Q1 2024 Realty Income Corporation Earnings Call

Operator: Good day, and welcome to the Realty Income Q1 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would like now to turn the conference over to Mr. Steve Bakke, Senior Vice President of Corporate Finance. Please go ahead.

Good day and welcome to the Realty income Q1, 'twenty 'twenty four earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask.

Operator: <unk> to ask a question you May press Star then one on a touchtone phone to withdraw your question. Please press Star then two please.

Steve Bakke: Please note. This event is being recorded I would like now to turn the conference over to Mr. Steve <unk> Senior Vice President of corporate Finance. Please go ahead.

Operator: Yeah.

Steve Bakke: Thank you all for joining us today for Realty Income's first quarter operating results conference call. Discussing our results will be Sumit Roy, President and Chief Executive Officer, and Jonathan Pong, Chief Financial Officer and Treasurer. During this conference call, we will make 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 any forward-looking statement. You'll disclose in greater detail the factors that may cause such differences in the company's Form 10-Q.

Steve Bakke: Thank you all for joining us today for Realty Income's first quarter operating results conference call discussing our results will be Sumit, Roy President and Chief Executive Officer.

Steve Bakke: And Jonathan Pong, Chief Financial Officer and Treasurer.

Steve Bakke: This conference call, we will make statements that we may be considered forward looking statements under federal Securities law. The company's actual future results may differ significantly from the matters discussed in any forward looking statements you will disclose in greater detail. The factors that may cause such differences in the company's Form 10-Q.

Steve Bakke: We will be observing a two question limit during the Q&A portion of the call in order to give everyone the opportunity to participate.

Steve Bakke: If you would like to ask additional questions you may reenter the queue I will now turn the call over to our CEO Sumit Roy.

Steve Bakke: We will be observing a two question limit during the Q&A portion of the call in order to give everyone the opportunity to participate. If you would like to ask additional questions, you may re-enter the queue. I will now turn the call over to our CEO, Sumit Roy.

Sumit Roy: Thank you, Steve. Welcome, everyone. Our results for the start of 2024 illustrate our focus on thoughtful, disciplined growth and continue to demonstrate the consistency of our global operating and acquisition platform. We believe our value proposition to investors is a simple one. A demonstrated ability to generate consistent positive operational returns regardless of market volatility and the economic environment. A projected 2024 operational return profile of approximately 10%, which comprises an anticipated dividend yield close to 6% and AFFO for share growth of approximately 4.3% assuming the midpoint of guidance, is a validation of our value proposition. To summarize the results from the quarter, we would highlight several key takeaways.

Sumit Roy: Thank you Steve welcome everyone.

Sumit Roy: Our results for the start of 'twenty 'twenty four illustrate our focus on thoughtful disciplined growth and continue to demonstrate the consistency of our global operating and acquisition platform.

Sumit Roy: We believe our value proposition to investors is a simple one.

Sumit Roy: Our demonstrated ability to generate consistent positive operational returns regardless of market volatility and economic environment.

Sumit Roy: Our projected 2024 operational return profile of approximately 10%.

Sumit Roy: Which comprises an anticipated dividend deal close to 6% and if a bowl per share growth of approximately $4, 3%, assuming the midpoint of guidance is a validation of our value proposition.

Sumit Roy: To summarize the results from the quarter, we would highlight several key takeaways.

Sumit Roy: First, diversification. Diversification by geography, asset types, and client relationships. We believe our business model is unique in the real estate sector, as we have the option to grow in different regions with investments in a multitude of real estate products where we see superior risk-adjusted returns. During the first quarter, we invested $598 million at an initial weighted average cash yield of 7.8% across three property types: retail, industrial, and data center. Over half of this volume, representing approximately $323 million, was invested in Europe and the UK at an 8.2% initial weighted average cash flow.

Sumit Roy: First diversification.

Sumit Roy: Diversification by geography asset types and client relationships we.

Sumit Roy: We believe our business model is unique in the real estate sector.

Sumit Roy: Have optionality to grow in different regions with investments in a multitude of real estate products, where we see superior risk adjusted returns.

Sumit Roy: During the first quarter, we invested $598 million.

Sumit Roy: <unk> weighted average cash yield of seven 8% across three property types retail industrial and data centers.

Sumit Roy: Over half of this volume representing approximately 323 million.

Sumit Roy: Whats invested in Europe, and the U K.

Sumit Roy: At eight 2% initial weighted average cash yield.

Sumit Roy: Investment volume in the U.S. was modest during the quarter; of the $275 million of U.S. volume, which was invested at a 7.3% initial weighted average cash, all but $16 million was invested in previously committed development takeouts. This quarter's bias towards international volume is a testament to the diversity of geographies we consider to allocate capital.

Sumit Roy: Investment volume in the U S was modest during the quarter.

Sumit Roy: Off the $275 million of U S volume.

Sumit Roy: Was invested at a seven 3% initial weighted average cash yield of about $16 million was invested in previously committed development takeouts.

Sumit Roy: This quarter's bias towards international volume, it's a testament to the diversity of geographies, we consider to allocate capital.

Sumit Roy: To further elaborate, our investment volume during the quarter consisted of 87 discrete transactions, with three transactions over $50 million, which speaks to the breadth of our platform. Our ultimate focus with any growth vertical or new region is to serve as a real estate partner to the world's leading companies and to ensure the investment outcome matches the consistent risk-return profile of our investments, which have proven resilient over almost five decades as an operating company and three decades as a public company. Second, the health of our portfolio remains solid across all key operational metrics.

Speaker Change: Further elaborate.

Sumit Roy: Our investment volume during the quarter consisted of 87 discrete transactions with three transactions over $50 million, which speaks to the breadth of our platform.

Sumit Roy: Our ultimate focus with any growth vertical or new region is to serve as a real estate partner to the world's leading companies and to ensure the investment outcome matches. The consistent risk return profile of our investments, which have proven resilient over almost five decades as an operating company.

Sumit Roy: And three decades as a public company.

Sumit Roy: Second the health of our portfolio remains solid across all key operational metrics.

Sumit Roy: We finished the quarter with occupancy of 98.6%, consistent with the prior quarter and our projection, and we delivered another strong leasing quarter with rent recapture of 104.3% on the 198 leases that we renewed or released during the quarter. At quarter end, our list of tenants on the credit watch list comprised approximately 5.2% of total portfolio annualized rent, which is in line with our historical average, and with no individual client representing more than 1% of our total portfolio annualized.

Sumit Roy: We finished the quarter with occupancy of 98, 6%.

Sumit Roy: <unk> with the prior quarter and our projections and.

Sumit Roy: And we delivered another strong leasing quarter with rent recapture of 104, 3% on the 198 leases that were renewed or released during the quarter.

Sumit Roy: At quarter end, our list of tenants under credit watch list comprise approximately five 2% of total portfolio of annualized rent.

Sumit Roy: Which is in line with our historical average and with no individual client representing more than 1% of our total portfolio annualized rent.

Sumit Roy: Consequently, we would highlight the diversification of our portfolio, which today consists of over 1,500 clients in all 50 states, the UK, and six other countries in Western Europe, all of which helps insulate us from potential disruptive interest rate and credit events that could impact the durability of our cash. Finally, our balance sheet and access to capital continue to represent a major competitive advantage and affords us significant flexibility to fund our business without the need for external capital. After the Spirit merger closed in January, our annualized free cash flow available for investments is approximately $825 million.

Sumit Roy: Consequently, we would highlight the diversification of our portfolio, which today consists of over 1500 clients in all 50 states the U K and six other countries in Western Europe, all of which helps insulate us from potential disruptive interest rate and credit events that could impact the durability.

Sumit Roy: <unk> of our cash flow.

Sumit Roy: Finally, our balance sheet and access to capital continues to represent a major competitive advantage and affords us significant flexibility to fund our business without the need for external capital.

Sumit Roy: After the spirit merger closed in January.

Sumit Roy: Our annualized free cash flow available for investments is approximately.

Sumit Roy: $825 million.

Sumit Roy: This provides us with Significant Organic Investment Capacity to finance our growth plans without being required to tap into the debt or equity markets to meet current investment guidance. I would also note this also excludes any additional capacity generated by a disposition program, which I will discuss later.

Sumit Roy: This provides us significant organic investment capacity.

Sumit Roy: To finance, our growth plans without being required to tap into the debt or equity markets to meet current investment guidance.

Sumit Roy: I would also note. This also excludes any additional capacity generated by our disposition program, which I will discuss nature.

Sumit Roy: In spite of volatility in the capital markets, we posted a nominal first year investment spread of over 340 basis points in the first quarter, which is well above our historical spread of around 150 basis points.

Sumit Roy: In spite of volatility in the capital markets, we posted a nominal first-year investment spread of over 340 basis points in the first quarter, which is well above our historical spread of around 150 basis points. The primary driver of these outside spreads is the significant portion of investment volume funded through free cash flow, which, by virtue of being a non-dilutive source of capital, meaningfully reduces our nominal first-year cost of capital. To be clear, our investment decisions remain based on our long-term weighted average cost of capital, which considers only our cost of equity for equity and long-term 10-year unsecured debt. This establishes the minimum return hurdle we seek to exceed across our aggregate investment activity. In all cases, our long-term WAC has exceeded our nominal first-year cost of capital with respect to our transactions.

Sumit Roy: The primary driver of these outside spreads is the significant portion of investment volume funded through free cash flow, which by virtue of being a non dilutive source of capital meaningfully reduces our nominal first year cost of capital.

Sumit Roy: To be clear our investment decisions remain based on our long term weighted average cost of capital, which considers only our cost of stock for equity and long term 10 year unsecured debt.

Sumit Roy: <unk> establishes the minimum return hurdle, we seek to exceed across our aggregate investment activity in all cases, our long term WAC has exceeded our nominal first year cost of capital with respect to our transactions. This long term oriented underwriting model is what drives our focus on acquiring high quality.

Sumit Roy: This long-term-oriented underwriting model is what drives our focus on acquiring high-quality real estate leased to solid operators who are leaders in their respective industries because we believe these opportunities have significantly lower residual risk value rates. In addition, to reach our longer-term growth hurdle rates, we are increasingly prioritizing meaningful contractual rent escalators in our leases, with conservative rent coverage metrics that we believe will be even more resilient through a variety of economic cycles.

Sumit Roy: Quality real estate leased to solid operators, who are leaders in their respective industries. Because we believe these opportunities have significantly lower residual risk value risk.

Sumit Roy: In addition to reach our longer term growth hurdle rates, we are increasingly prioritizing meaningful contractual rent escalators in our leases with conservative rent coverage metrics that we believe will be even more resilient through a variety of economic cycles in.

Sumit Roy: In summary, activity in the transaction market remains uneven. Many potential sellers of real estate remain sidelined given this uncertain interest rate environment, which is amplified by mixed inflation-related data over the last six months. Sellers remain reluctant to transact, and the breadth and depth of domestic investment opportunities have compressed as a result.

Sumit Roy: In summary activity in the transaction market remains uneven many potential sellers of real estate remained sidelined given the uncertain interest rate environment, which is amplified by mixed inflation related data over the last six months standards.

Sumit Roy: Standards remain reluctant to transact in the breadth and depth of domestic investment opportunities have compressed as a result, however, as experienced in prior cycles. We remain optimistic that the market will provide more opportunities in the second half of the year as the economic outlook becomes clearer.

Sumit Roy: However, as experienced in prior cycles, we remain optimistic that the market will provide more opportunities in the second half of the year as the economic outlook becomes clearer. Turning to portfolio operations, as previously mentioned, our recapture rate was 104.3%, contributing to same-store rent growth of 0.8% in the first quarter. Excluding the negative impact from our Cineworld Theatre portfolio, following the lease amendments finalized late last year, our same store portfolio was up 1.4%, largely in line with the contractual rent growth embedded in our portfolio.

Sumit Roy: Turning to portfolio operations as previously mentioned, our recapture rate was 104, 3% contributing to same store rent growth of 8% in the first quarter.

