Q1 2024 Broadstone Net Lease Inc Earnings Call
Operator: Hello and welcome to the Broadstone Net Leases first quarter 2024 earnings conference call. My name is Bailey, and I will be your operator today. Please note that today's call is being recorded. I would now like to turn the call over to Brent Maedl, Director of Corporate Finance and Investor Relations at Broadstone. Please go ahead.
Hello, and welcome to the broad stone at least this first quarter 2024, and he's quickly school. My name is daily and I will be your operator today. Please note that today's call is being recorded.
Brent Maedl: I would now like to turn the call over to Brent NATO director of corporate Finance and Investor Relations at <unk>. Please go ahead.
Brent Maedl: Thank you, operator, and thank you, everyone, for joining us today for Broadstone Net Lease's first quarter 2024 earnings call. On today's call, you will hear prepared remarks from CEO John Marano, President and COO Ryan Albano, and CFO Kevin Fennell. All three will be available for the Q&A portion of this call.
Brent Maedl: Thank you operator, and thank you everyone for joining us today for Brown stone that leases first quarter 2024 earnings call on today's call you will hear prepared remarks from CEO, Jon Marino, President and CFO, Brian Bonnell.
Brent Maedl: F O Kevin funnel.
Brent Maedl: All three will be available for the Q&A portion of this call as a reminder, the following discussion and answers to your questions contain forward looking statements, which are subject to risks and uncertainties that can cause actual results to differ materially due to a variety of factors.
Brent Maedl: As a reminder, the following discussion and answers to your questions contain forward-looking statements that are subject to risks and uncertainties that can cause actual results to differ materially due to a variety of factors. We caution you not to place undue reliance on these forward-looking statements and refer you to our SEC filings, including our Form 10-K for the year ended December 31st, 2023, for a more detailed discussion of the risk factors that may cause such differences. Any forward-looking statements provided during this conference call are only made as of the date of this call. With that, I'll turn the call over to John.
John: We caution you not to place undue reliance on these forward looking statements and refer you to our SEC filings, including our Form 10-K for the year ended December 31, 2023 for a more detailed discussion of the risk factors that may cause such differences.
Brent Maedl: Any forward looking statements provided during this conference call are only made as of the date of this call with that I'll turn the call over to John.
John D. Moragne: Thank you, Brent, and good morning, everyone. As we discussed during our call last quarter, the largest variable in establishing guidance for this year was the timing of our healthcare dispositions and the subsequent redeployment of proceeds generated from the portfolio sales. With our team's ability to execute in scale on both fronts early in the year, I am pleased to announce that we are increasing our per share AFFO guidance and establishing a range of $1.41 to $1.43.
John: Thank you Brent and good morning, everyone as we discussed during our call last quarter the largest variable in establishing guidance. This year was the timing of our health care dispositions and the subsequent redeployment of proceeds generated from the portfolio sales.
John D. Moragne: With our team's ability to execute and scale on both fronts early in the year I am pleased to announce that we are increasing our per share <unk> guidance and establishing a range of $1 41 to $1 43.
John D. Moragne: Before opening the line for questions, we'd like to provide context for this update and our perspectives on the overall operating environment. As we have been emphasizing since February of last year, the macroeconomic backdrop and interest rate environment have had a considerable impact on commercial real estate markets, and in particular, the net lease transaction market, while the net effect has resulted in historically significant declines in transaction levels. This environment has also presented opportunities to think creatively and differently while continuing to lean heavily on our existing relationships, disciplined underwriting, and operational expertise. Our actions over the last 18 to 24 months have provided us with the flexibility to continue making decisions we want to make in this environment, not decisions we are forced to make.
Speaker Change: Before opening the line for questions, we'd like to provide context for this update and our perspectives on the overall operating environment.
John D. Moragne: As we have been emphasizing since February of last year, the macroeconomic backdrop and interest rate environment has had a considerable impact on commercial real estate markets and in particular, the net lease transaction market. While the net effect has resulted in historically significant declines in transaction levels. This.
John D. Moragne: This environment has also presented opportunities to think creatively and differently, while continuing to lean heavily on our existing relationships disciplined underwriting and operational expertise.
