Q1 2024 Essential Properties Realty Trust Inc Earnings Call

Operator: Earnings Conference Call. At this time, all participants are in the 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 on your telephone key. This conference call is being recorded, and a replay of the call will be available two hours after the completion of the call for the next two weeks. The dial-in details for the replay can be found in yesterday's press release.

At this time all participants are in a listen only mode.

Operator: A question and answer session will follow the formal presentation.

Operator: If any with any once you require operator assistance during the conference. Please press star zero on your telephone keypad.

Operator: This conference call is being recorded and a replay of the call will be available two hours. After the completion of the call, but the next two weeks.

Operator: The dial in details about the replay can be found in yesterday's press release. Additionally, there will be an audio webcast available on our central properties website at www Dot essential properties Dot com, an archive of which will be available for 90 days.

Operator: Additionally, there will be an audio webcast available on Essential Properties' website at www.essentialproperties.com, an archive of which will be available for 90 days. On the call this morning is Pete Mavoides, President and Chief Executive Officer, Mark Patten, Chief Financial Officer, Rob Salisbury, Head of Capital Markets, Max Jenkins, Head of Investments, and A. J. Peel, Head of Asset Management. It is now my pleasure to turn the call over to Rob Salisbury. Thank you. You may begin.

Operator: On the call. This morning is Pete My body's President and Chief Executive Officer, Mark Patten, Chief Financial Officer, Rob Salisbury head of capital markets.

Operator: Max Jenkins head of investments and a J P. L head of asset management. It is now my pleasure to turn the call over to Rob Salisbury.

Robert Salisbury: Thank you you may begin.

Robert Salisbury: Thank you, operator. Good morning, everyone.

Robert Salisbury: Thank you operator.

Robert Salisbury: And thank you for joining us today for Essential Properties' first quarter 2024 earnings conference call. During this conference call, we will make certain statements that may be considered 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 to 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 and in yesterday's earnings press release. With that, I'll turn the call over to Pete.

Robert Salisbury: Everyone and thank you for joining us today for our central properties first quarter 'twenty to 'twenty four earnings conference call.

Pete: During this conference call, we will make certain statements that may be considered forward looking statements under federal Securities law.

Pete: 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 to 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.

Robert Salisbury: Company's filings with the S E C and in yesterday's earnings press release with that I'll turn the call over to Pete.

Peter M. Mavoides: And thank you to everyone joining us today for your interest in essential property. On our year-end earnings call in February, we noted an industry backdrop of heightened volatility in the capital market and wide bid-ask spreads in the transaction market. That backdrop persists today, as markets have again readjusted to contemplating a higher-for-longer interest rate environment.

Pete: Thank you Rob.

Pete: And thank you to everyone joining us today for your interest in essential properties.

Peter M. Mavoides: On our year end earnings call in February we noted an industry backdrop of heightened volatility in the capital markets and wide bid ask spreads in the transaction markets.

Peter M. Mavoides: That backdrop persists today as markets have again readjusted, you're contemplating a higher for longer interest interest rate environment.

Peter M. Mavoides: Our business is well-suited for this environment, with a well-capitalized balance sheet and a value proposition of providing reliable growth capital to middle-market companies in our targeted industry. Against this backdrop, we started 2024 on a positive note, with healthy portfolio credit trends and $249 million of investments in the quarter, translating into solid AFFO per share growth of 5% in the first quarter. 87% of our investments were generated from an existing relationship, underscoring the value we provide as a reliable and efficient capital provider funding their growing businesses.

Peter M. Mavoides: Our business is well suited for this environment with a well capitalized balance sheet and the value proposition of providing reliable growth capital to middle market companies in our targeted industries.

Peter M. Mavoides: Against this backdrop, we started 2024 on a positive note.

Peter M. Mavoides: With healthy portfolio credit trends and $249 million of investments in the quarter translating into solid S. F O per share growth of 5%.

Peter M. Mavoides: In the first quarter.

Peter M. Mavoides: 87% of our investments were generated from existing relationships.

Peter M. Mavoides: Underscoring the value, we provide as a reliable and efficient capital provider funding their growing businesses.

Peter M. Mavoides: Our sale e-spec capital is particularly attractive as the continued dislocation in the credit and bank markets has contributed to tighter lending conditions. With quarter-end pro forma leverage of 3.6 times and liquidity of over $850 million, our balance sheet positions thus well to grow our portfolio by deploying into these tailwinds, resulting in attractive risk-adjusted returns for our shareholders, based upon our first quarter results.

Peter M. Mavoides: Our Sal leaseback capital is particularly attractive as a continued dislocation in the credit and bank markets has contributed to hot tighter lending conditions.

Peter M. Mavoides: With quarter end pro forma leverage of three six times and liquidity of over 850 million.

Peter M. Mavoides: Our balance sheet positions us well to grow our portfolio by deploying into these tailwind, resulting in attractive risk adjusted returns for our shareholders.

Peter M. Mavoides: Based upon our first quarter results.

Peter M. Mavoides: Considering the building momentum in our investment pipeline heading into the second quarter, we have refined our 2024 AFFO per share guidance to a range of $1.72 to $1.75, which implies over 5% growth at the mid. As our first quarter results indicate, our portfolio continues to operate at a strong level. We ended the quarter with investments in 1,937 properties that were 99.9% leased to 383 tenants operating in 16 industries. Portfolio had just one vacant property at Quarter S, down from three at the end of last year.

Peter M. Mavoides: And the building momentum in our investment pipeline heading into the second quarter.

Peter M. Mavoides: We have refined our 'twenty 'twenty four F F O per share guidance to a range of $1 72 to.

Peter M. Mavoides: Two one dollar and 75 cents.

Peter M. Mavoides: Which implies over 5% growth at the midpoint.

Peter M. Mavoides: As our first quarter results indicate our portfolio continues to operate at a strong level.

Peter M. Mavoides: We ended the quarter with investments in 1937 properties that were 99.9% leased to 383 tenants operating in 16 industries.

Peter M. Mavoides: The portfolio had just one vacant property at quarter end.

Peter M. Mavoides: From three at the end of last year.

Peter M. Mavoides: Our portfolio continues to demonstrate excellent durability and extraordinarily high occupancy. Our weighted average lease term stood at 14.1 years at quarter end, which is up slightly year over year, with only 4.5% of annual base rent expiring through 2028. From a tenant health perspective, our weighted average unit level rent coverage ratio was 3.9 times this quarter, up slightly from last quarter. Same store rent growth in the first quarter was 1.5%, which was consistent with last quarter and suggests minimal leakage from credit loss.

Peter M. Mavoides: Our portfolio continues to demonstrate excellent durability and extraordinarily high occupancy.

Peter M. Mavoides: Our weighted average lease term stood at 14.1 years at quarter end, which is up slightly year over year.

Peter M. Mavoides: With only four 5% of annual base rent expiring through 2028.

Peter M. Mavoides: From a tenant health perspective, our weighted average unit level rent coverage ratio was three nine times this quarter up slightly from last quarter.

Peter M. Mavoides: Same store rent growth in the first quarter was one 5%.

Peter M. Mavoides: Which was consistent with last quarter and suggest minimal leakage from credit losses.