Sumit Roy: Excluding the negative impact from our Cineworld theater portfolio. Following the lease amendment finalized late last year, our same store portfolio was up one 4% largely in line with the contractual rent growth embedded in our portfolio.

Sumit Roy: One of our competitive advantages in the marketplace is our asset management and real estate operations function, consisting of over 80 individuals who we believe are among the most talented in the industry. Since becoming a public company in 1994, we have now resolved over 6,000 lease expirations at a blended rent recapture rate of 102.5%, which is a testament to our acquisition underwriting, the quality of our real estate, and the skill of our asset management and real estate operations team. During the quarter, we sold 46 properties for a total net proceeds of $95.6 million.

Sumit Roy: One of our competitive advantages in the marketplace is our asset management and real estate operations functions consisting of over 80 individuals who we believe are among the most talented in the industry.

Sumit Roy: Since becoming a public company in 1994, we have now resolved over 6000 lease expirations at a blended rent recapture rate of 102, 5%, which is a testament to our acquisition underwriting quality of our real estate and the scale of our asset management and real estate operations teams.

Sumit Roy: During the quarter, we sold 46 properties for total net proceeds of $95 $6 million. Our recycling efforts are a function of a more active investment management initiatives.

Jonathan Pong: Our recycling efforts are a function of a more active investment management initiative. Our active decision-making on dispositions is supported by our proprietary predictive analytics platform. In recent years, we have harnessed the collective contributions of our predictive analytics team, the credit underwriting group, and the fundamental input from our asset management group to inform our acquisition strategy. We believe the combined benefits of these three groups provide us with a significant differentiation in the industry as a result of the quantum of data we have gathered across our portfolio over our long operational history.

Jonathan Pong: Our active decision, making on dispositions is supported by our proprietary predictive analytics platform.

Jonathan Pong: In recent years, we have harnessed the collective contributions of a predictive analytics team the credit underwriting group and the fundamental input from our asset management group to inform our acquisition strategy.

Jonathan Pong: We believe the combined benefits of these three groups provide us significant differentiation in the industry as a result of the quantum of data we have gathered across our portfolio over a long operational history.

Jonathan Pong: So now, in addition to our acquisition program, we're using the data to more proactively manage the portfolio and guide our active disposition program. I will now turn it over to Jonathan, who will add further color to the quarter.

Jonathan Pong: Now in addition to our acquisition program, we are using the data to more proactively manage the portfolio and guide our active disposition program.

Jonathan Pong: I'll now turn it over to Jonathan who will add further color to the quarter.

Jonathan Pong: Thank you so much. It's been a quiet start to the year on the capital markets front following our January U.S. dollar bond offering, which raised $1.25 billion in gross proceeds at a blended yield to maturity of approximately 5.14%. As we discussed in our prior earnings call, our financing strategy for 2024 does not require incremental capital to finance our growth and acquisition needs. This continues to be the case at our current investment guidance.

Jonathan Pong: Thank you.

Jonathan Pong: It's been a quiet start to the year in the capital markets front. Following our January U S dollar bond offering, which raised $1 5 billion of gross proceeds at a blended yield to maturity.

Jonathan Pong: <unk>, 5.14%.

Jonathan Pong: As introduced in our prior earnings call our financing strategy for 2024 does not require incremental capital to finance our growth and acquisition.

Jonathan Pong: Continues to be the case that our current investment guidance.

Jonathan Pong: For that end, we end the quarter with a net debt and preferred equity, annualized pro forma adjusted EBITDA ratio of five and a half times. That's in line with our target ratio. During the quarter, we settled approximately $550 million of equity previously raised through our ATM program, and which was outstanding on a four basis. This leaves us with approximately $63 million of outstanding equity available for future settlement. And when combined with approximately $825 million of annualized sweet cash flow available to us following the Spirit merger and the disposition program that Sumit referenced, our $2 billion investment guidance for the year is one we believe can be funded without having to tap the market.

Jonathan Pong: To that end, we ended the quarter with a net debt and preferred equity.

Jonathan Pong: Annualized pro forma adjusted EBITDA ratio of five five times.

Jonathan Pong: Line with our target ratio.

Jonathan Pong: During the quarter, we settled approximately $550 million of equity previously raised through our ATM program, and which was outstanding on a forward basis.

Jonathan Pong: This leaves us with approximately 63 million of outstanding equity available for future settlement.

Jonathan Pong: And when combined with approximately 825 million of annualized free cash flow available to fund the spurt merger and the disposition program that's in that reference.

Jonathan Pong: Our $2 billion investment guidance for the year is one we believe it can be funded without having to tap the markets.

Jonathan Pong: Our debt maturity schedule for the remainder of the year is modest, with approximately $469 million of remaining maturity, excluding $342 million of short-term commercial paper and revolver borrowings and of cash. As always, we look to maintain significant financial flexibility to fund known and identified liquidity needs. And with approximately $4 billion of total liquidity available to us and minimal bearable rate debt exposure on the balance sheet, we believe we can refinance these maturities while still retaining significant liquidity headroom and keeping student Bound for the Year. With that, I'll turn it back over to Sumit for his closing remarks.

Jonathan Pong: Our debt maturity schedule for the remainder of the year is modest with approximately $469 million of remaining maturities.

Jonathan Pong: <unk> $342 million of short term commercial paper and revolver borrowings net of cash as always we look to maintain significant financial flexibility to fund known and identified liquidity needs and with approximately 4 billion of total liquidity available to us and mineral belt, great debt exposure on the balance sheet. We believe we can refinance.

Sumit Roy: These maturities, while still retaining significant liquidity headroom and keeping back related debt exposure, well below 10% of our debt capital stack.

Sumit Roy: Through the balance of the year.

Jonathan Pong: With that I'll turn it back over to Sumit for closing remarks. Thank.

Sumit Roy: Thank you, Jonathan. In summary, the year is off to a solid start that is in line with expectations. Our earnings growth profile for the balance of the year remains consistent with our outlook and earnings guidance we gave in February. The temperate pace of activity in the first quarter reflects our long-standing capital allocation discipline, and we will remain selective as cap rates adjust to the current rate environment. In the meantime, the levers we can exercise from an internal funding standpoint, in particular pre-cash flow and capital recycling, allow us to continue investing at spreads well over 200 basis points on a leverage-neutral basis. Our approximately 4% AFFO per share projected growth rate paired with our estimated annualized dividend yield of approximately 6% is why we believe our platform offers one of the most compelling investment opportunities in the S&P 500.

Sumit Roy: Thank you Jonathan in summary, the year is off to a solid start that is in line with expectations. Our earnings growth profile for the balance of the year remains consistent with our outlook and earnings guidance. We gave in February the.

Sumit Roy: Temperate pace of activity in the first quarter reflects our long standing capital allocation discipline, and we will remain selective as cap rates adjust to the current rate environment.

Sumit Roy: In the meantime, the levers we can exercise from an internal funding standpoint in particular free cash flow and capital recycling allow us to continue investing at spreads well over 200 basis points on a leverage neutral basis.

Sumit Roy: Our approximately 4% Dave for vote per share.

Sumit Roy: Projected growth rate.

Sumit Roy: Paired with our estimated annualized dividend yield of approximately 6% is why we believe our platform offers one of the most compelling investment opportunities in the S&P 500.

Operator: With that said, I would like to open the line up for questions. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the button.

Speaker Change: With that I would like to open it up for questions.

Operator: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys. If at anytime. Your question has been addressed and you would like to withdraw it. Please press. The Star then two we request that you limit yourself to one question.

Operator: If at any time your question has been answered and you would like to withdraw it, please press star, then two. We request that you limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question comes from Nate Crossett with BNP. Please go ahead. Hey, good afternoon. I was wondering if you could just talk about the current pipeline, you know, what pricing looks like so far.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys.

Operator: And one follow up at this time, we will pause momentarily to assemble our roster.

Operator: The first question comes from Nate Crossett with BNP. Please go ahead.

Nathan Daniel Crossett: Hey, good afternoon.

Nathan Daniel Crossett: I was wondering if you could just talk about the current pipeline what does pricing look like so far into Q O Q.

Operator: The pipeline weighted.

Operator: And I know, it's a small sample size, but pretty attractive yields in Europe in the quarter is there anything to note there.

Sumit Roy: Thanks, Nate. That's a good question. I think what you're seeing here in the U.S. is largely confusion around where the rates are going, when the rate cuts will materialize. And it's a function of what we've seen play out over the last six months in terms of mixed data that is causing this confusion. And the way it's manifesting in our space is this reluctance of sellers to transact at what is reflective of the cost of capital environment today. And so for us, you know, this is one of the advantages we bring to the table because we play in multiple geographies.

Nathan Daniel Crossett: Thanks, Nate good question.

Sumit Roy: I think what you're seeing here in the U S is largely a confusion around.

Sumit Roy: Where the rates are going when will the rate cuts materialize.

Sumit Roy: It's a function of what we've seen play out over the last six months in terms of mixed data.

Sumit Roy: That is causing this confusion and the way it's manifesting in our space is this reluctance of sellers to transact at what is reflective of the cost of capital environment today.

Sumit Roy: And so for US. This is one of the advantages we bring to the table is we play in multiple geographies.

Sumit Roy: And we are seeing much better risk-adjusted return opportunities in Europe today, where the data has been a lot more consistent, and therefore, the ability to transact with potential sellers is much more real. And that's kind of the reason why you've seen 54% of the volume, you know, manifest itself in Europe versus here in the US. And I suspect, because your question was very specific about the current pipeline and what we think will happen in the second quarter, it will have a similar slant to the results.

Sumit Roy: And we are seeing much better risk adjusted return opportunities in Europe today, where the data has been a lot more consistent and therefore, the ability to transact with potential sellers much more real.

Sumit Roy: And that's kind of the reason why you've seen 54% of the volume.

Sumit Roy: Manifests itself in Europe versus here in the in the U S and I suspect. It's because your question was very specific around the current pipeline and what we think will happen in the second second quarter I suspect it'll be similar.

Sumit Roy: Slant to the results.

Sumit Roy: But I do believe that in the second half of the year, we should start to see a lot more transactions materialize. I know that the team is actually in conversations with multiple potential sellers, but the disconnect happens to be where that reservation price is for potential sellers. But we do believe that once the environment becomes a little clearer in terms of what's going to happen with rates and when those potential rate cuts come to fruition, I think the transaction market in the U.S. will catch up. Okay, that's helpful.

Sumit Roy: But I do believe that the second half of the year, we should start to see.

Sumit Roy: A lot more transactions materialize.

Sumit Roy: No that the team is actually in conversations with multiple potential sellers, but the debt the disconnect happens to be.

Sumit Roy: Where that reservation prices for potential sellers, but we do believe that once the environment becomes a little clearer in terms of what's going to happen with rates and when will those potential rate cuts.

Sumit Roy: Come to fruition.

Sumit Roy: I think the transaction market in the U S will catch up.

Sumit Roy: Okay. That's helpful. And then if I can just ask one on tenant credit side.

Sumit Roy: And if I could just ask one on the tenant credit side, you know, what's on the watch list right now that we should be tracking? And maybe you could speak to Red Lobster specifically because that's been in the news recently. So, you know, the ones that we currently have on our watch list, Rite Aid, that represents about 31 basis points of rent. We are very hopeful that Rite Aid will emerge from bankruptcy soon, but, like I said, it's a very small portion of our overall portfolio. Joanne is another one that is on our watch list.

Sumit Roy: On the watch list right now that we should be tracking.

Sumit Roy: Maybe you could speak to Red lobster, specifically, because that's been in the news recently.

Sumit Roy: Sure.

Sumit Roy: So the ones that we currently have on our watch list Rite aid that represents about 31 basis points of rent.

Sumit Roy: Hum.

Sumit Roy: It is still going through bankruptcy, we are very hopeful that it will emerge from bankruptcy soon.