John D. Moragne: Our actions over the last 18 months to 24 months have provided us the flexibility to continue making decisions we want to make in this environment not decisions, we were forced to make with.
John D. Moragne: With the capital, talent, and experience we have at BNL, we are primed to drive long-term value creation and earnings growth. I am extremely proud of what our team has accomplished so far this year, including the sale of 37 clinically oriented healthcare assets in connection with our healthcare portfolio simplification strategy, generating gross proceeds of $251.7 million. The closing of these 37 assets, along with an additional disposition completed after quarter end, accounts for approximately 50% of the assets we have identified as part of our healthcare simplification strategy, and we remain in various stages of marketing and negotiation on an additional 20% of our clinical assets that we anticipate concluding later in 2024. The remainder will likely take additional time to achieve optimal disposition outcomes. As part of this effort, we continue to work through a final resolution for Green Valley Medical Center.
John D. Moragne: With the capital talent and experience we have at <unk>, we are prime to drive long term value creation and earnings growth.
John D. Moragne: I am extremely proud of what our team has accomplished so far this year.
John D. Moragne: Leading the sale of 37 clinically oriented healthcare assets in connection with our health care portfolio simplification strategy generating gross proceeds of $251 7 million the.
John D. Moragne: The closing of these 37 assets along with an additional dispositions completed after quarter end accounts for approximately 50% of the assets. We have identified as part of our healthcare simplification strategy and we remain in various stages of marketing and negotiation and an additional 20% of our clinical assets that we anticipate concluding later in 2024.
John D. Moragne: The remainder will likely take additional time to achieve optimal disposition outcomes as.
John D. Moragne: As part of this effort we continue to work through a final resolution for Green Valley Medical Center.
John D. Moragne: Completed dispositions have successfully reduced our health care exposure to approximately 13% of our ABR as of March 31.
John D. Moragne: Our near term goal is to reduce our healthcare exposure below 10% of our ABR at which point they will naturally become a less emphasized portion of our portfolio similar to office.
John D. Moragne: Completed dispositions have successfully reduced our healthcare exposure to approximately 13% of our ABR as of March 31st. Our near-term goal is to reduce our healthcare exposure below 10% of our ABR, at which point it will naturally become a less-emphasized portion of our portfolio, similar to office. Turning to our investment activity, the first quarter transaction market represented the lowest single-tenant net lease transaction volume in at least 15 years, highlighting the continued misalignment between buyers and sellers, with a recently reinvigorated rate environment, further exacerbating the disconnect.
John D. Moragne: Turning to our investment activity the first quarter transaction market represented the lowest single tenant net lease transaction volume and at least 15 years, highlighting the continued misalignment between buyers and sellers with a recently reignited rate environment. Further exacerbating the disconnect. We still believe a higher degree of selectivity as required as we navigate this environment.
John D. Moragne: We still believe a higher degree of selectivity is required as we navigate this environment, and we are focused on sourcing off-market investments and unique capital allocation opportunities where we can partner with developers and tenants seeking capital solutions as the constraints on traditional commercial real estate lending persist. Despite the challenging environment, our team was able to invest $202 million year-to-date, with an additional $122 million of investments currently under control. We navigated the transaction environment by leveraging existing relationships, sourcing nearly $150 million of our year-to-date investments through direct off-market deals that closed shortly after quarter end, including an $84.5 million investment in retail assets located in one of the most highly trafficked trade areas in St.
John D. Moragne: And we're focused on sourcing off market investments and unique capital allocation opportunities, where we can partner with developers and tenants seeking capital solutions as the constraints on traditional commercial real estate lending persist.
John D. Moragne: Despite the challenging environment, our team was able to invest $202 million year to date with an additional $122 million of investments currently under control.
John D. Moragne: We navigated the transaction environment by leveraging existing relationships sourcing nearly $150 million of our year to date investments through direct off market deals that closed shortly after quarter end, including an $84 $5 million investment in retail assets located in one of the most highly traffic trade areas in St. Louis.
John D. Moragne: This unique opportunity stems from an existing relationship that resulted from our ongoing UNFI build to suit. It includes a $32.5 million investment, seven individual triple net out parcel assets leased to strong national and regional concepts, including Bass Pro Shops, Chick-fil-A, Longhorn Steakhouse, and Burger King, to name a few. The remaining $52 million is transitional capital with a portion designed to convert to a long-term ground lease subject to tenant consent. The $52 million covers the inline portion of the retail center that is currently more than 95% leased.