Peter M. Mavoides: During the quarter, we invested $249 million through 36 separate transactions at a weighted average cash yield of 8.1%, representing an increase of 20 basis points from last quarter and 50 basis points from two quarters ago. Our investment activity in the quarter was broad-based across most of our top industries, with no notable departures from our well-defined investment strategy. Our investments this quarter had a weighted average lease term of 17.2 years and a weighted average annual rent escalation of 1.9%, generating an average gap yield of 9.3%, which is the highest gap yield in our company's history.

Peter M. Mavoides: During the quarter, we invested $249 million through 36 separate transactions at a weighted average cash yield of eight 1%.

Peter M. Mavoides: Representing an increase of 20 basis points from last quarter, and 50 basis points from two quarters ago.

Peter M. Mavoides: Our investment activity in the quarter was broad based across most of our top industries with no notable departures from a well defined investment strategy.

Peter M. Mavoides: Our investments this quarter had a weighted average lease term of 17.2 years and a weighted average annual rent escalation of one 9% Gen.

Peter M. Mavoides: Generating an average GAAP yield of nine 3%, which is the highest capital in our company's history.

Mark E. Patten: Our investments this quarter had a weighted average unit-level rent coverage of 2.7 times, and the average investment per property was $2.8 million, consistent with our focus on owning granular liquid property. 100% of the investments this quarter were originated through direct sale leaseback, which are subject to our lease form with ongoing financial reporting requirements. 82% contained master lease provisions, and 87% were generated from existing relationships. Looking ahead to the second quarter of 2024, we have closed 61 million in investments quarter to date, and our pipeline remains robust as an increasing number of middle market companies are seeking sale leaseback capital as a financing alternative, as other sources of capital have become unavailable or uneconomic.

Peter M. Mavoides: Our investments this quarter had a weighted average unit level rent coverage of 2.7 times and the average investment per property was 2.8 million <unk>.

Mark E. Patten: Consistent with our focus on owning granular liquid properties.

Mark E. Patten: 100% of the investments this quarter were originated through direct sale leasebacks.

Mark E. Patten: Which are subject to our lease form with ongoing financial reporting requirements.

Mark E. Patten: 82% contain master lease provisions and 87% were generated from existing relationships.

Mark E. Patten: Looking ahead to the second quarter of 2024, we have closed 61 million of investments quarter to date and our pipeline remains robust as an increasing number of middle market companies are seeking sale leaseback capital as a financing alternative.

Mark E. Patten: Other sources of capital have become unavailable or an economic.

Mark E. Patten: A persistently high interest rate backdrop supports our ability to continue to generate attractive risk-adjusted returns, and our current pipeline suggests that investment cap rates should be stable in the near term. From a tenant concentration perspective, our largest tenant represents 4.3% of ABR at quarter end, and our top 10 tenants now account for only 19.1% of ABR. Tenant diversity is an important risk mitigation tool and differentiator for us, and it is a direct benefit of our focus on middle market operators, which offers expansive opportunities.

Mark E. Patten: A persistently high interest rate backdrop supports our ability to continue to generate attractive risk adjusted returns and our current pipeline suggests that investment cap rates should be stable in the near term.

Mark E. Patten: From a tenant concentration perspective, our largest tenant represents four 3% of ABR at quarter end and our top 10 tenants now account for only 19, 1% of ABR.

Mark E. Patten: Tenant diversity is an important risk mitigation tool and differentiator for us and it is a direct benefit of our focus on middle market operators, which offers an expansive opportunity set.

Mark E. Patten: In terms of dispositions, we sold seven properties this quarter for $11.9 million in net proceeds at a 6.5% weighted average cash yield and a weighted average unit-level rent coverage of 2.7 times. As we have mentioned in the past, owning fungible and liquid properties is an important aspect of our investment discipline as it allows us to proactively manage industries, tenants, and unit-level risks within our portfolio. Going forward, we expect our disposition activity over the near term to remain relatively in line with our trailing eight-quarter average, driven by opportunistic asset sales and ongoing portfolio management activity. With that, I'd like to turn the call over to Mark, who will take you through the financials and our balance sheet for the quarter.

Mark E. Patten: In terms of dispositions.

Mark E. Patten: We sold seven properties this quarter for $11 9 million in net proceeds.

Mark: 6.5% weighted average cash yield and a weighted average unit level rent coverage of two seven times.

Mark: As we have mentioned in the past owning fungible and liquid properties is an important aspect of our investment discipline as it allows us to proactively manage industries tenants and unit level risks within our portfolio.

Mark: Going forward, we expect our disposition activity over the near term to remain relatively in line with our trailing eight quarter average driven by opportunistic asset sales and ongoing portfolio management activity.

Mark E. Patten: With that I'd like to turn the call over to Mark who will take you through the financials and our balance sheet for the quarter.

Mark E. Patten: Thanks, Pete, and good morning, everyone. As Pete noted, we had a solid first quarter, which was punctuated by a record level of investments at an 8.1% cash cap rate. Among the headlines from the quarter were our AFFO per share of $0.42, which is an increase of 5% versus Q1 2023. On a nominal basis, our AFFO totaled $71.1 million for the quarter. That's up $12.9 million over the same period in 2023, which is an increase of 22%.

Mark: Thanks, Pete and good morning, everyone.

Mark E. Patten: As Pete noted, we had a solid first quarter, which was punctuated by a record level of investments at an eight 1% cash cap rate.

Mark E. Patten: Among the headlines from the quarter was our F O per share of <unk> 42 cents, which is an increase of 5% versus Q1, 2023 on order.

Mark E. Patten: Nominal basis, or if a food totaled $71 $1 million for the quarter, that's up $12 $9 million over the same period in 2023, which is an increase of 22%.

Mark E. Patten: This AFFO performance was in line with our expectations underlying the guidance range we provided last quarter. Total G&A was $9.4 million in Q1 2024, versus $8.6 million for the same period in 2023, with the majority of the increase relating to an increase in compensation expense. Our recurring cash G&A as a percentage of total revenue was 6.2% for the quarter, which compares favorably to the 7% in the same period a year ago.

Mark E. Patten: This <unk> performance was in line with our expectations underlying the guidance range, we provided last quarter.

Mark E. Patten: Total G&A was $9 $4 million in Q1, 'twenty 'twenty four versus $8 6 million for the same period in 2023, which with the majority of the increase relating to an increase in compensation expense.

Mark E. Patten: Our recurring cash G&A as a percentage of total revenue was six 2% for the quarter, which compares favorably to the 7% in the same period a year ago.

Mark E. Patten: We continue to expect that on an annual basis our cash G&A as a percentage of total revenue will decline this year as our platform generates operating leverage over a scalating asset base. We declared a $0.285 dividend in the first quarter, which represents an AFFO payout ratio of 68%.

Mark E. Patten: We continue to expect that on an annual basis, our cash G&A as a percentage of total revenue will decline this year as our platform generates operating leverage over a scaling asset base.

Mark E. Patten: We declared a <unk> 28.5 cent dividend in the first quarter, which represents an <unk> payout ratio of 68%.

Mark E. Patten: Our retained free cash flow after dividends continues to build, reaching $23.9 million in the first quarter. Turning to our balance sheet, I'll highlight the following. With our $249 million in Q1 2024 investments, our income-producing gross assets reached $5.1 billion at quarter end. The scale of our income-producing assets continues to build, and we expect to approach $6 billion by later this year. The diversity, quality, and scale of our asset base enhances the reliability and durability of our cash flows and provides an increasing level of risk mitigation. The offering was completed on a forward basis. Through our ATM program, we completed the sale of approximately $53.4 million of stock, also on a forward basis.