Sumit Roy: But like I said, it's a very small portion of our overall portfolio. Joanne is another one that was on our is on our watch list.

Sumit Roy: That represents four basis points of rent, and our expectation is that all six leases are going to be assumed at 100% recapture, just given the way that they're planning on emerging from bankruptcy. Every other name that's on our watch list is sub-4% in terms of names that are currently in bankruptcy. So it's obviously a very, very small portion of our overall watch list.

Sumit Roy: That represents four basis points of rent.

Sumit Roy: And our expectation is that all six leases are going to be assumed at 100% recapture.

Sumit Roy: Just given the way that they are planning on emerging from bankruptcy every other name.

Sumit Roy: That's on our watch list is sub 4% in terms of you know.

Sumit Roy: Names that are currently in bankruptcy.

Sumit Roy: So obviously, a very very small portion of our.

Sumit Roy: Overall.

Sumit Roy: Watch list the ones that are not on not currently in bankruptcy, but continue to garner a fair amount of interest here internally is red lobster. The one that you just mentioned.

Sumit Roy: The ones that are not currently in bankruptcy but continue to garner a fair amount of interest here internally are Red Lobster, the one that you just mentioned. You know, we have about 216 leases; it represents 1.07% of our rent. The cash flow coverage that we have across all 216 assets is right around two times, and 201 of these 216 leases happen to be part of a master lease. So I just wanted to frame, you know, our exposure to Red Lobster before I go into some color around the name itself. Um, you know, I think of Red Lobster as a pretty strange story.

Sumit Roy: We have about 216 leases it represents 1.07% of our rent.

Sumit Roy: The cash flow coverage that we have across all 216 assets.

Sumit Roy: Right around two times.

Sumit Roy: And 201 of these 216 leases happen to be part of a master lease. So I just wanted to frame our exposure to red lobster before I go into some.

Sumit Roy: Some color around the name itself.

Sumit Roy: I think of Red lobster.

Sumit Roy: It's a pretty strange story.

Sumit Roy: Um, you know, they have 700 unique locations. They garner 14% of the casual seafood concept. That is a very hard thing to do.

Sumit Roy: <unk> 700 unique locations they garner 14% of the casual seafood concept.

Sumit Roy: That is a very hard thing to do and the fact that they generate north of $2 billion in revenue. If you look at it on a per unit basis.

Sumit Roy: And the fact that they generate north of $2 billion in revenue, if you look at it on a per-unit basis, it's just right around $3.5 million per unit. So it's not a top-line issue as much as it is an operations issue. They've gone through several changes in terms of ownership. Obviously, there have been several changes in terms of management. So, if you look at the balance sheet, you know, is it a balance sheet issue at Red Lobster?

Sumit Roy: That's just right around $3 5 million per unit. So it's not a top line issue as much as it is and operations issue.

Sumit Roy: They have gone through several changes in terms of ownership.

Sumit Roy: Obviously, there have been several changes in terms of management.

Sumit Roy: This is a business that in our opinion hasnt been very well run.

Sumit Roy: If you look at the balance sheet is at a balance sheet issue. It at at Red lobster them in our opinion, it's not they have $220 million of debt.

Sumit Roy: In our opinion, it's not. You know, they have $220 million in debt. And you know, this is really a question of, is there an operator out there that could come in and basically manage this business to a reasonable level of margins? You know, today, I don't believe they're generating a whole lot of EBITDA. But having said that, you know, our 200 assets have twice the coverage. So that should tell you that we obviously have assets that are some of the best assets in their portfolio.

Sumit Roy: And and this is really a question of is there an operator out there that could come in and basically manage this business even to reasonable level of margins. You know today I don't believe theyre generating a whole lot of EBITDA.

Sumit Roy: But having said that.

Sumit Roy: At 200 assets has two times coverage so that should tell you that we obviously have assets that are some.

Sumit Roy: Some of the best.

Sumit Roy: Assets in their portfolio.

Sumit Roy: And so, if this can be operationally right-sized, we believe that this is a concept that should come out and should survive and do quite well, given the footprint that they've been able to establish. So, that's our view. As far as rents are concerned, we've collected 100% of the rents due to us as of May. So it's a wait and see. But it does happen to be on our watchlist. The next question comes from Greg McGinniss of Scotiabank.

Sumit Roy: So if this can be operationally right size. We believe that this is a concept that should come out and should survive and do quite well given the footprint that they have been able to establish so that's our view we are keeping a close eye on it.

Sumit Roy: As far as rents are concerned we've collected 100% of the rent due to us.

Greg Michael McGinniss: As of May so, it's a wait and see but it does happen to be on our on our watch list.

Greg Michael McGinniss: The next question comes from Greg Mcginniss of Scotiabank.

Operator: The next question comes from Greg McGinniss of Scotiabank. Please go ahead.

Greg Michael McGinniss: Please go ahead.

Greg Michael McGinniss: Hey, Sumit.

Greg Michael McGinniss: Are you able to provide more details on the active disposition program, you're talking about maybe in terms of targeted volumes industries or how you're identifying assets for recycling.

Operator: For a good question, Greg. So, what we are hoping to achieve is circa 400 to 500 million in asset dispositions this year. We can't be very precise about that because part of it is a function of the market. We expect that the occupied sales and the vacant asset sales are going to be approximately 50-50.

Greg Michael McGinniss: Sure Good question Greg.

Operator: So.

Operator: What we are hoping to achieve is circa 400 to 500 million of.

Operator: Asset dispositions this year.

Operator: Can be very precise around it because part of it is a function of the market.

Operator: We expect that the occupied sales and the vacant asset sales is going to be approximately 50 50.

Sumit Roy: Obviously, in the first quarter, it was disproportionately vacant asset sales. I think 82 of the 96 million were vacant asset sales, and 14 million were occupied.

Operator: Obviously in the first quarter it was disproportionately.

Sumit Roy: Vacant asset sales I think 82 of the $96 million.

Sumit Roy: It was vacant asset sales $14 million were occupied but what we are trying to do is intentionally get ahead of some of these assets that happened to be on our watch list and not always as it is it being driven by a credit issue. It's sometimes it is purely a real estate issue that our asset manager.

Sumit Roy: But what we are trying to do is intentionally get ahead of some of these assets that happen to be on our watch list. And not always is it being driven by a credit issue. Sometimes it is purely a real estate issue that our asset management team has concluded does not have a long-term position in our overall portfolio. And then there are certain trends that we are seeing that we want to try to get ahead of, based on client conversations, et cetera, that is also going to allow us to be a lot more proactive and get ahead of situations well in advance of them becoming an issue downstream. In terms of the actual concepts themselves, it is along the lines of what we have been selling. Some of it is automotive services.

Sumit Roy: The team has concluded does.

Sumit Roy: Not have a long term.

Sumit Roy: <unk> position in our overall portfolio.

Sumit Roy: And.

Sumit Roy: And then there are certain trends that we are seeing.

Sumit Roy: But we want to try to get ahead off based on client conversations et cetera that is also going to.

Sumit Roy: Allow us to be a lot more proactive and get ahead of situations well in advance of it becoming an issue downstream.

Sumit Roy: In terms of the actual concepts themselves. It is it is along the lines of what we have been selling some of it is automotive services. There are some drug stores that we believe are not part of the overall.

Sumit Roy: There are some drugstores that we believe are not part of the overall strategy. Some of it is going to be the Cineworld assets, which, by the way, the sale process is going to be. I would say ahead of what our expectations were, and then, you know, some that are perhaps not, you know, like I said, core to what our overall strategy is on the discount store side as well, that we want to try to get ahead of.

Sumit Roy: <unk> some of it is going to be the the cineworld assets that by the way.

Sumit Roy: The sale process is going.

Sumit Roy: I would say ahead of what our expectations were.

Sumit Roy: And.

Sumit Roy: And then some that are perhaps not.

Sumit Roy: You know like I said core to what our overall strategy is on the on the discount store side as well that we want to try to get ahead off. So those are the components that will make up.

Sumit Roy: So those are the components that will make up, you know, what we want to try to get rid of this year. Okay, and is that four to five hundred million the... already the program, is that a first step?

Sumit Roy: What we want to try to get.

Sumit Roy: Disposed off this year.

Sumit Roy: Okay, and is that $4 million to $500 million the.

Sumit Roy: The entirety of the program is that a first step and then how are you thinking about.

Sumit Roy: And then how are you thinking about how that compares to the level of acquisitions that you're targeting this year, and what that might mean for growth in 2025? Look, we've got to execute our plan based on what we believe is the right portfolio that's going to take us into 2025 in a position of strength. We have grown our business through M&A. There have been two very large M&A deals done in the last two and a half, three years.

Sumit Roy: As that compares to the level of acquisitions that you're targeting this year, what that might mean for growth in 2025.

Sumit Roy: Look we've got to execute.

Sumit Roy: Our plan based on what we believe is the right portfolio, that's going to take us into 2025.

Sumit Roy: In a position of strength.

Sumit Roy: Have grown our business through M&A.

Sumit Roy: There have been two very large M&A deals done in the last 253 years.

Sumit Roy: We've been, I believe, very open about not all of those assets being core to our long-term strategy. And so some of this is largely a function of trying to get back to that core portfolio. We have obviously underwritten the impact of, um, 50% of the so-called 400 to 500 million in its positions being occupied assets. But what you'll find is, you know, some of these assets are actually being sold.

Sumit Roy: We've been I believe very open about not all of those assets have been core to our long term strategy and so some of this is largely a function of trying to get back to that core portfolio.

Sumit Roy: We have obviously underwritten the impact.

Sumit Roy: 50% offs, so called $400 million to $500 million in dispositions being occupied assets, but what you'll find is some of these assets are actually being sold look at what we sold our and I know it wasn't a big number.

Sumit Roy: Look at what we sold, and I know it wasn't a big number, but the occupied assets, we actually sold them at a 7% cap rate, cash cap rate, and we are reinvesting them at a 7-7. So it is actually an accretive disposition strategy that we've been able to implement, at least for the first quarter. So for us, it's about creating the portfolio that we want to go into 2025 and beyond with.

Sumit Roy: But the occupied assets.

Sumit Roy: Actually sold them at a 7% cap rate cash cap rate and we are reinvesting it at a seven seven so it is actually an accretive.

Sumit Roy: Disposition strategy.

Sumit Roy: That we've been able to implement at least for the first quarter.

Sumit Roy: So for us it's about creating the portfolios.

Sumit Roy: Portfolios that we want to.

Sumit Roy: Going into 2025 and beyond with and this is a program that will consistently be executed.

Sumit Roy: And this is a program that will consistently be executed on going forward. When we are doing sale leasebacks, it's not an issue. When we are doing portfolio transactions on existing leases... Not always do we get 100% of what we want, you know, and so being a bit more proactive around culling the assets that are not core to our overall strategy up front is something that I think we are going to be a lot more intentional about. But we feel very good about our ability to continue to grow despite this strategy in 2025 and beyond. The next question comes from Joshua Dennerlein of Bank of America. Please go ahead. Hi, good afternoon.

Joshua Dennerlein: Going forward when we are doing sale leasebacks, it's not an issue when we're doing portfolio transactions on existing leases.

Joshua Dennerlein: Not always do we get 100% of what we want you know and so being a bit more proactive around culling. The assets that is not core to our overall strategy upfront is something that I think we are going to be a lot more intentional about.

Joshua Dennerlein: But we feel very good about our ability to continue to grow despite this strategy.

Joshua Dennerlein: In 2025 and beyond.

Joshua Dennerlein: The next question comes from Joshua <unk> of Bank of America. Please go ahead.

Operator: The next question comes from Joshua Dennerlein of Bank of America. Please go ahead. Hi, good afternoon. This is Farrell on behalf of Josh. I was wondering if you could clarify how bad debt is currently trending.

Speaker Change: Hi, Good afternoon. This is Charles on behalf of Josh.

Farrell: I was wondering if you could clarify how bad debt is currently trending I know you made some comments on the watch list and perhaps if that has changed at all in your outlook.

