hobbick: Yes.

Kevin Hobbick: Through the year 2023, they're all current and so there was no delta between cash and book basis, Our book revenue as it relates to that.

Kevin Hobbick: You know, and again, as I mentioned. You know, we don't expect, I don't expect either of those tenants moving from cash basis to accrual basis in the near term, and so they'll remain cash basis, but it has no real impact on the way we operate or the way we think, or frankly, and I wouldn't include it in the way we model things, and so we assume they'll continue to pay rent going forward. Having said that, we create a hundred basis point rent loss assumption based on our guidance to hopefully account for any kind of hiccups on the tenant rent side. Okay, and then we're dealing with small sample sizes, but what's the plan for the Rite-Aids you're getting back or might potentially get back, and do you think there's a market out there to release them as pharmacy products, or that they need to be kind of repositioned for, I guess, higher and better use, if you will? Yeah, currently the other two that were rejected out of the six.

Kevin Hobbick: And again as I had mentioned.

Kevin Hobbick: We don't expect I don't expect.

Kevin Hobbick: Either of those tenants moving from cash basis to accrual basis in the near term and so.

Kevin Hobbick: They'll remain cash basis, but it has no real.

Kevin Hobbick: Impact really on the way, we operate or a way we think are or frankly I wouldn't be included in the way we model things.

Kevin Hobbick: And so we assume we will continue to pay rent going forward, having said that we create 100 basis point rent loss assumptions baked into our guidance hopefully account for any any kind of hiccups on the on the tenant rent side.

Kevin Hobbick: Okay, and then I know, we're dealing with small sample sizes, but what's the plan for the Rite Aid's youre getting back or might potentially get back and do you think there's a market out there to release them as pharmacy or that they need to be kind of repositioned for.

Kevin Hobbick: I guess higher and better use if you will.

Kevin Hobbick: Yes currently the two that were rejected.

Kevin Hobbick: Out of the six.

Steve Horn: We have a lot of interest, if it's not surprising the car wash, but we have some QSR interest as well. So I'd expect those two to be redeveloped and put on a ground lease. The other four, you know, as far as Rite Aid is concerned, perform fairly well.

Kevin Hobbick: We have a lot of interest.

Steve Horn: Not surprising the car wash, but we have some <unk> interest as well.

Steve Horn: So I would expect those two to be Redeveloped.

Steve Horn: And put on a ground lease.

Steve Horn: Other for as far as Rite aid performed fairly well, so we'll see what happens if and when we get those back but again, what I stated in the opening remarks.

Steve Horn: So we'll see what happens if and when we get those back. But again, kind of what I stated in the open remarks, they're well positioned, they're near market rent, so I'm not expecting anything outside our historical averages as far as a recapture rate is concerned. Okay. And then just in terms of the kind of modeling in AFFO, anything to be aware of in terms of rent bumps? I just wanted to know, given a good portion of the portfolio has kind of five-year lookbacks on bumps, is there any seasonality this year or last year just to be aware of as we're kind of updating our models? Yeah, no, in terms of rent increases, you know, while we have a variety of one-year annual increases or increases every three years or increases every five years, we have a sample size that's sufficiently large that it all pencils out to be about 1.5% a year despite those varying terms for rent increases. So the way I would think about it is a 1.5% rent increase for this year and going forward.

Steve Horn: Theyre well positioned they're near market rent, so I'm not expecting anything outside of our historical averages as far as our recapture rate.

Steve Horn: Okay, and then just in terms of kind of modeling in assets Bo anything to be aware of in terms of rent bumps. So there's no.

Steve Horn: Given a good portion of the portfolio has kind of.

Steve Horn: Five year look back on bonds, just is there any seasonality this year or last year just to be aware of Asbury kind of updating your models.

Steve Horn: In terms of rent increases are.

Steve Horn: While we have a variety of one year annual increases or increases every three years or increases every five years.

Steve Horn: A sample size that sufficiently required said it all pencils out to be about one 5% a year. Despite those vary.

Steve Horn: Terms for rent increases so the way I would think about it as a one 5% rent increase.

Steve Horn: For this year and going forward.

Kevin Hobbick: Okay, that makes sense, and that's it for me. Thank you very much. We have reached the end of the question and answer session, and I will now turn the call over to Steve for closing remarks. Thanks, Holly. Thanks for joining us this morning. Just kind of reiterate, and then you know, we're in good shape as we head into 2024. Yeah, we're willing to pivot if market conditions change.

Speaker Change: Okay that makes sense and that's it for me. Thank you very much thanks, Jeff.

Kevin Hobbick: We have reached the end of our question and answer session and I will now turn the call over to Steve for closing remarks.

Steve Horn: Thanks, Howard Thanks for joining us. This morning, just kind of reiterate in and then we're in good shape as we head into 2024, we're willing to pivot if market conditions change, we look forward to telling the story to many of you guys kind of in the upcoming conference season take care. Thanks.

Steve Horn: We look forward to telling the story to many of you guys this kind of upcoming conference season. Take care. Thanks. Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Steve Horn: Thank you. This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.