Mark E. Patten: Our retained free cash flow after dividends continues to build reaching $23 $9 million in the first quarter.

Mark E. Patten: Turning to our balance sheet I'll highlight the following.

Mark E. Patten: With our $249 million in Q1, 'twenty 'twenty four investments are income producing gross assets reached $5 1 billion at quarter end.

Mark E. Patten: The scale of our income producing assets continues to build and we expect to approach $6 billion by later this year.

Mark E. Patten: The diversity quality and scale of our asset base enhances the reliability and durability of our cash flows and provides an increasing level of risk mitigation.

Mark E. Patten: On the capital market side. It was a productive first quarter highlighted by a successful overnight equity offering in March generating gross proceeds of $256 $2 million. The offering was completed on a forward basis through our ATM program. We completed the sale of approximately $53 $4 million of stock also.

Peter M. Mavoides: Combined, during the first quarter, we raised over $300 million of equity capital. During the quarter, we settled $244.7 million of forward equity, including the remaining unsettled shares from our September 2023 offering, all of the shares issued on our ATM, and a portion of our March 2024 offering, leaving us with a balance of unsettled forward equity totaling $184.2 million at quarter end. Our pro forma net debt to annualized adjusted EBITDA RE adjusted for unsettled forward equity was 3.6 times at quarter end.

Peter M. Mavoides: On a forward basis.

Peter M. Mavoides: Buying during the first quarter, we raised over $300 million of equity capital.

Peter M. Mavoides: During the quarter, we settled $244 $7 million of forward equity, including the remaining unsettled shares from our September 20th twenty-three offering all of the shares issued on our ATM and a portion of our March 'twenty 'twenty, four offering, leaving us with a balance of unsettled forward equity totaling $184 2 million.

Peter M. Mavoides: At quarter end.

Peter M. Mavoides: Our pro forma net debt to annualized adjusted EBITDA <unk> adjusted for unsettled forward equity was three six times at quarter end.

Peter M. Mavoides: We remain committed to maintaining a well-capitalized balance sheet with best-in-class leverage and liquidity. At quarter end, our total liquidity stood at over $850 million. Our conservative leverage, strong balance sheet, and significant liquidity position the company well to fund our growth plans for 2024. Combined with a strong performance to start the year, as Pete mentioned, this supports our refined 2024 AFFO per share guidance range of $1.72 to $1.75, implying an over 5% growth rate at the midpoint. It's important to note that with the equity issuance executed this quarter, we do not require any additional equity to achieve our 2024 guidance range. With that, I'll turn the call back over to Pete.

Peter M. Mavoides: We remain committed to maintaining a well capitalized balance sheet with best in class leverage and liquidity at.

Peter M. Mavoides: At quarter end, our total liquidity stood at over $850 million, our conservative leverage strong balance sheet and significant liquidity positions the company well to fund our growth plans for 2024.

Peter M. Mavoides: Combined with the strong performance to start the year as Pete mentioned this supports our refined 'twenty 'twenty four F O per share guidance range of $1 72 to $1 75, implying an over 5% growth rate at the midpoint.

Peter M. Mavoides: It's important to note that with the equity issuance executed this quarter, we do not require any additional equity to achieve our 2024 guidance range.

Peter M. Mavoides: With that I'll turn the call back over to Pete.

Pete: Thanks Mark.

Operator: We're very pleased with our first quarter results and remain optimistic about the prospects for the business. Operator, please open the call for questions. Thank you.

Pete: We're very pleased with our first quarter results and remain optimistic about the prospects for the business.

Operator: Operator, please open the call for questions.

Speaker Change: Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad and.

Operator: Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 2. One moment, please, while we poll for questions. Our first question comes from Eric Borden with BMO. Please proceed with your question.

Speaker Change: A confirmation tone will indicate your line is in the question queue. You May Press Star two if you like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Operator: Our first question comes from Eric Borden with BMO. Please proceed with your question.

Eric Borden: Hey, good morning, everyone with rates now seemingly higher for longer how should we think about the appropriate funding mix to fund external growth for the remainder of the year and then I guess, a part twos. If you were to issue debt today, what's the most attractive source of debt capital and at what rate could you raise that.

Eric Borden: Good morning, everyone. With rates now seemingly higher for longer, how should we think about the appropriate funding mix? Fund External Growth for the remainder of the year, and then, I guess, part two, if you were to issue debt today, what's the most attractive source of debt capital and at what rate could you raise that at?

Speaker Change: Yeah, Mark once you have you got it look I think I tried to catch set at the tail end of my remarks in terms of the equity side of that equation.

Eric Borden: So if you think about it what we really have today as a you know a equity that we have available to us from the standpoint of debt financing.

Mark E. Patten: Mark, why don't you handle it? You've got it. Look, I think I tried to catch that at the tail end of my remarks in terms of the equity side of that equation. So if you think about it, what we really have today is equity that we have available to us from the standpoint of debt financing. Our view is that... Where you could maybe execute a term loan, so if you think about that avenue, it's probably somewhere in the 5-4, 5-5, given the 10 years move, swapping that out.

Mark E. Patten: Our view is that.

Mark E. Patten: Where you could maybe execute a term loan. So if you think about that Avenue, it's probably somewhere in the five for five five given that the 10 years move.

Mark E. Patten: Swapping that out we think that the bank debt market is is available to us and that would probably be an avenue we'd pursue a.

Mark E. Patten: An unsecured bond issuance, albeit we'd we'd love to be back in that market, even with our spread down to you know 194.

Mark E. Patten: We think that the bank debt market is available to us, and that would probably be an avenue we'd pursue. An unsecured bond issuance, although we'd love to be back in that market, even with our spread down to 194, the 10 years have been on a tear, so that's still less accretive and certainly not constructive for us right now. But I think, you know, what I'd also mention is, we could do a billion dollars worth of investments sitting with the liquidity we have today and not even reach five times leverage.

Mark E. Patten: The 10 years.

Mark E. Patten: [noise] been on a tear so that's still less accretive and certainly not constructive for right now.

Mark E. Patten: But I think you know what I'd also mention as you know we could do.

Mark E. Patten: We could do $1 billion worth of investments are sitting with the liquidity, we have today and not not even crest five times leverage.

Mark E. Patten: Okay. That's helpful and then.

Mark E. Patten: Maybe one for Pete just how competitive is the sale leaseback market. Today are you seeing our investors appears kind of stepping off the sidelines, just given how attractive that salaries back capital as for the potential tenants.

Mark E. Patten: Yeah, I think overall our narrative is that its been competition has been muted and in the last couple of quarters. As you know back towards Mark was talking about the financing cost for for.

Operator: Okay, that's helpful. And then maybe one for Pete.

Operator: For these assets is it a little challenging them, but there's certainly competition out there from from other investors as well as alternative capital sources. So I wouldn't wouldn't say the market's devoid of competition, but I'm certainly, it's it's a lower level than we've seen in past years.

Peter M. Mavoides: Just how competitive is the salary spec market today? Are you seeing investors or peers kind of stepping off the sidelines, just given how attractive that salary spec capital is for potential tenants?