Speaker Change: That's how much bad debt is baked into guidance.

Farrell: Hey, Farrell.

Jonathan Pong: Hey, Farrell, on the bad debt numbers, so we did disclose in New York's press release for Q1. It was about $1.4 million that we actually recognized. As we think about, you know, forward-looking guidance and, you know, downside scenarios, I think we've been pretty clear in the past that we've been extremely conservative. I think when you sit here today, it's, you know, early May; there's a long time to go before the end of the year.

Speaker Change: Our bad debt numbers. So we did disclosed in the earnings press release for Q1, it was about $1 4 million, although we actually recognized.

Jonathan Pong: As we think about.

Jonathan Pong: Forward looking guidance and.

Jonathan Pong: Downside scenarios I think we've been pretty clear in the past and we've been.

Jonathan Pong: Extremely conservative.

Jonathan Pong: When you sit here today, it's early May a long time to go before the end of the year.

Jonathan Pong: It's not to say that there's any major concerns I think talk about the watch list.

Jonathan Pong: It's not to say that there are any major concerns. I think you heard Sumit talk about the watch list and, you know, so a bunch of small little things that if, you know, everything went awry, yeah, maybe they could have some impact, but that is certainly not our expected scenario on that front.

Jonathan Pong: So bunch of small little things that yes.

Jonathan Pong: Every Paul went awry, yes, maybe you could have some impact but that is certainly not our expected scenario all of that and sell.

Jonathan Pong: I think it's really a mix of.

Jonathan Pong: Spirit assets that we did acquire.

Jonathan Pong: That we've always been a little bit more cautious on them. We will continue to be cautious until we get further into the year I think for US, we're always pretty conservative as it relates to.

Jonathan Pong: Bad debt expense, especially.

Jonathan Pong: Yeah, and then finally, there's some identified credits that network.

Jonathan Pong: March accordion on.

Jonathan Pong: And second question about given the cap rates that youre seeing in Europe with coming off of acquisitions.

Jonathan Pong: Our processor thesis change when you're thinking about development yields you can get off that versus straight up acquisition.

Jonathan Pong: No. It's a matter of timing Farrell, you know as the older vintage developments start to roll off you'll start to notice that some of the newer developments that we've entered into are more reflective of the current cost of capital environment and therefore, the cash cap rate yields that we are expecting on that vintage.

Sumit Roy: No, it's a matter of timing, Farrell. As the older vintage developments start to roll off, you'll start to notice that some of the newer developments that we've entered into are more reflective of the current cost of capital environment. And therefore, the cash cap rate yields that we are expecting on that vintage should creep up. It's just that we entered into our development pipeline 12, 18 months ago. And some of those assets were obviously more reflective of the environment that we were in at that particular point in time.

Sumit Roy: It could creep up.

Speaker Change: It's just that you know we.

Sumit Roy: Into our development pipeline.

Sumit Roy: <unk> 18 months ago, and some of those assets, obviously were more reflective of the environment that we that we were in at that particular point in time.

Sumit Roy: But even at a 7.2% cash cap yield, which is what our development that closed in the first quarter yielded, it's still circa 150 basis points, 170 basis points of spread. So, yes, it's not quite the 7.8% that we were able to achieve overall and certainly not 8.2% that we were able to achieve in Europe. But I just wanted to make sure that you were aware that there is a bit of a lag in the development pipeline, and the developments that we are entering into today are much more reflective of the environment today.

Sumit Roy: But even at a seven 2% cash cap yield which is what our development.

Sumit Roy: Is that closed in the first quarter yielded.

Sumit Roy: It's still you know so called 150 basis points 170 basis points.

Sumit Roy: Spreads so yeah.

Sumit Roy: Yes, it's not quite the seven eight.

Sumit Roy: That we were able to achieve on the overall and certainly not eight 2% that we were able to achieve in Europe.

Sumit Roy: But I.

Sumit Roy: I just wanted to make sure that you were aware that there is a bit of a lag on the development pipeline and the developments that we are entering into today is much more reflective of the environment today.

Sumit Roy: The next question comes from Brad Heffern of RBC capital markets. Please go ahead.

Operator: The next question comes from Brad Heffern of RBC Capital Markets. Please go ahead. Yeah, thanks. Hi, everybody.

Operator: The next question comes from Brad Heffern of RBC Capital. Please go ahead. Yeah, thanks, everybody. Going back to the European cap rates, it really felt like that market hit lag.

Bradley Barrett Heffern: Yeah, Thanks, Hi, everybody going back to the European cap rates. It really felt like that market has lagged the U S for a long time in terms of recognizing the higher rates environment I appreciate the outlook spend a bit more stable over there but is there anything else that's changed in Europe. That's now generating these attractive cap rates. Despite the cost of that obviously being lower than the U S.

Operator: Yes.

Sumit Roy: Yeah, Brad, what you know, the cost of debt is certainly lower in mainland Europe, but it's not lower in the UK. Jonathan's nodding.

Operator: Brad.

Sumit Roy: Cost of debt is certainly lower in mainland Europe, it's not.

Sumit Roy: Lower in the U K.

Sumit Roy: It's right on top of each other Jonathan.

Sumit Roy: So the big difference that we see and why potential sellers are willing to, you know, transact at the yields that we were able to realize is twofold. One, there are funds that have $CAPITAL INVESTMENT $CAPITAL INVESTMENT, and the second, which works really in our favor is the fact that we have established ourselves as the go-to buyer of these types of assets and recognize that the surety of close, which is very important for these potential sellers, is going to be met.

Sumit Roy: Jonathan Snorting.

Sumit Roy: So.

Sumit Roy: But the big difference that we see.

Sumit Roy: And why potential sellers are willing to.

Sumit Roy: Transact at yields that we were able to realize.

Sumit Roy: They are twofold. One there are funds that have I've had redemption pressures, where they need to monetize real estate.

Sumit Roy: And they are more than willing to.

Sumit Roy: Reflect what the current cost of capital environment is because they need the capital.

Sumit Roy: And the second which works really in our favor is the fact that.

Sumit Roy: We have established ourselves as the go to buyer of these these types of assets and recognizing that the surety of close which is very important for these potential sellers is going to be met and that reputation really does.

Sumit Roy: And that reputation really does, you know, accrue to our benefit when we are sort of having these conversations and somebody requires capital near-term, and we have the ability to close on these transactions as and when we agree on a particular price. I think it's those two factors that are allowing us to be very successful in the U.K. and in Europe and that's how it's playing out. Here, unfortunately, you don't have similar pressures.

Sumit Roy: Accrue to our benefit when we are sorry.

Sumit Roy: So out of having these conversations and somebody requires capital near term and we have the ability to close on these transactions as and when we agree on a particular price I think it's those two factors, that's allowing us to be very successful.

Sumit Roy: In the UK and in Europe.

Sumit Roy: Is is how it is playing out sure. Unfortunately, you don't have similar pressures.

Sumit Roy: Yes, there could be operators that might be willing to, you know, transact, but if they have any ability to wait, which in the U.S., they have a lot more alternatives, they are sort of standing on the sidelines waiting for the environment to improve for potential buyers to then be able to get the cap rates that they're willing to transact at. So I think that's how I would frame why we are being successful. One of the reasons is obviously very idiosyncratic to us, and the other is that it's a reflection of the market. Okay, I got it.

Speaker Change: Yes that could be operators that that might be willing to.

Sumit Roy: Transact, but if they have any ability to wait which in the U S.

Sumit Roy: They have a lot more alternatives.

Sumit Roy: They are sort of standing on the sidelines.

Sumit Roy: <unk> for the environment to improve for potential buyers to then be able to get the cap rates. So they are willing to transact at so I think that's how I would frame why we are being successful with one of the reasons, it's obviously very idiosyncratic to us.

Sumit Roy: And the other is <unk>.

Sumit Roy: It's a reflection of the market.

Speaker Change: Okay got it. Thank you for that and then on dollar tree family dollar can you remind us what the family dollar split is and talk about any impact that you might have from the closures.

Sumit Roy: Thank you for that. And then, on Dollar Tree Family Dollar, can you remind us what the Family Dollar split is and talk about any impact that you might have from the closures? Yeah, look, I don't think that the impact for us is going to be disproportionate. We have about 3.3% of our rent, that is Dollar Tree and Family Dollar, exposed to Dollar Tree, which obviously is the owner of Family Dollar. I would say about 60%, circa 60% is Family Dollar, and the rest of it is either Dollar Tree or the dual banners that they have. There's about three, I want to say 3% of the 3.3%.

Sumit Roy: Yeah look I don't think.

Sumit Roy: But the impact for us is going to be disproportionate we have about three 3%.

Sumit Roy: Of our rent that is dollar tree family dollar.

Sumit Roy: Exposed to dollar dollar tree, which obviously is the owner of family dollar.

Sumit Roy: <unk>.

Sumit Roy:

Sumit Roy: I would say about 60% circa 60% is family dollar and the rest of it is either dollar tree, our dual banners that they have.

Sumit Roy:

Sumit Roy: There's about three.

Sumit Roy: I want to say, 3% of the three 3%. So that's nine basis points of lease explorations over the next two years, two and a half years.

Sumit Roy: So that's nine basis points of lease expirations over the next two years, two and a half years. Hopefully, that will materialize. So even if there are these closures and even if some of these assets are named on the closing list, our impact is basically nine basis points, and I can assure you that our asset management team is already working on resolutions, given that it is part of the pipeline.

Sumit Roy: That will materialize. So even if there are these closures and even if some of these assets are named.

Sumit Roy: On the closing on the closing list.

Sumit Roy: Our impact is basically nine basis points and I can assure you that our asset management team is already looking on on resolutions given that it is part of the pipeline anything beyond that that will potentially be closed and will remain dark we're still going to collect rent and let me tell you that the pressure on.

Sumit Roy: Anything beyond that that will potentially be closed and will remain dark, we're still going to collect rent. And let me tell you that the pressure on Family Dollar and Dollar Tree is going to be a lot more acute than it is on us to try to find a substitute to step in and take over these leases. And just, you know, episodically.

Sumit Roy: <unk> family dollar and dollar tree is going to be a lot more acute than it is on us to try to find a substitute.

Sumit Roy: To step in and take over these leases.

Sumit Roy: And just.

Sumit Roy: Episodically.

Sumit Roy: There's a fair amount of interest in some of these locations that we've received, you know, just along the lines of some of the news that's out there about potential closings, etc., and we feel pretty good about our ability to resolve the family dollar assets. The one thing I'll add, you know, which may not be apparent: Family Dollar tends to be in urban areas and in much more densely populated areas than Dollar Tree or Dollar General.

Sumit Roy: There is a fair amount of interest in some of these locations that we've received.

Sumit Roy: Just along the lines of some of the.

Sumit Roy: The news that's out there about potential closings et cetera that we feel pretty good about our ability to resolve the <unk>.

Sumit Roy: Family dollar assets, the one thing I'll add which may not be apparent family dollars tends to be in urban areas and in much more densely populated areas than dollar tree or dollar general.

Sumit Roy: And so, the attractiveness of those locations to alternative retail clients is a lot greater, and that's, you know, borne out by the fact that we have received inbound. So, for us, this is no different than, you know, Please go ahead.

Sumit Roy: And so the the attractiveness of those locations through alternative retail clients.

Sumit Roy: Is a lot more.

Sumit Roy: And that's borne out by the fact that we have received inbound so.

Sumit Roy: For Us this is no different than you know.

Sumit Roy: Learning well in advance that Hey, this these particular leases are not going to get renewed and it gives us time to work on some of these leases well in advance of the actual lease exploration. So that's how I would frame it so.

Sumit Roy: Our next question comes from Michael Goldsmith with UBS. Please go ahead.

Operator: Our next question comes from Michael Goldsmith with UBS. Please go ahead. Hi, this is Catherine Graves on with Michael. Thanks for taking my questions.