John D. Moragne: This unique opportunity stems from an existing relationship that resulted from our ongoing UNFI build to suit. It includes a $32 5 million investment seven individual triple net out parcel assets.
John D. Moragne: We used the strong national and regional concepts, including bass pro shops, Chick Fil, a longhorn steakhouse and Burger King to name a few.
John D. Moragne: The remaining $52 million as transitional capital with a portion designed to convert to a long term ground lease subject to tenant consents.
John D. Moragne: The $52 million covers the inline portion of the retail center that is currently more than 95% leased.
John D. Moragne: This was a unique opportunity in which we were able to step in as a holistic capital provider for the entire center and acquire seven triple net retail assets with strong real estate fundamentals and tenants at above market cap. The other significant direct transaction we closed after quarter end was a $65 million single-tenant industrial campus in California, occupied by a leading candy manufacturer.
John D. Moragne: This was a unique opportunity in which we were able to step in as a holistic capital provider for the entire center and acquire seven triple net retail assets with a strong real estate fundamentals and tenants at above market cap rates.
John D. Moragne: The other significant direct transaction, we closed after quarter end was $65 million single tenant industrial campus in California occupied by leading candy manufacturer.
John D. Moragne: While we would normally wait until Q2 earnings to provide additional details on transactions closing in the quarter, we wanted to provide investors a sense of what we are working on in this environment, particularly given the proximity of these investments closing to Q1. We look forward to discussing these and other Q2 investments in more detail during second quarter earnings. As we execute on our healthcare portfolio simplification strategy, our overall portfolio composition is increasingly weighted to industrial and defensive retail and restaurant tenants. And it continued to perform well in the first quarter, as evidenced by 99.9% rent collections excluding Green Valley and 99.2% occupancy as of March 31st, 2024.
John D. Moragne: While we would normally wait until Q2 earnings to provide additional details on transactions closing in the quarter. We wanted to provide investors a sense of what we're working on in this environment, particularly given the proximity of these investments closing to Q1, we look forward to discussing these and other Q2 investments in more detail during second quarter earnings.
John D. Moragne: As we execute on our health care portfolio simplification strategy. Our overall portfolio composition is increasingly weighted to industrial and defense of retail and restaurant tenants.
John D. Moragne: And it continued to perform well in the first quarter as evidenced by 99, 9% rent collections, excluding Green Valley and 99, 2% occupancy as of March 31 2020 for.
John D. Moragne: While our overall operating results remain strong, we are seeing incremental pockets of credit risk as a broader impact from the duration of higher interest rates appears to be having an effect. We remain vigilant in our tenant monitoring efforts and maintain great confidence in our portfolio due to its highly diversified construction, which limits the impact of any potential individual credit event and our proven ability to manage through any such situation that may arise in this Hire for Longer environment, where financial conditions are less conducive to the type of interest rate-fueled growth that the net lease sector had grown accustomed to in the post-GFC world.
John D. Moragne: While our overall operating results remained strong we are seeing incremental pockets of credit risk is the broader impact from the duration of higher interest rates appears to be having an effect.
John D. Moragne: We remain vigilant in our tenant monitoring efforts and maintain great confidence in our portfolio due to its highly diversified construction, which limits the impact of any potential individual credit event and our proven ability to manage through any such situations that may arise.
John D. Moragne: And this higher for longer environment.
John D. Moragne: We're financial conditions are less conducive to the type of interest rate fueled growth that the net lease sector had grown accustomed to in the post <unk> world.
John D. Moragne: Net Lease REITs will need to focus on operational expertise and finding creative ways to generate deal flow and accretive growth in a historically low transaction environment like this. We could choose to run up the risk spectrum in exchange for yield, but I don't believe that would be prudent due to potential credit risk in our view of the continuing risk reward imbalance on higher cap rate deals.
John D. Moragne: Net lease Reits will need to focus on operational expertise and finding creative ways to generate deal flow and accretive growth.
John D. Moragne: Historically low a transaction environment like this.