Speaker Change: Great I'll leave it there thank you.

Speaker Change: Great. Thank you very much.

Peter M. Mavoides: Yeah, I think overall our narrative is that competition has been muted in the last couple of quarters as, you know, back to what Mark was talking about, the financing costs for these assets are a little challenging, but there's certainly competition out there from other investors as well as alternative capital sources. So I wouldn't say the market's devoid of competition, but certainly it's a lower level than we've seen in past years. Great

Peter M. Mavoides: Our next question comes from Smedes Rose with Citi.

Speaker Change: Please proceed with your question.

Speaker Change: Hi, Thanks.

Peter M. Mavoides: You know acknowledging that your four wall coverage actually increased sequentially, but I. Just wondering you know theres a lot of concern that.

Peter M. Mavoides: Tumors, particularly kind of on the lower end of the economic spectrum or kind of increasingly tapped out and I'm just wondering if that.

Peter M. Mavoides: Concern is sort of bleeding over into your conversations with tenants.

Peter M. Mavoides: Tenants around things like escalators or there there a willingness to transact right now just with that especially in a higher for longer environment. I'm. Just wondering if that's maybe showing up at all.

Eric Borden: Great. I'll leave it there. Thank you.

Smedes Rose: Our next question comes from Smedes Rose with Citi. Please proceed with your question.

Smedes Rose: Yeah, you know listen we're in industries that aren't really reliant on the low end consumer y'know Orange essential service and experience based industries and and you know, we're not really seeing them those concerns come through in our tenant discussions.

Peter M. Mavoides: Hi, thanks. You know, acknowledging that your full wall coverage actually increased sequentially, but I'm just wondering, you know, there's a lot of concern that consumers, particularly kind of on the lower end of the economic spectrum, are kind of increasingly tapped out. And I'm just wondering if that concern is sort of bleeding over into your conversations with tenants around things like escalators or their willingness to transact right now, just as that, especially in a higher for longer environment, just wondering if that's maybe showing up at all.

Peter M. Mavoides: Or are new to operator discussions I would say overall, the guys that are growing at or a little fewer than they've been in the past and a little less reliant on debt capital as they've been on the past and you know, which means or there are using more sand leaseback capital and equity capital, but you know over.

Peter M. Mavoides: For all of the industries that we're investing in are have been and continue to be pretty healthy.

Peter M. Mavoides: Yeah.

Speaker Change: Okay. Thank you I appreciate it thanks Nate.

Peter M. Mavoides: Yeah.

Peter M. Mavoides: Our next question comes from Greg Mcginniss with Scotiabank. Please proceed with your question.

Smedes Rose: Yeah, you know, listen, we're in industries that aren't really, you know, reliant on the low end consumer; we're in essential service and experience based industries. And, and, you know, we're not really seeing those concerns come through in our tenant discussions or new operator discussions. I would say overall, the guys that are growing it are a little fewer than they've been in the past. And a little less reliant on debt capital as they have been in the past. And, you know, which means they're using more sale, lease back capital, and equity capital. But, you know, overall, the industries that we're investing in have been and continue to be pretty healthy.

Speaker Change: Hey, Good morning, I was hoping you could just talk about some of the movement around the tenant risk like the you know less than one time rent coverage population growing the triple C plus although mostly that's to us rent coverage, increasing but just about some of the movement on the tenant risk there what's called.

Smedes Rose: The thing that and then also if you could touch on your comfort with with Red Robin which has seen its.

Smedes Rose: Share price kind of decline over the last few years, just how those assets are doing and what gives you comfort around those acquisitions. Thanks.

Speaker Change: Sure thing.

Smedes Rose: No listen there's always going to be ebbs and flows in credit and coverage. You know overall are less than one five bucket is down you know sequentially.

Greg Michael McGinniss: Okay. Thank you. I appreciate it. Thanks, Smedes. Our next question comes from Greg McGinniss with Scotiabank. Please proceed with your question.

Greg Michael McGinniss: Sequentially and our coverage is up sequentially, despite adding $250 million of.

Peter M. Mavoides: Hey, good morning. I was hoping you could just talk about some of the movement around tenant risk, like the less-than-one-time rent coverage population growing, the CCC+, although mostly that's 2x rent coverage increasing, but just about some of the movement on the tenant risk there, what's causing that, and then also if you could touch on your comfort with Red Robin, which has seen its share price kind of decline over the last few years, just how those assets Thank you.

Greg Michael McGinniss: Assets at a two seven times rent coverage, so you're always going to have the flows so really the b.

Peter M. Mavoides: Focusing on the Triple C and even the sub one bucket those are very idiosyncratic events relative to those specific names and operators and and you know rest assure that we're watching and working with those guys closely to figure out if those assets are permanently impaired or temporarily impaired.

Peter M. Mavoides: And whether or not you know what the long term solution is but I would say overall, we feel really good about where the portfolio is and you see that with.

Peter M. Mavoides: Sure thing. You know, listen. There's always going to be ebbs and flows in credit and coverage. You know, overall, our less-than-one-five bucket is down, sequentially, and our overall coverage is up sequentially, despite adding $250 million of assets at a 2.7 times rent coverage. So you're always going to have the flows. So really, the folks down at the CCC and even the sub-one bucket are very idiosyncratic events relative to those specific names and operators.

Peter M. Mavoides: One vacant property and and our same store sale coverage I'm, you know solid one five as well as our increase in guidance. So overall the you know the ebbs and flows are kind of natural part of the business and.

Speaker Change: Our job is to manage that.

Peter M. Mavoides: Okay.

Peter M. Mavoides: Great spot in supporting the business.

Peter M. Mavoides: Getting into Red Robin.

Peter M. Mavoides: We've done a number of deals with them and.

Peter M. Mavoides: You know, we're not equity investors, we're not buying the shares we're buying their real estate and ultimately the restaurants, we own that they leased to at least from US are our great real estate and with our solid coverage they've been operating as restaurants for over 20 years and you know we have confidence.

Peter M. Mavoides: And, you know, rest assured that we're watching and working with those guys closely to figure out if those assets are permanently impaired or temporarily impaired and whether or not, you know, what the long-term solution is. But I would say overall, we feel really good about where the portfolio is, and you see that with, you know, one vacant property and our same-store sale coverage, a solid one-five, as well as our increase in guidance.

Peter M. Mavoides: They'll continue to operate as restaurants.

Peter M. Mavoides: You know we've had a very positive credit experience in the casual dining.

Peter M. Mavoides: Space and so when we do have credit events, we actually ended up better.

Peter M. Mavoides: Relative to our a b are going into it red Robin is a good company, we have a lot of confidence in their management and they'll.

Peter M. Mavoides: They'll get that brand turned around and you know, but ultimately.

Peter M. Mavoides: As real estate investors that that's equity risk.

Peter M. Mavoides: So overall, you know, the ebbs and flows are kind of a natural part of the business, and, you know, our job is to manage that. And, you know, we think the portfolio is in a great spot to support the business. You know, getting into Red Robin, we've done a number of deals with them, and we're not equity investors, we're not buying their shares, we're buying their real estate, and ultimately, the restaurants we own that they lease from us are great real estate, and with solid coverage, they've been operating as restaurants for over 20 years, and we have confidence that they'll continue to operate as restaurants.

Speaker Change: Thank you for that and sorry could you just expand on what you meant in terms of the credit improvement on the casual dining side.