Catherine Graves: Hi. This is Katherine go ahead of time with Michael Thanks for taking my questions. My first is you touched on this a bit at the opening but how are you thinking about if you could maybe just provide some more color on how youre thinking about the cost of free cash flow within the context of your investment spreads.

Operator: Sure.

Sumit Roy: Sure, that's a great question. You know, for us, free cash flow is a massive advantage. You know, the ability to, to, you know, raise 825 million of free cash flow post all obligations is essentially capital that we can use to invest across a variety of areas to accretively grow our earnings. You know, obviously, when we have free cash flow, we have to figure out what is the best use of that free cash. We could buy back our debt, we could buy back our stock, or we could continue to invest accret

Catherine Graves: That's a great question.

Sumit Roy: For us free cash flow is a massive advantage.

Sumit Roy: The ability to to raise $825 million of free cash flow post all obligations.

Sumit Roy: Is essentially capital that we can use to invest.

Sumit Roy: Across a variety of areas.

Sumit Roy: To Accretively grow our earnings you know obviously when we have free cash flow we have to figure out what is the best use of that free cash flow.

Sumit Roy: Could buyback our debt, we could buy back our stock we could continue to invest accretively and when we find that at <unk>.

Sumit Roy: Besting accretively.

Sumit Roy: You know is the best possible use of that capital.

Sumit Roy: And when we find that investing aggressively is the best possible use of that capital, that is a massive advantage. And in a year where we are highlighting the fact that we have $2 billion in acquisitions, and we hope we do better than that, but that's our current guidance, being able to finance this business with $825 million of free cash flow, which is obviously non-dilutive in nature, and grow our earnings is a massive advantage.

Sumit Roy: That is that is a massive advantage and in a year, where we are highlighting the fact that we have $2 billion.

Sumit Roy: <unk> acquisition.

Sumit Roy: And we hope, we do better than that but that's our current guidance.

Sumit Roy: Being able to buy.

Sumit Roy: Finance this business with $825 million of free cash flow, which is obviously non dilutive in nature and grow our earnings is a massive advantage. That's how we think about our free cash flow. There is obviously opportunity cost associated with this but the way we think about opportunity costs. It's what's.

Sumit Roy: That's how we think about our free cash flow. There is obviously an opportunity cost associated with this, but the way we think about opportunity cost is what's the best use of this capital. And for us, even in this environment, given the platform that we have, and given the diversification benefits of being able to invest across multiple asset types, across multiple geographies, we are continuing to find accretive uses of this particular cash flow.

Sumit Roy: The best use of this capital and for US even in this environment given the platform that we have and given the diversification benefits of being able to invest across multiple asset types across multiple geographies. We are continuing to find accretive use of this particular cash flow.

Sumit Roy: And I think, you know, obviously, one of the other things that we do look at is what is the long-term overall return profile. And that is what we consider, you know, we compare to our long-term WAC, which is our cost of equity, that's 65%, and our cost of debt, that's 35%. And the cost of equity, and by the way, we have a few pages on this in our investor deck, is largely driven by the CAPM model and the dividend growth model. And I think we take the average of the two to come up with our cost of equity, the long-term cost of equity, and the long-term cost of debt. And it's 65 and 35 percent weighted.

Sumit Roy: And I think you know obviously one of the other things that we do look at is what is the long term overall return profile and that is what we can see you know we compare to our long term WAC.

Sumit Roy: Which is our cost of equity that 65% and our cost of debt that is 35% and the cost of equity and by the way we have a few pages on this in our investor deck is largely driven by the cap end model and the dividend growth model and I think we take the average of the two to come up with our cost of equity.

Sumit Roy: Long term cost if equity and under long term cost of debt.

Sumit Roy: And at $65 to 85% weighted and.

Sumit Roy: All of our investments need to meet that hurdle rate and exceed that hurdle rate for us to move forward.

Sumit Roy: And all of our investments need to meet that hurdle rate and exceed that hurdle rate for us to move forward. So that's really how we think about, you know, our cost of capital and how we specifically think about free cash flow, which obviously we view as a massive advantage to us. Got it. Thanks so much for the caller.

Sumit Roy: So that's really how we think about.

Sumit Roy: Our cost of capital and how we specifically think about our free cash flow, which obviously, we view as a massive advantage.

Speaker Change: To us.

Speaker Change: Got it thanks, so much for the call in and my second question is on the development piece or do you expect to see an acceleration of yields for your development projects as we progressed through 2024 or even into 2025.

Sumit Roy: And my second question is on the development piece. So do you expect to see an acceleration of yields for your development projects as we progress through 2024 or even into 2025? We do.

Speaker Change: We do.

Sumit Roy: You know, any new development that we are entering into, and I think somebody asked this question, as well, should be more reflective of the current cost of capital environment. And so, you know, as you know, a lot of these developments do have a bit of a lag time. And so what you're seeing close today is in that lower 7% zip code. But what you should see, you know, translate over the next few quarters is that cash cap rate continuing to trend much higher, reflecting the current cost.

Speaker Change: Any new development that we are entering into and I think somebody asked this question.

Sumit Roy: As well, we should it should be more reflective of the current cost of capital environment and.

Sumit Roy: So.

Sumit Roy: As you know a lot of these developments they do have a bit of a lag time and so what youre seeing close today isn't that lower 7% ZIP code, but what you should see.

Sumit Roy: Ill translate over the next few quarters.

Sumit Roy: Is to see that cash cap rate continuing to trend much higher reflecting the current cost of capital.

Sumit Roy: Our next question comes from Anthony Pallone of J P. Morgan. Please go ahead.

Operator: Our next question comes from Anthony Pallone of J.P. Morgan. Please go ahead.

Sumit Roy: Q1. The first question relates to the European acquisitions in the quarter and the yields there. Can you talk a bit more about what kinds of embedded rent bumps are included in that? How much was maybe traditional net lease versus maybe multi-tenant assets? It looked like duration was a little bit on the shorter side.

Operator: Thanks.

Sumit Roy: First question relates to the year of acquisitions in the quarter and the yields there can you talk a bit more about what kinds of embedded rent bumps are included in that how much was maybe traditional net lease versus.

Sumit Roy: Maybe multi tenant assets because it looked like.

Sumit Roy: Duration was a little bit on the shorter side.

Sumit Roy: Yeah.

Sumit Roy: Yeah. So a lot of these were retail parks. And let's talk a little bit about retail parks, because, you know, there's confusion when you say multi-tenanted. We think in terms of how we define multi-tenanted here in the US. This is not like multi-tenanted here in the US. A lot of these are, you know, I would say 80% of them are Tier 1 or Tier 2, as we define them, clients that we are pursuing on a freestanding basis, and they happen to be, you know, located in a contiguous park.

Sumit Roy: So a lot of these were retail parks and let's talk a little bit about retail parks because.

Sumit Roy: There's a confusion when you say multi tenanted, we think in terms of what how we defined multi tenanted here in the U S.

Sumit Roy: This is not like.

Sumit Roy: Multi tenant agenda in the U S. A lot of these are you know.

Sumit Roy: <unk>.

Sumit Roy: I would say 80% of them are tier one or tier two as we define them clients that we are pursuing on a freestanding basis.

Sumit Roy: And they happen to be.

Sumit Roy: Located in a in a contiguous park.

Sumit Roy: And each one of these units basically has a flow-through from rent to NOI, very similar to what you would find on a freestanding basis. But the growth in these leases tends to be shorter, you know, anywhere between 5 to 10 years. And the growth in these leases could be open market reviews, or they could have, you know, some of the larger boxes could have more of the regular growth that we've seen that is tied to inflation, etc.

Sumit Roy: And each one of these units basically has a flow through from rent.

Sumit Roy: Two NOI very similar to what you would find on a freestanding basis.

Sumit Roy:

Speaker Change: So so you know.

Sumit Roy: The growth in these leases they tend to be shorter anywhere between five to 10 years.

Sumit Roy: And the growth in these leases could be open market reviews.

Sumit Roy: Or they could have you know.

Sumit Roy: Some of the larger boxes could have more.

Sumit Roy: Of the of the regular way growth that we've seen that are tied to inflation et cetera.

Sumit Roy: But when we are underwriting these assets... You know, we're looking at the composition of the tenants, we're looking at the flow through, we're looking at, you know, are these rents above or below market, we're looking at what the long-term profile of the return is going to be, and then we're comparing it to what we get from these assets at day one in terms of the initial year. And these assets have really done very well.

Sumit Roy: But when we are underwriting these assets.

Sumit Roy: We're looking at the composition of the tenants were looking at the flow through we're looking at.

Sumit Roy: Are these rents above or below market. We're looking at what the long term profile of the return is going to be and then we are comparing it to what are we getting these assets at day one in terms of the initial yield.

Sumit Roy: And these assets have really done very well and some of the numbers you know a lot of the renewals come strong.

Sumit Roy: And some of the numbers, you know, a lot of the renewals come from these retail parks that we've bought because, you know, the freestanding assets haven't gone through a renewal process yet. And the fact that they are very similar in nature to our overall portfolio of $104.3, and the last 2% that we were able to generate this quarter is a reflection of how we are underwriting each one of these retail parks.

Sumit Roy: These retail parks that we've bought because the freestanding assets, having gone through a renewal process, yet and the fact that they are very similar in nature to our overall portfolio of 104 point.

Sumit Roy: 2% that we were able to generate this this quarter is a reflection of how we're underwriting each one of these.

Sumit Roy: Retail parks, but that's where we are seeing the value.

Sumit Roy: But that's where we are seeing the value. And the fact that we are now starting to consolidate and control swaths of retail parks across the UK is a massive advantage for us because the kind of conversations we can have with clients that we've obviously wanted to grow with are very different when we control major locations that they would like to continue to stay in for the long term.

Sumit Roy: And the fact that we are now starting to consolidate and control.

Sumit Roy: Walks of retail parks across the U K is a massive advantage for us because the kind of conversations we can have with clients that we have obviously.

Sumit Roy: Wanted to grow with it.

Sumit Roy: It's very different when we control major locations that they would like to continue to stay.

Sumit Roy: Over the long duration and.

Sumit Roy: And I think that's how we are able to generate the value that we are able to generate. And we are doing it at a time, a point in time, where, Truth be told, retail parks are starting to change. If you look at the vacancy that you have, it's circa 2%. If you look at the actual growth that we are being able to generate, it's much higher than what was traditionally achieved. And if you also look at the free rent concept that used to exist, we are able to compress that concept, just given the fact that we control so much more of the retail space.

Sumit Roy: I think that's how we are able to generate the value that we are able to generate and we're doing it at a time point in time.

Sumit Roy:

Sumit Roy: Truth be told retail parks is starting to change. The if you look at the vacancy that you have at circa 2%. If you look at.

Sumit Roy: The actual.

Sumit Roy: Growth that we are being able to generate.

Sumit Roy: It's much higher than what was traditionally achieved and if you also look at.

Sumit Roy: The free rent concept that used to exist, we are being able to compress on that concept just given the fact that we control so much more of retail parks. So this has been a great investment for us and I just want to make sure that people realize that the flow through is very similar to a standalone.

Sumit Roy: So this has been a great investment for us, and I just want to make sure that people realize that the flow through is very similar to a standalone net lease business that we've traditionally been involved in. I'm glad you asked the question, Anthony. Thank you.

Sumit Roy: Net lease business that we are we.

Sumit Roy: We've traditionally been involved and so on.

Speaker Change: I'm glad you asked the question Anthony Thank you.

Sumit Roy: Thanks for all the color. And then just my follow-up is more on the credit side. You spent a lot of time on that, but can you give us any updated thoughts on AMC both as it relates to how you're thinking about that credit as well as your specific assets with the box office being down a bunch this year?

Anthony: Well thanks for all the color and then just my follow up is more on the credit side. You spent a bunch of time on that but can you give us any updated thoughts on AMC, both as it relates to how youre thinking about that credit as well as your specific assets with the box office being down a bunch this year.