John D. Moragne: We could choose to run up the risk spectrum in exchange for yield, but I don't believe that would be prudent due to potential credit risk in our view of the continuing risk reward imbalance on higher cap rate deals.
John D. Moragne: Now is the time to be creative and opportunistic while maintaining underwriting discipline, to position BNL as an alternative capital provider to take advantage of the commercial real estate lending pullback and to double down on the things that have made BNL successful over the last 16 years, solid portfolio and balance sheet fundamentals, operational expertise, and a growth-focused mindset. With our industrial-focused but diversified investment strategy, I believe B&L presents investors with a differentiated approach to net lease investing and growth.
John D. Moragne: Now is the time to be creative and opportunistic while maintaining underwriting discipline to.
John D. Moragne: To position <unk> as an alternative capital provider to take advantage of the commercial real estate lending pullback and to double down on the things that have made <unk> successful over the last 16 years solid portfolio and balance sheet fundamentals operational expertise and a growth focused mindset.
John D. Moragne: With our industrial focused but diversified investment strategy I believe be enel presents investors with a differentiated approach to net lease investing in growth.
John D. Moragne: The increased role we can play in development and build-to-suit transactions adds a compelling additional building block to our growth strategy. We view these types of opportunities as part of our core building blocks to sustainable long-term growth, which include best-in-class fixed rent escalations, investments in our existing tenants and assets, traditional external growth, and development funding opportunities. While the combination of these building blocks will vary based on market conditions, they provide a compelling path to near and medium-term value creation and earnings. With that, I'll turn the call over to Ryan, who will provide additional details on our transaction efforts, our building blocks for growth, and portfolio updates.
John D. Moragne: The increased role we can play in development and build to suit transactions adds a compelling additional building blocks to our growth strategy. We view these types of opportunities as part of our core building blocks to sustainable long term growth.
Ryan: Which include best in class fixed rent escalations investments in our existing tenants and assets traditional external growth and development funding opportunities.
Ryan: While the combination of these building blocks will vary based on market conditions, they provide a compelling path to near and medium term value creation and earnings growth.
John D. Moragne: With that I'll turn the call over to Ryan who will provide additional details on our transaction efforts are building blocks for growth and portfolio updates.
Ryan M. Albano: Thanks, John, and thank you all for joining us today. As John mentioned, during the first quarter, we were able to execute on a key piece of our health care portfolio simplification strategy through the completion of a portfolio sale comprised of 37 assets for $251.7 million at a cap rate of 7.9 percent. These dispositions reduced our median term lease maturities and improved our overall portfolio wall to 10.6 years. Additionally, the incremental proceeds from this sale add to our existing dry powder, placing us in a position of strength as we actively pursue high-quality investment opportunities.
Ryan: Thanks, John and thank you all for joining us today.
Ryan M. Albano: John mentioned during the first quarter, we were able to execute on our key piece of our health care portfolio simplification strategy through the completion of the portfolio sale comprised of 37 assets for $251 7 million and a cap rate of seven 9%.
Ryan M. Albano: These dispositions reduced our medium term lease maturities and improved our overall portfolio, while 10 six years.
Ryan M. Albano: Additionally, the incremental proceeds from the sale add to our existing dry powder, placing us in a position of strength as we actively pursue high quality investment opportunities as.
Ryan M. Albano: As we step through this disposition effort and begin focusing on the remaining properties identified, we anticipate various transaction timelines that comfortably extend into 2025, given the need to address some combination of shorter lease duration, space utilization rates, and elevated credit risk. As John and I have communicated in the past, we are intently focused on the tactical execution of our healthcare property sales and maximizing value for our shareholders. Alongside our disposition efforts, we once again demonstrated our high degree of selectivity during the first quarter, funding revenue-generating capital expenditures of $3 million and incremental UNFI development funding of $36.9 million. In total, we have funded approximately $130.7 million towards the UNFI build-to-suit development through March 31st, and the project remains on track for delivery and rent commencement no later than October of this year.
Ryan M. Albano: As we step through this disposition effort and begin focusing on the remaining properties identified.
Ryan M. Albano: We anticipate various transaction timelines that comfortably extend into 2025, given the need to address some combination of shorter lease duration space utilization rates and elevated credit risk.