Peter M. Mavoides: You know.

Peter M. Mavoides: We look at credit losses, you know when we have our credit experience you know, we look with a b our after the credit events versus ABR before the credit events and in the casual dining space specifically, we we when we re tenant assets our ABR is higher.

Speaker Change: Okay. Thank you.

Peter M. Mavoides: Yeah.

Speaker Change: Our next question is from Handel St Juste with Mizuho Securities. Please proceed with your question.

Speaker Change: Hi, there first to follow up on Greg's question, I'm curious, how much more exposure you'd be comfortable with and casual dining I think you're up to about seven 5% and also on the C store side here about 5%.

Peter M. Mavoides: You know, we've had a very positive credit experience in the casual dining space, and so when we do have credit events, we actually end up better, relative to our ABR going into them. Red Robin is a good company. We have a lot of confidence in their management, and they'll get that brand turned around. But ultimately, as real estate investors, that's equity risk.

Peter M. Mavoides: Yeah.

Peter M. Mavoides: We're comfortable in all our industries and we're in 16 focused industries and generally have a soft ceiling of 15% for industries, given my commentary around our credit experience in the casual dining space, we'd we'd certainly feel comfortable taking that.

Peter M. Mavoides: Exposure up.

Peter M. Mavoides: I don't know if that would go doubled to 15, but there's certainly room to grow there.

Operator: Thank you for that. And sorry, could you just expand on what you meant in terms of the credit improvement on the casual dining side? The Ultimate Parody Site! All rights reserved.

Operator: And C stores as a similar sort of narrative, where we've had positive credit experience and we like like the space you know really the ultimately it depends on the opportunities that we're able to source and whether or not those opportunities are priced at a at a rate that is.

Peter M. Mavoides: You know, as we look at credit losses, you know, when we have credit experience, you know, we look at ABR after the credit events versus ABR before the credit events, and in the casual dining space specifically, when we re-tenant assets, our ABR is higher.

Peter M. Mavoides: <unk> to us.

Peter M. Mavoides: You know I guess from a overall perspective I wouldn't be I would expect those industries to grow ratably.

Speaker Change: Okay, and then I, just guess going back to the first quarter volume you highlighted in their release that it's your busiest first quarter ever.

Haendel Emmanuel St. Juste: Our next question is from Haendel St. Just with Mizzouho Securities. Please proceed with your question.

Speaker Change: I guess I'm curious and stepping back is this the function of the thing more assets that fit your buybacks is it less competition, a greater desire for tenants to transact given lack of the alternative decided or maybe all of the above and what does that suggest for your opportunity to deploy capital. This year is the first quarter a good run rate to think about for the rest of the year.

Peter M. Mavoides: Hey there, first to follow up on Greg's question, I'm curious how much more exposure you'd be comfortable with in casual dining. I think you're up to about seven and a half percent, and also on the C-store side, you're about five percent. Thanks.

Haendel Emmanuel St. Juste: Yeah, you know, we're comfortable in all our industries, and we're in 16 focused industries and generally have a soft ceiling of 15% for industries. Given my commentary around our credit experience in the casual dining space, we'd certainly feel comfortable taking that exposure up. I don't know that it would go double to 15, but, you know, there's certainly room to grow there.

Haendel Emmanuel St. Juste: Yeah.

Haendel Emmanuel St. Juste: Yeah, you know the first quarter is not a great quarter to run rate generally I would I would think you know look toward our eight quarter average more as an indicator of what to expect for the first quarter is a little.

Haendel Emmanuel St. Juste: Little slower historically as Theres, a year end push for deals and in the year starts off pretty slow as January and P and people get back to focus to doing deals and you sort of if you've followed our incremental disclosures throughout the quarter, you'll see that generally our posture has been where trans.

Peter M. Mavoides: And C-Stores is a similar sort of narrative where we've had positive credit experiences, and we like the space. You know, really, ultimately, it depends on the opportunities that we're able to source and whether or not those opportunities are priced at a rate that is attractive to us. And, you know, from an overall perspective, I would expect those industries to grow readily.

Peter M. Mavoides: Acting as much as we can we have a great opportunity set.

Peter M. Mavoides: Our opportunity set is what's up and twenty-three over 22, or 20% and I would expect it to be up again this year and really that opportunity. You said is the growth and the opportunity set is driven by an.

Haendel Emmanuel St. Juste: Okay, and then I just guess going back to the first quarter volume you highlighted in the release that it was your busiest first quarter ever. I guess I'm curious about stepping back. Is this the function of just seeing more assets that fit your buy box? Is it less competition, a greater desire for tenants to transact given the lack of the alternatives you cited, or maybe all of the above? And what does that suggest for your opportunity to deploy capital this year? Is the first quarter a good run rate to think about for the rest of the year? Thanks.

Haendel Emmanuel St. Juste: An increasing demand for sale leaseback cattle as the pricing of it is is more compelling than some of the financing alternatives as these middle market operator have as well as diminished competition, you know going back to some of my earlier comments, we're working hard to to buy assets and put the.

Haendel Emmanuel St. Juste: Our capital that we have raised in and have ready to deploy to work.

Peter M. Mavoides: Yeah, you know, the first quarter is not a great quarter to run rate. Generally, I would think, you know, look toward our eight-quarter average more as an indicator of what to expect. The first quarter is a little slower, historically, as there's a year-end push for deals, and the year starts off pretty slow, you know, in January, and people get back to focus on doing deals, and you sort of, if you've followed our incremental disclosures throughout the quarter, you'll see that.

Haendel Emmanuel St. Juste: But it takes a lot of work and a lot of negotiation and a lot of underwriting a lot of diligence and to put the capital out but we're.

Peter M. Mavoides: We're working hard to do that.

Speaker Change: And one last one if I could just on the pipeline you mentioned that cap rates in the pipeline were fairly stable I'm curious on what your expectations for cap rates are in the near term we've seen.

Speaker Change: Some of your peers have larger increases in sequential Kathryn to you versus last quarter. I think you were only up about 20 basis points. So curious on where you think cap rates are today, where they're heading the opportunity to see a bit more more yield in this higher rate environment. Thanks.

Peter M. Mavoides: Generally, our posture has been that we're transacting as much as we can. We have a great opportunity set. Our opportunity set is up in 23, over 22, we'll have 20%, and I would expect it to be up again this year. And really, that growth in the opportunity set is driven by an increasing demand for sale-leaseback capital, as the pricing of it is more compelling than some of the financing alternatives that these middle-market operators have, as well as diminished competition, you know, going back to some of my earlier comments.

Speaker Change: Yeah, I don't I'm, you know I would set the expectations for cap rates to be flat, we havent seen the ability to push them up much higher and ultimately you know we would expect cap rates to be to gravitate down as the capital markets normalize and.

Peter M. Mavoides: Titian returns.

Peter M. Mavoides: That.

Peter M. Mavoides: That dynamic is not priced into our current pipeline.

Peter M. Mavoides: So, we're working hard to buy assets and put the capital that we have raised and have ready to deploy to work, but, you know, it takes a lot of work and a lot of negotiation, a lot of underwriting, a lot of diligence, and to put the capital out, but we're working hard to do that.

Peter M. Mavoides: Current pipeline would suggest a flat trend.