Sumit Roy: Yeah, so look, we've gone through one of them already with Cineworld. AMC represents about 1% of our rent. We have, I believe, 39 assets.

Speaker Change: Yeah, So look.

Sumit Roy: We've gone through one of them already with Cineworld.

Sumit Roy: <unk> represents about 1% of our.

Sumit Roy: And we have I believe 39 assets.

Sumit Roy: AMC continues to be able to raise capital in the equity market. And, you know, 24 is not going to be a great year for the box office. We recognize that.

Sumit Roy: AMC continues to be able to raise capital in the equity markets.

Sumit Roy: And.

Sumit Roy: You know 24, it's not going to be a great year.

Sumit Roy: For the box office, we recognize that it may be equivalent to last year, maybe it'll be even a little bit less than last year, given some of the disruptions that occurred in 2023, but the expectation is that 2025.

Sumit Roy: It may be equivalent to last year. Maybe it'll be even a little bit less than last year, given some of the disruptions that occurred in 2023. But the expectation is that 2025 will supersede 2023, and the quality of movie releases will be much higher in 25 than in 24.

Sumit Roy: Will supersede 2023.

Sumit Roy: And the quality of movie releases will be much higher than 25, then in 'twenty four.

Sumit Roy: Is it possible that AMC goes through a bankruptcy process? Yes, it's absolutely possible, but I can tell you our experience with Cineworld gives us a lot of confidence that the assets that we have and the resolutions that we've been able to achieve and the restructuring of the rent that was achieved is still going to create an outcome that is very acceptable. Tony, just to put things in perspective, our history, you know, and we've had several bankruptcies in our history; our recapture rate has been north of 80%.

Sumit Roy: Is it possible that AMC goes through a BK process, yes, its absolutely possible, but I can tell you our experience on cinema World gives us a lot of confidence that the assets that we have and the resolutions that we've been able to achieve and.

Sumit Roy: Restructuring of the rent that was achieved is still going to create a an outcome that is very acceptable to us.

Sumit Roy: Tony just to put things in perspective, our history.

Sumit Roy: We've had several bankruptcies in our history.

Sumit Roy: Our recapture rate has been north of 80%.

Sumit Roy: And I believe if we were to do the full analysis, once we go full cycle on Cineworld, it's going to be in that zip code. And if not, actually, even better than that, given some of the resolutions that we are finding on the vacant asset sales that we touched on last year at Cineworld. So I believe AMC is going to be a similar story. But it is not a fait accompli that they're going to go through a bankruptcy process.

Sumit Roy: And I.

Sumit Roy: I believe if you look to do the full analysis. Once we go full cycle on the Cineworld, it's going to be in that ZIP code and it is not actually even better than.

Sumit Roy: Then that given some of the resolutions that we are finding on the vacant asset sales that we had touched on last year on center World. So I believe the AMC is going to be a similar story.

Sumit Roy: But it is not traded company that theyre going to go through a BK process, we believe they have enough liquidity.

Sumit Roy: Two certainly withstand this year and potentially most of next year as well.

Sumit Roy: We believe they have enough liquidity to certainly survive this year and potentially most of next year as well. But if they were to go through a BK process, it's not necessarily a bad thing. I think it'll allow them to restructure their debt, which I think continues to be a massive burden, and they will emerge stronger for it. And we believe that, again, just like in the Cineworld situation, we have some of their better assets, and we will, you know, we will do fairly well even if they were to go through the BK process.

Sumit Roy: But if they were to go through a BK process.

Sumit Roy: It's not necessarily a bad thing I think it allowed them to restructure that debt, which I think continues to be a massive burden.

Sumit Roy: And they could they would emerge.

Sumit Roy: Stronger for it and we believe that again just like in the center World situation, we have some of their better assets and we will you know we will.

Sumit Roy: Do fairly well, even if they were to go through the PPA process. So that's our thoughts on AMC.

Sumit Roy: So that's our thoughts on the end. Our next question comes from Heendel St. Juste of Mizzouho. Please go ahead. Hey, good morning. Sumit, you mentioned thoughtful and disciplined growth, selective, a few times throughout your prepared remarks, clearly suggesting that

Speaker Change: Our next question comes from Handel St. Joost of Mizuho. Please go ahead.

Operator: Our next question comes from Haendel St. Juste of Mizzouho. Please go ahead. Hey, good morning out there. Um, Sumit, you mentioned thoughtful and disciplined growth, selective a few times throughout your prepared remarks, um, clearly.

Speaker Change: Hey, good morning out there.

Operator: You mentioned thoughtful and discipline growth selected a few times about your.

Speaker Change: In your prepared remarks.

Speaker Change: Clearly, suggesting that.

Operator: And that activity will remain.

Operator: As you put some more yield and quality, but you did leave the door open.

Operator: On the gas pedal a bit more compelling opportunities emerge.

Operator: Yes.

Speaker Change: Curious maybe.

Speaker Change: Maybe some more thoughts on that and how you think about balancing the pace of investment.

Operator: Longer term earnings growth target would you be willing to push a bit more in the second round, even if that would make work for our company.

Operator: If the right opportunities came along.

Speaker Change: Hi handle.

Sumit Roy: Hi Haendel. I'm sorry; it was very difficult to hear you. But I think what you're asking is do we expect to accelerate investments in the latter half of the year, given what we are seeing today, and I, and if I didn't quite understand that, I apologize. But the answer is, look, we are not trying to, you know, look for a particular quantum of acquisitions or investments. We are allowing the market to dictate, you know, how much we'll be able to achieve in a year, which is very uncertain.

Sumit Roy: I'm sorry, it was very difficult to hear you, but I think what you're asking for is do we expect to accelerate.

Sumit Roy: The investments in the later half of the year.

Sumit Roy: Given what we are seeing today.

Sumit Roy: And if I didn't quite get that I apologize.

Sumit Roy: But the answer is look we're not trying to.

Sumit Roy:

Sumit Roy: Look for a particular quarter.

Sumit Roy: Long term of acquisitions or investments.

Sumit Roy: We are allowing for the market to dictate.

Sumit Roy: You know how much we'll be able to to achieve in a year, which is very uncertain.

Sumit Roy: If you're asking for an opinion, I do believe that, especially here in the U.S., in the second half of the year, when there is a little bit more clarity in terms of where interest rates are going, etc., there will be more opportunities. And Haendel, if you look at what we've been able to achieve over the last few years... We tend to get more than our share of the volume, especially of the product that we are interested in pursuing.

Sumit Roy: If you're asking for an opinion I do believe that.

Sumit Roy: At especially here in the U S. The second half of the year. When there is a little bit more clarity in terms of where interest rates are going et cetera.

Sumit Roy: It will be more opportunities.

Sumit Roy: And handle if you look at what we've been able to achieve over the last few years.

Sumit Roy: We tend to get more than our share.

Sumit Roy: <unk> of the volume, especially of the product that we are interested in pursuing.

Sumit Roy: And so, is it possible that the U.S. acquisition numbers for the remainder of the year are going to be higher than what we achieved in the first quarter? The answer is yes, we certainly do. Do we expect the European, you know, momentum to continue? The answer is yes. Do we expect both these markets to accelerate? The answer is yes. I just want to caveat this; this is our opinion, and time will tell, but we feel fairly optimistic about the second half of the year. Thank you.

Sumit Roy: And so is it possible that the U S acquisition numbers for the remainder of the year is going to be higher than what we achieved in the first quarter. The answer is yes, we certainly do.

Sumit Roy: Do we expect the European Oh, you know momentum to continue the answer is yes, do we expect both of these markets to accelerate the answer is yes, and I just want to caveat. It. This is our opinion and time will tell.

Sumit Roy: But we feel fairly optimistic about the second half of the year.

Sumit Roy: And just to follow up on Europe, since we're talking about it here. I think you have close to $10 billion or so, plus or minus asset value there, so I guess I'm curious if there's any change or update on the thinking of a potential spinoff of that platform. Is it large or mature enough, and maybe when do you think that it could be ready to stand on its own?

Speaker Change: Thank you for that and just a follow up on Europe since.

Sumit Roy: We're talking about here I think you have close to $10 billion, or so plus or minus asset value. There. So I guess I'm curious if there's any any change or update on the thinking of the potential spin off of that platform is it.

Sumit Roy: Large and mature enough.

Sumit Roy: And maybe when do you think that it could be ready to stand on its own. Thank you.

Sumit Roy: <unk>.

Sumit Roy: That was a loaded question, Haendel, but thank you for asking it. The number is, I believe, closer to $11 billion. Yes, if we were to spin that business out, it would be one of the largest REITs in the UK, but that is absolutely not our intention today. We are very happy with having Europe as part of our overall platform. Specifically, for the reasons that we talked about on this call regarding the first quarter, it allows us the opportunity to play in markets where we have the best risk-adjusted return profiles of investments.

Speaker Change: That was a loaded question handle but thank you for asking it.

Sumit Roy: The the number is I believe closer to $11 billion.

Sumit Roy: Yes, if we were to spin that business all out it would be one of the largest Reits in the U K, but that is absolutely not our intention today.

Sumit Roy: We are very happy.

Sumit Roy: With having Europe as part of our overall platform.

Sumit Roy: <unk> for the reasons that we talked about on this call regarding the first quarter.

Sumit Roy: It allows us the opportunity to play in markets, where we have the best risk adjusted return profiles of investments and therefore, all of that benefit accrues to our shareholders here in the U S.

Sumit Roy: And therefore, all of that benefit accrues to our shareholders here in the U.S. And, um... So that's how I'm going to leave it. Again, was this a grand design that we would grow to $10 billion? No.

Sumit Roy: And.

Sumit Roy: Yeah.

Operator: It's again a function of the platform that we brought in, our cost of capital, our team and their ability to execute, unlike any other team, and our ability to form the relationships as quickly as we did. And now we consider ourselves the de facto net lease company in all of Europe. I mean, those are benefits that have taken us five years to establish, and now we feel like it's the time for us to continue to harvest the benefits of establishing ourselves in Europe. So that's how I would answer it. The next question comes from Nick Joseph of Citi; please go ahead. Thanks. Give me the opportunities.

Sumit Roy: So that's how I'm going to leave it.

Nicholas Gregory Joseph: I again was this a grand design that we would grow up to $10 billion no.

Nicholas Gregory Joseph: Again, a function of the platform that we brought in our cost of capital our team and their ability to execute.

Nicholas Gregory Joseph: Unlike any other teams and our ability to form the relationships as quickly as we did and now be considered the de facto.

Nicholas Gregory Joseph: Net lease.

Operator: Company.

Nicholas Gregory Joseph: And all of Europe, I mean, those are benefits that has taken us five years to establish and now we feel like is the time for us to continue to harvest the benefits of establishing ourselves in Europe. So that's how I would answer it.

Operator: The next question comes from Nick Joseph of Citi. Please go ahead.

Sumit Roy: The next question comes from Nick Joseph of Citi. Please go ahead. Thanks. Give me the opportunity.

Nicholas Gregory Joseph: Thanks, just given the opportunities that you've talked about and the better cap rates in Europe, and kind of thoughtfulness on the long term weighted average cost of capital how do additional datacenter and gaming investments look today.

Nicholas Gregory Joseph: On the U S side.

Sumit Roy: Thank you for your question, Nick. Yes, I would say about 6% of our investments in the first quarter went towards the digital JV that we have formed. As you may recall, Nick, that is an asset that is being currently developed in Northern Virginia, in Loudoun County, and it won't be operational until the end of this year, the first phase. Actually, it's the first quarter of next year. And then there could be the second phase that gets kicked in.

Nicholas Gregory Joseph: Thank you for your question Mick.

Sumit Roy: Yes, I would say about 6% of our investments in the first quarter went towards.

Sumit Roy: The digital JV that we have formed as you may.

Sumit Roy: May recall, Nick that is an asset that is being currently developed in northern Virginia.

Sumit Roy: <unk> County.

Sumit Roy: It won't be operational till.