Ryan M. Albano: As John and I have communicated in the past we are intently focused on the tactical execution of our healthcare property sales and maximizing value for our shareholders.
Ryan M. Albano: Alongside our disposition efforts, we once again demonstrated our high degree of selectivity during the first quarter funding revenue generating capital expenditures of $3 million in incremental UNFI development fundings of $36 $9 million.
Ryan M. Albano: In total we have funded approximately $130 7 million towards the UNFI build to suit development through March 31.
Ryan M. Albano: And the project remains on track for delivery and rent commencement no later than October of this year.
Ryan M. Albano: Now turning our attention to new investment activity. While our standards remain very high for allocating capital to new investments, our sourcing efforts have yielded several positive outcomes, as John highlighted in his comment. We favor opportunities that support growth for stable and healthy companies in situations where we can provide solutions to transactions that are disrupted by the current market environment. This has resulted in our evaluation of more opportunities for build-to-suit transactions, forward commitments of completed developments, and other directly sourced opportunities, in addition to selective, regular-way marketed transactions.
Speaker Change: Now turning our attention to new investment activity.
Ryan M. Albano: While our standards remain very high for allocating capital to new investments our sourcing efforts have yielded several positive outcomes as John highlighted in his comments.
Ryan M. Albano: We favor opportunities that support growth for stable and healthy companies are situations, where we can provide solutions to transactions that are disrupted by the current market environment.
Ryan M. Albano: This has resulted in our evaluation of more opportunities for build to suit transactions forward commitments of completed developments in other directly source opportunities. In addition to selective regular way marketed transactions.
Ryan M. Albano: These transaction formats allow us to access high-quality opportunities today through a differentiated sourcing model and create embedded AFFO growth for future periods, which, when coupled with our in-place portfolio rent escalations, produce a compelling run rate growth profile before even considering contributions from external growth opportunities. While facing a historically difficult transaction environment, our pipeline remains robust given an influx of these types of opportunities.
Ryan M. Albano: These transaction formats allow us to access high quality opportunities today through a differentiated sourcing model and create embedded <unk> growth for future periods, which when coupled with our in place portfolio rent Escalations produced a compelling run rate growth profile before even considering contributions from external growth opportunity.
Ryan M. Albano: Yes.
Ryan M. Albano: While facing historically difficult transaction environment, our pipeline remains robust given the influx of these types of opportunities are.
Ryan M. Albano: Our focus on achieving appropriate risk-adjusted returns and creating long-term value for our business and its shareholders is resolute, and the balance of real estate fundamentals and underlying credit support against prevailing market prices on investments remains front and center. In an environment where the traditional net lease growth model and transaction environment are constrained, we feel confident in our ability to drive meaningful, near, and medium-term growth through our capacity to leverage opportunities arising from our other core building blocks, investments in our existing assets, and development funding opportunities, in addition to our best in class fixed rent escalation.
Ryan M. Albano: Our focus on achieving appropriate risk adjusted returns and creating long term value for our business and its shareholders is resolute and the balance of real estate fundamentals and underlying credit support against prevailing market pricing on investments remains front and center.
Ryan M. Albano: In an environment, where the traditional net lease growth model and transaction environment is constrained we feel confident in our ability to drive meaningful near and medium term growth through our capacity to leverage opportunities arising from our other core building blocks investments in our existing assets and development funding opportunities.
Ryan M. Albano: In addition to our best in class fixed rent Escalations.
Ryan M. Albano: Moving to our in place portfolio, as we highlighted last quarter, we remain cautious on and continue to pay extra attention to industries that are sensitive to discretionary consumer spending, including some tenants that have been included in recent headlines. The Room Place, a home furnishings operator occupying one asset and accounting for 0.2% of ABR, remains in Chapter 11 bankruptcy, during which time we continue to receive rent. At the end of the bankruptcy proceedings, which we anticipate occurring later this summer, the tenant will vacate the property. In the meantime, our team is focused on determining the optimal next step for this asset. Red Lobster, representing 1.6% of ABR, has notably been in recent headlines.
Ryan M. Albano: Moving toward our in place portfolio as we highlighted last quarter, we remain cautious and continue to pay extra attention to industries that are sensitive to discretionary consumer spending, including some tenants that have been included in the recent headlines.