Peter M. Mavoides: But later in the year, if things were to improve on the capital market side, we would expect a bit of downward pressure.

Speaker Change: Great. Thank you.

Peter M. Mavoides: Extended out.

Peter M. Mavoides: Our next question comes from John <unk> with B Riley Securities. Please proceed with your question.

Peter M. Mavoides: Okay.

Peter M. Mavoides: Hum.

Speaker Change: Maybe kind of digging in a little more on the on the Red Robin transaction I mean, I guess, how did the coverage in cap rate on those deals.

Haendel Emmanuel St. Juste: One last one, if I could, just on the pipeline. You mentioned that cap rates in the pipeline were fairly stable. I'm curious about what your expectations for cap rates are in the near term. We've seen some of your peers have larger increases in sequential cap rates here versus last quarter. I think yours were only up about 20 basis points, so I'm curious about where you think cap rates are today, where they're heading, and the opportunity to see a bit more yield in this higher rate environment. Yeah, I don't think so.

Haendel Emmanuel St. Juste: Parents, and maybe the average for the quarter just roughly.

Haendel Emmanuel St. Juste: There would have been accretive to the coverage dilutive to the cap rate.

Haendel Emmanuel St. Juste: Okay.

Haendel Emmanuel St. Juste: That's helpful and then kind of bigger picture, particularly as you look at the pipeline today.

Haendel Emmanuel St. Juste: What's the mix of kind of private equity sponsored tenants in the pipeline I guess, how does that compare to historical levels, particularly maybe before we should interest rates increase here over the last couple of years.

Peter M. Mavoides: Yeah, I don't, you know, I would set the expectations for cap rates to be flat. We haven't seen the ability to push them up much higher. And ultimately, you know, we would expect cap rates to gravitate down as the capital markets normalize and competition returns. That This dynamic is not priced into our current pipeline; our current pipeline would suggest a flat trend, but later in the year, if things were to improve on the capital market side, we would expect a bit of downward pressure. Great, thank you.

Peter M. Mavoides: Yeah.

Speaker Change: You know John.

Peter M. Mavoides: The vast vast majority of our tenants and our operators are private equity backed we have very few publicly traded companies Red Robin's certainly is one of the exceptions in that regard.

Peter M. Mavoides: And so and I would speculate on a historical basis, it's in the high nineties and that private equity backing takes many different forms from family offices to founder family founders to you know big private equity shops, and and so that.

John James Massocca: Our next question comes from John Mascotta with B. Riley Securities. Please proceed with your question.

Peter M. Mavoides: So maybe kind of digging in a little more on the Red Robin transaction. I mean, I guess, how did the coverage and cap rate on those deals compare to maybe the average for the quarter, just roughly.

John James Massocca: Really hasnt changed private equity and you know are some of the people that use their assets to leverage their business and are one of the reasons why sale.

Peter M. Mavoides: It would have been accretive to the coverage, dilutive to the cap.

Peter M. Mavoides: Sale leaseback track.

Peter M. Mavoides: Transactions are compelling to them.

Peter M. Mavoides: I guess does that dynamic has been the same for maybe bigger a regional private equity backed companies versus maybe some of the more mom and pops are in.

John James Massocca: Okay, that's helpful. And then, kind of, bigger picture, particularly as you look at the pipeline today. What's the mix of kind of private equity sponsored tenants in the pipeline? And I guess how is that compared to historical levels, particularly maybe before we saw interest rates increase here over the last couple of years?

John James Massocca: N D O type run.

John James Massocca: Operator.

Speaker Change: Yeah listen capital market behavior is really.

Peter M. Mavoides: You know, John, the vast, vast majority of our tenants and our operators are private equity backed. We have very few publicly traded companies; Red Robin certainly is one of the exceptions in that regard. And so when I would speculate on a historical basis, it's in the high 90s. And that private equity backing takes many different forms, from family offices to founders, family founders, to, you know, big private equity shops. And so that really hasn't changed. You know, private equity and, you know, are some of the people that use their assets to leverage their business. And one of the reasons why, you know, sale lease back transactions are compelling is

John James Massocca: It doesn't matter it doesn't matter how big you are you going to try to find the most efficient sources of capital to capitalize your business inherently you know.

Peter M. Mavoides: Back to the Red Robin if you are public and you're using your assets to finance your business is because your cost of capital in the public market is impaired and not attractive in an inherently you know.

Peter M. Mavoides: You know youre looking for other sources of capital so.

Peter M. Mavoides: Yeah.

Peter M. Mavoides: Capitalism is pretty efficient and people are trying to find the most efficient capital to capitalize their business, whether it's a you know.

Peter M. Mavoides: A $3 billion 6 billion dollar enterprise or a 50 million dollar enterprise.

John James Massocca: I guess, has that dynamic been the same for maybe bigger or regional private equity-backed companies versus maybe some of the more mom-and-pops or MBO-type run?

Peter M. Mavoides: Okay.

John: That's very helpful and then maybe Mark I.

Speaker Change: I know you're talking about having you know kind of enough equity capital to finance deals.

Peter M. Mavoides: Listen, capital market behavior is really, it doesn't matter how big you are; you're going to try to find the most efficient sources of capital to finance your business. Inherently, back to the Red Robin, if you're public and you're using your assets to finance your business, it's because your cost of capital in the public market is impaired and not attractive. Inherently, you're looking for other sources of capital. Capitalism is pretty efficient, and people are trying to find the most efficient capital to finance their business, whether it's, you know, a $3 billion, $6 billion enterprise or a $50 million enterprise.

John James Massocca: For the remainder of the year and stayed within our leverage targets, but maybe kind of more near term I mean is the thought process to use nothing but kind of the in place equity capital.

Peter M. Mavoides: Finance transactions, and maybe even be able to kind of stay off the line on a short term basis or just given you know how low that would take your leverage and the fact that you know.

Peter M. Mavoides: You kind of think about the lukin, you might kind of stretch the existing four words out a little more over the course of the year.

Peter M. Mavoides: Yes, I guess, what I'd say it's.

Peter M. Mavoides: I'll be a little bit more towards the latter meaning today [noise] you utilizing first of all I'll start with and I think you made this point you know at our pro forma leverage level we are.

John James Massocca: Okay. That's very helpful. And then maybe, Mark, I know you talked about having, you know, kind of enough equity capital to finance deals for the remainder of the year and stay within the leverage targets, but maybe kind of more near-term. I mean, the thought process is to use nothing but kind of the in-place equity capital to finance transactions and maybe even be able to kind of stay off the line on a short-term basis or just given, you know, how low that would take your leverage and the fact that, you know, as you kind of think about dilution, you might kind of stretch the existing forwards out a little more over the course of the year.

John James Massocca: Pretty significantly equities, so we have some room to utilize leverage.

John James Massocca: In addition, utilizing that leverage is frankly, a credit accretive to see utilizing the remainder of our forward. So most likely to your latter point, we would probably.

Mark: Push out settling the the forwards and utilize some of our leverage capacity that then becomes more accretive if you execute a you know a term loan a that is gonna be well south of a revolver.

Speaker Change: The revolver.

John James Massocca: Okay.

Speaker Change: Very helpful and that's it for me thank you very much.

Mark: Thanks, Jeff.

John James Massocca: Our next question comes from Joshua <unk> with Bank of America. Please proceed with your question.