Sumit Roy: At the end of this year the first phase maybe actually it's the first quarter of next next year.

Sumit Roy: And then they could be.

Sumit Roy: The second phase that gets kicked in so as of right now that is the only investments that we have on the on the.

Sumit Roy: So as of right now, that is the only investment that we have on the data center side. There are other opportunities that we are looking at. We do have an investment that we will make, and we will continue to make in Spain that is also looking at a data center side that we believe is very well located and there seems to be a lot of interest in that particular side. That will be our additional spend on the data center side, but that hasn't been substantial to date. But those are really the only two opportunities that we are looking at.

Sumit Roy: On the datacenter side.

Sumit Roy: There are other opportunities that we're looking at we do have an investment that.

Sumit Roy: We will we will make we will continue to make in Spain that is also looking at a data center side that we believe is is very well located.

Sumit Roy: And that seems to be a lot of interest in that particular side that'll be our our additional spend on the datacenter side, but that hasnt been substantial to date.

Sumit Roy: But those are really the only two opportunities that we're looking at we're obviously involved in multiple conversations with multiple operators to try to understand you know.

Sumit Roy: We are obviously involved in multiple conversations with multiple operators to try to understand, you know, where the real opportunities are versus, you know, the optimism that continues to play out in this particular space. And we are hopeful that we can grow our hypercenter part of our portfolio in a meaningful way over the next few years. But as of right now, a lot of it is just in the initial stages of conversations with potential operators outside of the JV that we have with Digital.

Sumit Roy: Where the where the real opportunities off versus.

Sumit Roy: The optimism that continues to.

Sumit Roy: Two to play out in this particular space and we are hopeful that we can grow our R. R.

Sumit Roy: Hypocenter.

Sumit Roy: Part of our portfolio.

Sumit Roy:

Sumit Roy: In a meaningful way over the next few years.

Sumit Roy: As of right now a lot of it is just in the initial stages of conversations with potential operators outside of that.

Sumit Roy: The JV that we have with digital.

Speaker Change: Thanks, and then just on the gaming side.

Sumit Roy: Thanks, and then just on the gaming side... On the gaming side, you know, things continue to look interesting. We've obviously made two investments. It represents slightly north of three percent of our of our rent.

Sumit Roy: On the gaming side things continue to look interesting.

Sumit Roy: We've obviously made two investments it represents slightly north of 3% of our of our of our rents.

Sumit Roy: And we are in conversations with, you know, other opportunities, including potential development opportunities in large cities. There's a very long, you know, tail to some of these development opportunities, but we'll see how some of these conversations translate into actual transactions. But I will say that, you know, there was an interesting conversation we were having earlier this year, which has been kind of put on hold for right now, that would be, would be, you know, a continued growth of our gaming business, but it hasn't quite materialized yet. So we'll see how that plays out. The next question comes from Wes Golladay.

Sumit Roy: And we are in conversations with.

Wesley Keith Golladay: Other opportunities.

Sumit Roy: Including potential development opportunities in in large cities.

Wesley Keith Golladay: There's a very long.

Sumit Roy: Tail to some of these <unk>.

Wesley Keith Golladay: Development opportunities, but.

Sumit Roy: We'll see how some of these conversations translate into actual transactions, but.

Sumit Roy: I will say that there was an interesting conversation we were having earlier this year, which has been kind of put on hold for right now.

Sumit Roy: <unk>.

Wesley Keith Golladay: Would be would be.

Sumit Roy: <unk>.

Wesley Keith Golladay: Continued growth of our gaming business, but it hasn't quite materialized, yet so we'll see how that plays out.

Sumit Roy: The next question comes from Wes Golladay of Baird. Please go ahead.

Operator: The next question comes from Wes Golladay of Baird. Please go ahead. Hey, everyone, you highlighted all the levers you have to pull.

Wesley Keith Golladay: Hi, everyone you highlighted auto levers you have to pull in when you created last year was the credit investment platform can you give us an update on that.

Wesley Keith Golladay: Yes, Wes we continue to look for opportunities.

Sumit Roy: Yeah, Wes, we continue to look for opportunities on the, you know, credit investment side. But please keep in mind that one of the things that's dictating our investments on the credit side is to continue to strengthen relationships with either existing clients or to help facilitate, say, a lease back with those existing clients. And, you know, if you want to be viewed as a real estate partner to some of the world's leading operators, part of being that partner is to provide capital through the traditional channels that we've established or, you know, on a more secure basis, to do a balance sheet lend.

Sumit Roy: On the credit investment side, but please keep in mind that one of the things Thats dictating.

Sumit Roy: Our investments in the credit side is to continue to strengthen our relationships with either existing clients or.

Sumit Roy: <unk>.

Sumit Roy: To help facilitate sale leaseback with those existing clients.

Sumit Roy: And you know if you.

Sumit Roy: We want to be viewed as a real estate partner to some of the world's leading operators thought of being that partner is to provide capital.

Sumit Roy: Through the traditional channels that we've established.

Sumit Roy: Our.

Sumit Roy: On a more secured basis.

Sumit Roy: Do balance sheet lending.

Sumit Roy: And that continues to be how we think about our credit investment. But one of the advantages of doing this, Wes, as I'm sure you recognize, is this continuous headwind that we experience given the refinancing that we are having to incur at much higher rates. This is a perfect natural hedge to that because here we are lending to clients that we have credit exposures to, reflective of the current higher interest rate. And that's really part of why we believe that this is such a good strategy for us in the interim. You know, people talk about reinvestment risk. Well, guess what?

Sumit Roy: And that continues to be how we think about our credit investment, but you know one of the advantages of doing this we assess as I'm sure. You recognize is this continuous headwinds that we experienced given the the refinancings that we are we are having to incur at much.

Sumit Roy: Higher rates. This is a perfect natural hedge to that because here we are lending to clients that we have credit exposures to.

Sumit Roy: Reflective of the current higher interest rate and that's really part of why we believe that this is such a good strategy for us.

Sumit Roy: In the interim.

Sumit Roy: People talk about reinvestment risk well guess what.

Sumit Roy: If the environment is different and interest rates actually go down, we don't have to roll our credit. We will, you know; our cost of capital should be better. These headwinds that we are facing on our refinancings will dissipate, and we'll be able to therefore invest this capital in more of our traditional sources, this capital that we get back, at very good yields. And so really, I think of the credit, you know, partly as a defensive mechanism and as a natural hedge against the headwinds that we've faced, but also very much in line with trying to become And these are operators with whom we want to continue to grow our relationship. Quick follow up on that one.

Sumit Roy: If the environment is different on interest rates actually go down you don't have to roll our credit we will you know our cost of capital should be better.

Sumit Roy: These headwinds that we're facing on our refinancings will dissipate and we'll be able to therefore invest it in more of our traditional sources of capital that we get back at.

Sumit Roy: Very good yields and so really I think of the credit partly as a defensive mechanism and is a natural hedge to the headwinds that we faced but also very much in line with trying to become that that's real estate partner to the world's leading operators and these are operators with whom.

Speaker Change: We want to continue to grow our relationship.

Speaker Change: A quick follow up on that one so when you talk about the natural hedge we can look to keep these more so for baseload.

Sumit Roy: So when you talk about the natural hedge, would you look to keep these more SOFR-based loans? Yeah, we, you know, we do have SOFR-based loans. But by and large, what we try to do is not expose ourselves to, you know, the floating rate element; we try to lock it in, we get it, but then it no longer becomes a perfect hedge. But given where the environment is and given the expectation of interest rates, we are still very well protected.

Sumit Roy: Yeah, we.

Sumit Roy: We you know we do have us.

Sumit Roy: Software base loans.

Sumit Roy: But by and large what we tried to do is not expose ourselves to the.

Sumit Roy: The floating rate element, we try to lock it and get it that then no longer becomes a perfect hedge, but given where the environment is and given the expectation of interest rates, we are still very well protected.

Sumit Roy: We have one loan, the Asda loan, that was, you know, it's a floater and it's off of Sonia in the UK, but largely, every other loan that we've made has had a fixed component to it, and keep in mind that we also inherited some loans, one of which actually got paid off and at 100% that we inherited from Spirit. So, yeah, it's good. Jonathan, did you want to add something? Yeah, well, just to add to that, you know...

Sumit Roy: We have one loan the AST alone that was.

Sumit Roy: <unk>.

Jonathan Pong: It was it's a floater and it's off to Sonya in the U K, but largely every every other known that we've made has been a fixed component to it.

Jonathan Pong: And keep in mind that we also inherited.

Jonathan Pong: Some some loans, one of which actually got paid off and at 100%.

Jonathan Pong: That we inherited from from spirit.

Jonathan Pong: It was a $33 million seller financing that spirit had provided to imagine which by the way was an outcome that was superior to how we had underwritten it.

Jonathan Pong: So yes it is.

Sumit Roy: Jonathan do you want to add something else to just add to that.

Jonathan Pong: I think when we think about it being a natural hedge, I think it's more along the lines of when the debt actually matures. Because if you look at our maturity schedule, we've got a decent amount of debt coming due, well, staggered, but on a nominal basis, still pretty significant, $1.9 billion next year, for instance, over $3 billion in 2026, and almost $3 billion in 2027. And so when you have a corresponding asset that, you know, could get called or will get repaid, and, you know, it's hard to replace that coupon in a lower rate environment, chances are, we're much better off as we're refinancing our liabilities, and our cost of capital is obviously much lower. So I think that's another way to think about the natural hedge element.

Jonathan Pong: Think about it would be a natural hedge I think thats more so along the lines of.

Jonathan Pong: When does that actually matures.

Jonathan Pong: So if you look at our maturity schedule as you know, we've got a decent amount of debt coming due well staggered.

Jonathan Pong: But on a nominal basis still pretty significant one.

Jonathan Pong: One 9 billion last year for instance.

Jonathan Pong: Only $3 billion 26.

Jonathan Pong: 3 billion in 2007, and so when you have a corresponding offset that.

Jonathan Pong: Could you I call, daughter will get repaid and hard to a place that coupon.

Jonathan Pong: A lower rate environment.

Jonathan Pong: Chances are much better off as a refinancing.

Jonathan Pong: Our ability within our cost of capital is obviously at much lower.

Jonathan Pong: So I think that.

Jonathan Pong: Another way to let's say through the natural hedge element.

Speaker Change: Our next question comes from harsh him money of Green Street. Please go ahead.

Operator: Our next question comes from Harsh Hemnani of Green Street. Please go ahead.

Harsh Hemnani: Thank you.

Sumit Roy: So it sounds like a good chunk of acquisitions this quarter came from funds that needed the capital to meet some redemptions. How would you contrast that opportunity set for acquisitions versus maybe the traditional, say, leaseback market where realty income could provide a solution for tenant refinancing? It sounds like based on interest rate hopes, hopes of interest rates going down, more tenants are looking towards the traditional credit market and trying to look for finite sources of capital rather than locking in, say, leaseback capital for a perpetual period of time. Is that something you're seeing more in tenant conversations today than compared to a year ago?

Harsh Hemnani: So it's a good chunk of acquisitions this quarter came from one that needed the cap some redemptions.

Sumit Roy: How would you contrast that opportunity set for acquisitions versus maybe the traditional sale leaseback market.

Sumit Roy: Royalty income could provide a solution with balance sheet financing it sounds like based on Interstate hopes hopes up and going down.

Sumit Roy: More tenants are looking towards the traditional credit market.

Speaker Change: And Brian.

Sumit Roy: Brian look for finite sources of capital rather than locking in sale leaseback catheter for protection theater to time is that something youre seeing more so than in.

Sumit Roy: Conversation today.

Sumit Roy: When compared to a year ago.

Speaker Change: We are certainly seeing sale leaseback opportunities in fact, you know 13% of what we closed in the first quarter.

Sumit Roy: We are certainly seeing sale-leaseback opportunities. In fact, you know, 13% of what we closed in the first quarter was sale-leaseback. But you're right, Harsh, if you compare it to last year, 46% of everything we did was sale-leaseback. The year before that, it was closer to 40%, and we are not seeing that.