Ryan M. Albano: The room place a home furnishings, operator, occupying one asset and accounting for 0.2% of ABR remains in chapter 11 bankruptcy during which time, we continue receiving right.
Ryan M. Albano: At the end of the bankruptcy proceedings, which we anticipate occurring later this summer.
Ryan M. Albano: And it will vacate the property in the meantime, our team is focused on determining the optimal next step for this asset.
Ryan M. Albano: Red lobster, representing one 6% of ABR has notably than in recent headlines.
Kevin M. Fennell: Our 18 master leased assets maintain relatively healthy site-level performance, and we continue to monitor the situation as it unfolds. We are comfortable with our exposure, which we have reduced over the last several years, remain cautiously optimistic about Red Lobster's future, and know the quality of the underlying real estate represents a compelling value proposition to both Red Lobster and other potential users. Lastly, we only had three vacant properties as of March 31st, including one that became vacant during the quarter upon the conclusion of our tenant lease term.
Ryan M. Albano: Our 18 master leased assets maintained relatively healthy site level performance.
Kevin M. Fennell: We continue to monitor the situation as it unfolds, we are comfortable with our exposure, which we have reduced over the last several years.
Kevin M. Fennell: Cautiously optimistic about Red lobster's future.
Kevin M. Fennell: Though the quality of the underlying real estate represents a compelling value proposition to both red lobster and other potential users.
Kevin M. Fennell: Lastly, we only had three vacant properties as of March 31, including one one vacant during the quarter upon the conclusion of our tenant's lease term this.
Kevin M. Fennell: This property received significant interest, and we have executed an LOI with a new tenant and are in the process of negotiating a lease with the tenant taking possession in late Q3 or early Q4. Additionally, there is one additional tenant, Shutterfly, that will be vacating its space when their lease expires on June 30th. We have already executed an LOI and are in the process of negotiating a lease with a new tenant for this location.
Kevin M. Fennell: This property received significant interest and we have executed an LOI with a new tenant and are in the process of negotiating a lease anticipating the tenant taking possession in late Q3 or early Q4.
Kevin M. Fennell: These properties there is one additional tenant shutterfly that will be vacating its space when their lease expires on June 30.
Kevin M. Fennell: We have already executed an LOI and are in the process of negotiating a lease with a new tenant for this location or new tenant is currently targeting lease commencement during the fourth quarter, resulting in minimal downtime at the property.
Kevin M. Fennell: Our new tenant is currently targeting lease commencement during the fourth quarter, resulting in minimal downtime at the property. In summary, the broader market environment for new investments is certainly challenging, and higher interest rates and sustained uncertainty are increasingly adding risk to the macroeconomic equation. Despite the difficult backdrop, we continue to demonstrate a differentiated ability to allocate capital to investments that enhance the value of our highly diversified portfolio and execute on asset and portfolio management objectives that drive strong operating performance. With that, I'll turn the call over to Kevin to provide an update on our financial results for the quarter.
Kevin: In summary, the broader market environment for new investments is certainly challenging and higher interest rates and sustained uncertainty are increasingly adding risk to the macroeconomic equation.
Kevin: Despite the difficult backdrop, we continued to demonstrate a differentiated ability to allocate capital to investments that enhance the value of our highly diversified portfolio and execute on asset and portfolio management objectives that drive strong operating performance.
Kevin M. Fennell: With that I'll turn the call over to Kevin to provide an update on our financial results for the quarter.
Kevin M. Fennell: Thank you, Ryan. During the quarter, we generated AFFO of $71 million, or 36 cents per share, an increase of 5.9% in per share results year over year. Results were largely driven by lower interest and G&A expenses. Bad debt in the quarter, excluding Green Valley, was 15 basis points, driven by a small gap in rent from the room place.
Kevin: Thank you Brian during the quarter, we generated <unk> of $71 million or <unk> 36 per share an increase of five 9% in per share results year over year.
Kevin M. Fennell: Results were largely driven by lower interest and G&A expenses.
Kevin M. Fennell: Bad debt in the quarter, excluding Green Valley was 15 basis points driven by a small gap in rent from there in place.