Mark E. Patten: Yeah, I guess what I'd say it's probably a little bit more towards the latter, meaning today, utilizing, first of all, I'll start with, and I think you made this point, you know, at our pro forma leverage level, we are pretty significantly equitized, so we have some room to utilize leverage. In addition, utilizing that leverage is frankly accretive to utilizing the remainder of our forward. So most likely, to your latter point, we would probably push out settling the forwards and utilize some of our leverage capacity. That then becomes more accretive if you execute a term loan that is going to be well south of a revolver.

Speaker Change: Hi, this is.

Speaker Change: On behalf of Josh I was wondering if you could quickly touch on your current watch list.

Speaker Change: Sure I'll watch list as we are as we define it as a single beam credit or low and.

Mark E. Patten: <unk> coverage or below and that represents about 100 basis points of ABR.

Mark E. Patten: M, which is up slightly from last quarter.

Mark E. Patten: Kind of what we got on the watch list.

Mark E. Patten: And what is driving that increase.

Mark E. Patten: Just a much to my earlier commentary as very idiosyncratic events around individual tenants and their credit ratings.

Mark E. Patten: And and their coverage at the asset level, there's no real macro trends kind of driving it and and you know going from 70 to 100 basis points is it's really not a material move.

John James Massocca: Okay. That's very helpful, and that's it for me. Thank you very much. Thanks, John. Our next question comes from Joshua.

Joshua: And I'd say similar that AMC has really been the biggest chunk of it.

Joshua Dennerlein: Our next question comes from Joshua Dennerlein with Bank of America. Please proceed with your question. Hi, this is.

Joshua Dennerlein: Okay. Thank you and so what is driving your confidence for the increase from the low end of your guidance.

Peter M. Mavoides: Sure, our watch list, as we define it, is single beam credit or below and five coverage or below, and that represents about 100 basis points of ABR, which is up slightly from last quarter. That's kind of what we have on the watch list.

Speaker Change: Yeah. It's a it's a lot of factors you know I would say first and foremost.

Speaker Change: The stability, we're seeing in our portfolio, we bake them pretty conservative credit loss assumptions into our guidance. When we initially put it out for the year and so we're seeing positive.

Peter M. Mavoides: What is driving that? Just, you know, much like my earlier commentaries, very idiosyncratic events around individual tenants and their credit ratings and their coverage at the asset level. There's no real macro trends kind of driving it. And, you know, going from 70 to 100 basis points is really not a material move. And I'd say similar that AMC is really the biggest chunk.

Peter M. Mavoides: Momentum there a visibility into our pipeline.

Peter M. Mavoides: You know as we sit here, we have good visibility into a strong second quarter, and then me and him.

Peter M. Mavoides: Having printed the first quarter I'm, you know good visibility into one quarter of the year. So.

Peter M. Mavoides: It has a lot of factors. I would say, first and foremost, the stability we're seeing in our portfolio. We make pretty conservative credit loss assumptions into our guidance when we initially put it out for the year, and so we're seeing positive momentum there, visibility into our pipeline. You know, as we sit here, we have good visibility into a strong second quarter. And then, you know, having printed the first quarter, you have good visibility into one quarter of the year.

Peter M. Mavoides: You know you got half of the year pretty well baked and the strong performance and we.

Peter M. Mavoides: We feel good about what we're seeing in.

Peter M. Mavoides: The numbers would suggest.

Peter M. Mavoides: The low end needs to be raised.

Speaker Change: Great. Thank you.

Peter M. Mavoides: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.

Peter M. Mavoides: Our next question comes from Jim Cameron with Evercore. Please proceed with your question.

Speaker Change: Hey, good morning, Thank you sort of talked about it around on the call, but would it be possible to quantify the delta between let's say your representative 8% sale leaseback cap right now and the alternative funding costs for a representative pool of your tenants is that Delta 100 basis points and has it widened or narrowed over time just.

Peter M. Mavoides: So, you know, you got half the year pretty well baked in the strong performance, and, you know, we feel good about what we're seeing, and, you know, the numbers would suggest that the low end needed to be raised.

Operator: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for questions. Our next question comes from Jim Kammert with Evercore. Please proceed with your question.

Operator: Yes.

Operator: Yeah.

James Hall Kammert: Again, it really ebbs and flows if you think about you know sofa plus 400.

James Hall Kammert: You know or you look at any sort of single B bond metric.

James Hall Kammert: Hey, good morning. Thank you.

Peter M. Mavoides: We've sort of talked about it on the call, but would it be possible to quantify the delta between, let's say, your representative 8% sale lease back cap right now and the alternative funding costs for a representative pool of your tenants? Is that delta 100 basis points, and has it widened or narrowed over time? Just curious.

James Hall Kammert: One of the key factors is just having an inverted yield curve.

Peter M. Mavoides: And.

Peter M. Mavoides: So for in the short end of the curve being so elevated.

Peter M. Mavoides: You throw any kind of reasonable spread for these credits on it youre going to be wide of what is our initial cap rate of 8% and the average cap.

Peter M. Mavoides: Cap rate over the life of the lease of $9 three in the last quarter.

James Hall Kammert: Yeah, it's... Again, it really ebbs and flows if you think about SOFR plus 400 or you look at any sort of single B bond metric. One of the key factors is just having an inverted yield curve, and with SOFR and the short end of the curve being so elevated, you throw any kind of reasonable spread for these credits on it, and you're going to be wide of what is our initial cap rate of 8% and the average cap rate over the life of the lease of 9.3% in the last quarter.

Peter M. Mavoides: And so it varies I would say you know.

James Hall Kammert: Certainly the move at recent move in the 10 year from four to four six as has helped that.

James Hall Kammert: Are these guys.

James Hall Kammert: But.

James Hall Kammert: It's a unique period of time unique to my 20 years of investing in this asset class.

Speaker Change: Oh, that's interesting and secondly, if I could you obviously enjoy all the unit level reporting for your tenants and I'm. Just curious are there any particular trends you can call out that you know people are spending consumer spending more convenience stores or casual dining or im just wondering how well that kind of shapes up across your different verticals.

James Hall Kammert: And so it varies. I would say, certainly, the recent move in the 10-year from 4 to 4.6% has helped that. There's material for these guys, but it's a unique period of time, unique to my 20 years of investing in this asset class.

Speaker Change: Well I would say, we don't enjoy all the reporting some of it's negative but.

James Hall Kammert: But the most part.

James Hall Kammert: We're seeing positive trends casual dining has generally been flat.

Peter M. Mavoides: That's interesting. And secondly, if I could, you obviously enjoy all the unit-level reporting for your tenants, and I'm just curious, are there any particular trends you can call out that people are spending, the consumer is spending more at convenience stores or casual dining, or just wondering how that cash shapes up across your different verticals?

James Hall Kammert: But you know when our leases are growing at 1516, and you have a period of high CPI Youre seeing rent coverages that increase and you can really see that in core.

Peter M. Mavoides: Over quarter gone from three eight to three nine despite.

Speaker Change: You know, adding $250 million of the two seven so so generally the trends are positive.

Peter M. Mavoides: But you.

Peter M. Mavoides: You know the.

Peter M. Mavoides: Casual dining would be the one call out as to flat, but carwash is continue to do to do really well.