Sumit Roy: It it it was sale leaseback.

Sumit Roy: But youre right harsh.

Sumit Roy: If you compare it to last year, 46% of everything we did was sale lease back the year before that it was closer to 40%.

Sumit Roy: And we're not seeing that.

Sumit Roy: And I think part of it is because you know clients are trying to figure out ways to not necessarily locked into 20 year 25 year leases at these elevated you know cap.

Sumit Roy: And I think part of it is because, you know, clients are trying to figure out ways to not necessarily lock into 20-year, 25-year leases at these elevated cap rates. And so if there is an alternative available to them, be it through the debt markets, which has a much shorter duration, even if it is higher, I think they're going to be far more inclined to do that. Again, if it's a brand new client that we don't have a relationship with, we are not going to go and provide them credit if there isn't a compelling sale leaseback opportunity with them, and our desire to have them as part of our client rotisserie is not there.

Sumit Roy: Cap rates and so if there is an alternative available to them be it through the debt markets, which has much shorter duration. Even if it is higher I think theyre going to be far more inclined to doing that but I just wanted to be very clear that you know.

Sumit Roy: B R. Again, if it's a brand new clients that we don't have a relationship with we are not going to go and provide them credit.

Sumit Roy: If there isn't a compelling sale leaseback opportunity with them and our desire to do to have them as part of our clients are rotisserie.

Sumit Roy: It is not there we are not going to be pure credit providers like.

Sumit Roy: We are not going to be pure credit providers like some of the credit funds out there that exist. So I do see that changing as there is stability in the rate environment, as people start to get much more comfortable about where things are going to sort of play out. I do believe that sale leaseback will come roaring back. We are in discussions with

Sumit Roy: Like some of the the credit funds out there that that you know.

Sumit Roy: That exist.

Sumit Roy: No.

Sumit Roy: You know I.

Sumit Roy: I do see that changing as there is stability in the in the rate environment as people start to get much more comfortable about where things are going to start off.

Sumit Roy: Lay out.

Sumit Roy: I do believe that sale leaseback will come roaring back or we are in discussions with.

Sumit Roy: Some some names right now and it really is a disconnect between where they want to transact.

Sumit Roy: And.

Sumit Roy: What where we are capable of transacting given given our cost of capital so.

Sumit Roy: But I think it's a matter of time.

Speaker Change: After that I'll leave it there.

Sumit Roy: I forgot. I'll leave it there. Thank you, Harsh. And our next question comes from Linda Tsai of Jefferson. Please go ahead.

Linda Tsai: Thank you harsh.

Sumit Roy: And our next question comes from Linda Tsai of Jefferies. Please go ahead.

Operator: And our next question comes from Linda Tsai of Jefferson. Please go ahead. Hi, thank you. Perhaps piggybacking off Greg's earlier question on dispositions, your proprietary predictive analytics platform

Linda Tsai: Hi, Thank you maybe piggybacking off of Greg's earlier question on dispositions you are proprietary predictive analytics platform will be used to help with this dose could you just give us some more color on how that works what are some of the inputs into your analysis.

Sumit Roy: Yeah, that's where the secret sauce is, Linda, but all right, let me, and I don't want to get too pedantic, so try to keep it pretty high level. The way our predictive analytics work, it is by industry, and even at times, it's by client, but largely, the models work by industry. And it tries to identify the key variables, which could be, you know, 20, 30, 40 variables that dictate the predictability of a renewal outcome or a leasing outcome.

Operator: Yeah.

Sumit Roy: That's where the secret sauces, Linda, but alright, let me and I don't want to get too pedantic. So.

Sumit Roy: I'm trying to keep it pretty high level, the way, our predictive analytics, where.

Sumit Roy: It is by industry and even at times it just by client, but largely the models work by industry.

Sumit Roy: And it tries to identify the key variables, which could be.

Sumit Roy: You know 2030, 40 variables that dictate the predictability of a renewal outcome.

Sumit Roy: Our leasing outcome so the pieces around how we created.

Sumit Roy: So the pieces around how we created the predictive analytic tool were to figure out what our leasing activity was going to look like, where we would, you know, the risk was defined as are we going to be able to maintain the rent that we currently have during a renewal period, or is it going to go less, or is it going to be more? to identify where the risk lies in our portfolio.

Sumit Roy: The predictive analytic tool was to figure out what was our leasing activity you're going to look like where we'll be.

Sumit Roy: You know that the risk was defined as I'll be going to be able to maintain the rent that we currently have during a renewal period or is it going to grow less or is it going to be more and that's how we defined risk and that's how we sort of created these algorithms by industry.

Sumit Roy: Two to identify where does risk lie in our portfolio and as you can imagine each industry has its own set of variables that dictate.

Sumit Roy: And as you can imagine, each industry has its own set of variables that dictate, you know, that particular outcome. But the biggest piece of all of this, I think the creation of the algorithms, etc., is a fairly simple task. I mean, it's taken us three and a half, four years, so I don't want to minimize that piece.

Sumit Roy: That particular outcome.

Sumit Roy: But the biggest piece of all of this I think the creation of the algorithms et cetera is a fairly simple task I mean, it's taken us three and a half four years, so I don't want to minimize.

Sumit Roy: Minimize that piece.

Sumit Roy: I've got Neil looking at me strangely here, but it is the data that we have that allows us to backtest these models and continue to refine and calibrate these models to improve their predictability. I think that's where the true value lies in our platform, having been around for 50 years. And I think that's why you see the kind of results that you see when we are posting the release, you know, the release spreads, when we are trying to get ahead in terms of the identification of assets that we should, you know, where we are maximizing the return profile of those assets, given what we think will happen come lease renewal.

Speaker Change: I've got me looking at me strangely here, but.

Sumit Roy: But it is the data that we have that allows us to back test these models.

Sumit Roy: And continue to refine and calibrate these models to improve the predictability I think that's what is is where the true value lies in our platform having been around for 50 years and I think Thats why you see the kind of results that you see when we are posting the release.

Sumit Roy: The re leasing spreads.

Sumit Roy: And we are trying to get ahead in terms of identification of assets that we should be.

Sumit Roy: We are maximizing the return profile of those assets given what we think will happen come lease renewal I think that's where the predictive analytic tool along with the asset management team was using on the ground experience to sort of share that perspective, along with the credits view that that group together.

Sumit Roy: I think that's where the predictive analytic tool, along with the asset management team, who is using on-the-ground experience to sort of share their perspective, along with the credit view, that group together is what's dictating, you know, how we try to stay ahead with the portfolio. And it has to be tools-driven. It has to be technology-driven.

Sumit Roy: It's what's dictating how we tried to stay ahead.

Sumit Roy: With the portfolio and it's it has to be tools driven it has to be technology, driven when you have 15400 discrete locations with 80 different in 80 different industries with 500 different clients I mean, it can be done manually and so that's the reason why we chose to.

Sumit Roy: When you have 15,400 discrete locations in 80 different industries with 1,500 different clients, I mean, it can't be done manually. And so that's the reason why we chose to make this investment, Linda, five years ago and several millions in. This is a tool that we are very, very proud of. And it's now very much part and parcel of every decision we are making, be it acquisition, be it disposition, you know, holding decisions.

Sumit Roy: This investment Linda five years ago.

Sumit Roy: And several millions in.

Sumit Roy: This is this is a tool that we are very very proud off and it's now very much part and parcel of every decision we are making be it acquisition be a disposition.

Sumit Roy: The holds decisions and also this tool is now being used to dictate the highest and best use for potential vacancies, which may or may not be the old.

Sumit Roy: And also, you know, this tool is now being used to dictate the highest and best use for potential vacancies, which may or may not be the original use of that particular asset. And we've seen some of the value creation that, you know, that prediction has yielded for us as a platform. So hopefully, I didn't get too much into the details, but that's really how the predictive, Transcripts provided by Transcription Outsourcing, LLC.

Sumit Roy: Use of that particular asset and we've seen some of the value creation that.

Sumit Roy: That prediction has has yielded for us as a platform.

Sumit Roy: So.

Sumit Roy: Hopefully hopefully I didn't get too much into the details, but that's really how the critics parameters to Lux.

Sumit Roy: Appreciate the color and then just in terms of using disbursed to get back to that core portfolio. You referenced earlier can you give us some metrics or characteristics of what that looks like you have more international exposure versus four or five years ago.

Sumit Roy: How does that... Yeah, for us, you know, having geographical diversification, the advantages of it played out in the first quarter, right? I mean, you saw, we were able to find transactions in the UK that had return profiles that far superseded what we are able to find here in the US. And then that will flip, you know.

Sumit Roy: Does that kind of fit into the core portfolio.

Sumit Roy: Yeah for us having geographical diversification the advantages of it played out in the first quarter right. I mean, you saw we were able to find transactions in the U K.

Sumit Roy: That had a return profiles that far superseded what we are able to find here in the U S.

Sumit Roy: And then that will flip.

Sumit Roy: So I think the geographical diversity is a good thing in terms of the actual composition of the of the.

Sumit Roy: So I think the geographical diversity is a good thing. In terms of the actual composition of the portfolio, we clearly have what we are viewing as an optimal portfolio. And an optimal portfolio, we might like, you know, let's call it grocery. But we want grocery to be 13% to 14% of our overall portfolio. If that creeps into the 19% to 20% range, that's not a good thing. And, by the way, I'm giving you an example. That's not the case,

Sumit Roy: Portfolio, we clearly have what we are viewing as an optimal portfolio and an optimal portfolio. We might like you know, let's call. It grocery, but we want grocery to be 13% to 14% of our overall portfolio if that creeps into the 19% to 20% that's not a good thing and by the way I'm, giving you. An example, that's not the case.

Sumit Roy: Grocery happens to be only 10% of our portfolio today, and then there are other areas like apparel that we may not necessarily want to be exposed to at all. But again, using very broad brushes across, you know, particular subsectors is not the right answer either. And that's the reason why this tool, along with, you know, credit, et cetera,

Sumit Roy: Grocery happens to be only 10% of our portfolio today.

Sumit Roy: And then there are other areas like apparel that we may not necessarily want to be exposed to it all.

Sumit Roy: But again using very broad brushes across particular subsectors is not the right answer either and that's the reason why this.

Sumit Roy: This tool along with you know credit et cetera.

Sumit Roy: They help us devise what we believe to be the optimal portfolio. If you think retail, and you step back, you know, we like service-oriented businesses; we like low price point businesses. And, That's sort of the overarching, you know, non-discretionary, overarching elements that we look for on the retail side. That doesn't mean that we won't deviate from this, but over 90% of our retail portfolio, by the way, has one or more of these characteristics. But that's, I think, you know, how you think about the composition and geographical diversification is something that sits on top of it.

Sumit Roy: They help us device, what we believe to be the optimal portfolio if.

Sumit Roy: If you think retail and you step back we.

Sumit Roy: Like service oriented businesses, we like low price point businesses.

Sumit Roy: And.

Sumit Roy: That's sort of the overarching you know non discretionary overarching elements that we look for on the retail side that doesn't mean that we won't deviate from this but over 90% of our retail portfolio by the way.

Sumit Roy: I had one or more of these characteristics.

Sumit Roy: But that's I think how you think about the composition and geographical diversity diversification is something that sits on top of that.

Sumit Roy: This concludes our question and answer session. I would like to turn the conference back over to Mr. Sumit Roy for any closing remarks.

Sumit Roy: This concludes our question and answer session I would now like to turn the conference back over to Mr. Sumit Roy for any closing remarks.

Sumit Roy: Thank you all for joining us today, and we look forward to speaking with you soon and seeing you at the upcoming conferences. Thank you.

Sumit Roy: Thank you all for joining us today, and we look forward to speaking soon and seeing you at the upcoming conferences. Thank you.

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

Sumit Roy: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: [music].

Operator: Yes.