Kevin M. Fennell: We incurred $7.8 million of cash G&A during the quarter, which tracks in line with slightly better than guidance. We once again ended the quarter in a strong and flexible financial position, despite not engaging in any capital markets activity. From a leverage perspective, we ended the quarter in a position of strength at 4.8 times net debt, down slightly from five times at the end of 2023, driven largely by disposition proceeds from progress on our healthcare portfolio simplification strategy. We retain a mostly fixed-rate debt capital structure with $30 million in existing swaps rolling in the fourth quarter, and we routinely evaluate alternatives as we approach incremental floating rate exposure into 2025.
Kevin M. Fennell: We incurred $7 $8 million of cash G&A during the quarter, which tracks in line to slightly better than guidance.
Kevin M. Fennell: We once again ended the quarter and a strong and flexible financial position, despite not engaging in any capital markets activity.
Kevin M. Fennell: From a leverage perspective, we ended the quarter in a position of strength at four eight times net debt down slightly from five times at the end of 2023.
Kevin M. Fennell: Driven largely by disposition proceeds from progress on our health care portfolio simplification strategy.
Kevin M. Fennell: We retain a mostly fixed rate debt capital structure with $30 million in existing swaps rolling into fourth quarter, and we routinely evaluate alternatives as we approach incremental floating rate exposure into 2025.
Kevin M. Fennell: At our quarterly meeting, our Board of Directors approved a $0.29 dividend per common share and OP unit. This is a 1.8% increase from the previous quarter and a 3.6% increase over the dividend declared in the first quarter of 2023. This quarter's increase marks our seventh consecutive semi-annual dividend increase since our IPO and is payable to holders as of June 28th, 2024 on or before July 15th. Our dividend remains well covered and represents a highly attractive yield in this market environment.
Kevin M. Fennell: At our quarterly meeting our board of directors approved a 29% dividend per common share and op unit.
Kevin M. Fennell: This is a one 8% increase from last quarter and a three 6% increase over the dividend declared in the first quarter of 2023.
Kevin M. Fennell: This quarter's increase marks our seventh consecutive semi annual dividend increase since our IPO and is payable to holders as of June 28 2024.
Kevin M. Fennell: Or before July 15th.
Kevin M. Fennell: Our dividend remains well covered and represents a highly attractive yield in this market environment.
Kevin M. Fennell: Finally, as John previously mentioned, we are raising our per share guidance from $1.41 to a range of $1.41 to $1.43, as our team's ability to execute on both our healthcare portfolio simplification strategy and growth objectives provides additional clarity on estimated per share results for 2024. Our revised brochure guidance reflects the following key assumptions, which remain unchanged. Investment volume between $350 and $700 million, disposition volume between $300 and $500 million, with ongoing healthcare sales accounting for the substantial majority. And finally, cash GNA between $32 and $34 million. With that, we will now open the call for questions.
Kevin M. Fennell: Finally, as John previously mentioned, we are raising our per share guidance from $1 41.
Kevin M. Fennell: To a range of $1 41 to $1 43.
Kevin M. Fennell: As our team's ability to execute on both our health care portfolio simplification strategy and growth objectives provides additional clarity on estimated per share results for 2024.
Kevin M. Fennell: Our revised per share guidance reflects the following key assumptions, which remain unchanged.
Kevin M. Fennell: Investment volume between $350 and $700 million.
Kevin M. Fennell: Disposition volume between 300 $500 million with ongoing health care sales accounting for the substantial majority.
Kevin M. Fennell: And finally cash G&A between 32% and $34 million.
Kevin M. Fennell: With that we will now open the call for questions.
Kevin M. Fennell: Yeah.
Operator: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If, for any reason, you would like to remove that question, please press star followed by two. Again, to ask a question, please press star followed by one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question, and please do ensure that you are unmuted locally. Our first question today comes from Michael Gorman from BTIG. Please go ahead; your line is now open.
Speaker Change: Thank you.
Speaker Change: I would like to ask a question. Please press star followed by one on your telephone keypad.
Operator: If for any reason you would like to remove that question. Please press star followed by two.
Operator: Again to ask a question please press star one.
Operator: If you are using a speaker phone. Please remember to pick up your handset to full asking your question and please do ensure that youre on mute.