James Hall Kammert: Well, I would say we don't enjoy all the reporting. But, for the most part, we're seeing positive trends. Casual dining has generally been flat, but when our leases are growing at 1.5, 1.6 and you have a period of high CPI, you're seeing rent coverage that increases. And you can really see that quarter over quarter going from 3.8 to 3.9 despite adding $250 million at a 2.7. So generally, you know, the trends are positive. But, you know, casual dining would be the one call out as to flats. But car washes continue to do really well. And my overall health is fine. Thank you for the context.

Peter M. Mavoides: And.

Peter M. Mavoides: Overall health is fine.

Speaker Change: Okay. Thank you for the context.

Speaker Change: You got it thank you.

James Hall Kammert: Our next question comes from Connor side to see with Wells Fargo. Please proceed with your question.

James Hall Kammert: Hi, This is John Keller child ski odd for Conor.

Speaker Change: Last quarter, you mentioned, the target range for acquisitions, where 75% existing relationships versus 25%, new but over the trailing eight quarters, you've been running well above that 75% number and I'm just interested in why you think that is and what do you expect this rate environment to be pushing new potential tenants do you given your differentiated leasing strategy.

James Hall Kammert: Yeah. So the 75% I would say it was an ideal aspirational mix you know really recognizing that you know tenants are naturally outgrow our capital as they become larger more sophisticated operators with access to more capital sources in the current environment.

Connor Serge Siversky: Our next question comes from Connor Siversky with Wells Fargo. Please proceed with your question.

Peter M. Mavoides: Hi, this is John Kilichowski on behalf of Connor. Last quarter, you mentioned the target range for acquisitions was 75% existing relationships versus 25% new, but over the trillion eight quarters, you've been running well above that 75% number. And I'm just interested in why you think that is. And wouldn't you expect this rate environment to be pushing new potential tenants to you given your differentiated leasing strategy?

Peter M. Mavoides: Where where the capital markets are volatile.

Peter M. Mavoides: You know capital reliability is is getting a higher premium and where we're more focused on servicing our existing relationships and who where what are the embedded solution in and they value us as a counterparty.

Peter M. Mavoides: Then then going out and finding new relationships, but you know on a long term stabilized basis, we got to continue to find new relationships and we spent a lot of time effort and energy to doing that.

Connor Serge Siversky: Yeah, so the 75%, I would say, was an ideal aspirational mix. You know, really recognizing that, you know, tenants naturally outgrow our capital as they become larger, more sophisticated operators with access to more capital sources. In the current environment, where the capital markets are volatile, you know, capital reliability is getting a higher premium, and, you know, we're more focused on servicing our existing relationships, where we're the embedded solution, and, you know, they value us as a counterparty rather than going out and finding new relationships.

Peter M. Mavoides: You know I would expect that to balance out over time.

Connor Serge Siversky: Got it and.

Connor Serge Siversky: Focusing on the disposition side, you mentioned the cadence of our dispositions was light, but I'm more interested in the 20% realized last number how.

Connor Serge Siversky: How much is castle from dispositions and your guide sort of forcing your hand, there or are these just noncore assets youre happy to rotate out of.

Connor Serge Siversky: Yeah, I wouldn't put too much.

Connor Serge Siversky: Too much into the 20% there tends to be.

Connor Serge Siversky: Can be a pretty big Delta between where we we book an asset on our balance sheet to where we ultimately sell it and allocate rents and.

Connor Serge Siversky: But, you know, on a long-term, stable basis, we have to continue to find new relationships, and we spend a lot of time, effort, and energy doing that. You know, I would expect that to balance out over time.

Connor Serge Siversky: So that's that number as well.

Connor Serge Siversky: Yeah.

Speaker Change: Terribly insightful.

Connor Serge Siversky: To anything really particularly on a $12 million a subset, but generally our our disposition activity is focused on getting rid of assets. So we don't on a long term basis, and managing industry specific industry and tenant concentrations.

Peter M. Mavoides: Got it. And focusing on the disposition side, you mentioned the cadence of dispositions with light, but I'm more interested in the 20% realized loss number. How much is cash flow from dispositions in your guide sort of forcing your hand there, or are these just non-core assets you're happy to rotate out of? Yeah, I wouldn't put it too

Peter M. Mavoides: Where we may be overexposed in and looking to add so we will sell sell off those exposures.

Speaker Change: Got it thank you.

Connor Serge Siversky: Yeah, I wouldn't put too much, too much into the 20%. There can be a pretty big delta between where we book an asset on our balance sheet to where we ultimately sell it and allocate rents, and so that number isn't terribly insightful to anything, really, particularly on a $12 million subset. Generally, our disposition activity is focused on getting rid of assets we don't own on a long-term basis and managing specific industry and tenant concentrations where we may be overexposed and looking to add, so we will sell off those exposures.

Speaker Change: Got it thank you.

Peter M. Mavoides: Our next question is from Spencer Alloway with Green Street Advisors. Please proceed with your question.

Speaker Change: Thank you and you mentioned you continue to see a bid ask spread in the market I'm just curious how big is that spread on average for the deal that you've looked at and are there any tenant industries, where you're seeing like our spreads than others.

Connor Serge Siversky: Yeah, I think that commentary Spencer was more around the broader net lease market single tenant net lease which is down 40% to 60%.

Connor Serge Siversky: To you know.

Connor Serge Siversky: Off of historical volumes and you know where you have an in place cash flowing single tenant net lease asset.

Peter M. Mavoides: Got it, thank you. Got it. Thank you. Our next question is...

Spenser Allaway: Our next question is from Spencer Allaway with Green Street Advisors. Please proceed with your question. Thank you.

Peter M. Mavoides: The price of capital today is probably above where you put that asset where you bought that asset creating that bid ask spread where we're investing in new capital formation and sale leasebacks.

Peter M. Mavoides: Yeah, I think that commentary, Spencer, was more around the broader net lease market, you know, single-tenant net lease, which is down, you know, 40 to 60 percent to offer historical volumes. And, you know, where you have an in-place cash-flowing single-tenant net lease asset, the price of capital today is probably above where you put that asset, where you bought that asset, creating that bid-ask spread. Where we're investing in new capital formation and selling leasebacks, you know, that bid-ask spread is, you know, it's a lot tighter. And so, you know, in our market where we're investing, and particularly our capital going out, it's because there isn't a bid-ask spread.

Peter M. Mavoides: You know that that bid ask spread is.

Peter M. Mavoides: It is a lot tighter and so you know in our market, where we're investing.

Peter M. Mavoides: And particularly our capital going out was because there isn't a bid ask spread.

Speaker Change: Okay, great. Thank you.

Peter M. Mavoides: Great.

Speaker Change: We have reached the end of the question and answer session I would now like to turn the call back over to Pete My Boyd for closing comments.

Speaker Change: Great. Thanks, Rob and thank you all for participating in our call today. We appreciate your interest and your questions and we look forward to seeing you all in the coming months have a great day.

Peter M. Mavoides: We have reached the end of the question and answer session. I would now like to turn the call back over to Pete Mavoides for closing comments.

Speaker Change: This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.

Operator: Great. Thanks, Rob. And thank you all for participating in our call today. We appreciate your interest and your questions, and we look forward to seeing you all in the coming months. Have a great day. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Operator: The conference has ended please disconnect your lines at this time. Thank you.

Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation. The conference has ended. Please disconnect your lines at this time. Thank you.