Operator: Our first question today comes from the line of Michael Coleman from BTG. Please go ahead. Your line is now open.
Operator: Yeah.
John D. Moragne: Yeah, thanks. Good morning. I was wondering if you could spend a little bit of time talking about how you think about the investment environment right now. John, you talked about being, you know, a little bit more innovative and focusing on your skill set. And Ryan, you talked about some of the opportunities you're seeing. Can you talk about how you're thinking about stratifying the opportunities and the returns required as you think about additional build-outs or kind of innovative transactions like the retail center that closed after the quarter ended?
Michael Patrick Gorman: Yes. Thanks. Good morning, I was wondering if you could spend a little bit of time as you're talking about how you think about the investment environment right now John you talked about being.
John D. Moragne: A little bit more innovative and focusing on your skill set and Ryan you talked about some of the opportunities you're seeing can you talk about how youre thinking about stratify the opportunities and the returns required as you think about additional build to suits or kind of innovative transactions like the retail center.
John D. Moragne: Closed after the quarter ended.
John D. Moragne: Thanks, Mike. As we were talking about in the script, and as I think everyone knows, this is the lowest sort of marketed transaction volumes we've seen in at least 15 years. Conversion's a lot harder right now, so you're having to work a lot harder to find these deals. It's not the same environment that NetLease got to enjoy for 15 years post-GFC.
Speaker Change: Yes, Thanks, Mike.
John D. Moragne: As we were talking about in the script and as I think everyone knows this is the lowest sort of marketed transaction volumes. We've seen at least 15 years conversions a lot harder right. Now. So you are having to work a lot harder to find these deals it's not the same environment that lease got to enjoy for 15 years post GSE.
John D. Moragne: So we're focused, as we talked about during the call, on finding direct deals and leveraging our relationships. We're very proud of the $150 million that we were able to close so far this year as a result of direct relationships with Sansone, our partner on UNFI, as well as a partner on the Retail Center, as well as direct relationships on the industrial campus that we acquired in California. Building on that and touching on the core building blocks that we think we provide from a differentiated growth strategy in that lease, the opportunity to do more build-to-suits.
John D. Moragne: So we're focused as we talked about during the call.
John D. Moragne: Finding direct deals leveraging our relationships, we're very proud of the $150 million that we were able to close so far year to date as a result of direct relationships with Samsung our partner on UNFI as well as the partner on the retail center.
John D. Moragne: Well as direct relationships on the industrial campus that we acquired in California.
John D. Moragne: Building from that and touching on the core building blocks that we think we provide from a differentiated growth strategy in the net lease is the opportunity to do more build to suits.
John D. Moragne: We're seeing right now and evaluating opportunities in mid-market industrial, on straightway deals, as well as some retail. But a lot of the good opportunities we're seeing right now are build-to-suit forward commits. The disruption that we've seen in the last, call it a year and a half, in commercial real estate lending persists and will persist for some time.
John D. Moragne: Seeing right now and evaluating opportunities in mid market industrial straightway deals as well as some retail but a lot of the good opportunities. We're seeing right now are build to suits for commits.
John D. Moragne: Disruption that we've seen in the last call it year and a half in commercial real estate lending persists and will persist for some time, so being able to step in as a whole as the capital provider as an alternative capital provider, we think is really attractive.
John D. Moragne: So being able to step in as a holistic capital provider, as an alternative capital provider, is really attractive. The yields that we're seeing right now are solidly in the sevens. Stuff below that isn't something that really works for us, as I said during my remarks. There is an opportunity right now to run up the risk spectrum if you're looking for yield, but that's not something that we've always been comfortable with, and we're certainly not comfortable with it today. So we're solidly in the sevens, and we think there are great opportunities both in sort of regular way acquisitions as well as build suits and adding to those core building blocks.
John D. Moragne: The yields that we're seeing right now are solidly in the sevens stuff, but that isn't something that really works for us as we as I said during my remarks.
John D. Moragne: There is an opportunity right now to run up the risk spectrum, if youre looking for yield, but thats not something that we've always been comfortable with and we're certainly not comfortable with it today. So we're solidly in the <unk> and we think there's great opportunities both in sort of regular way acquisitions as well as the build to suits and adding to those core building blocks.
John D. Moragne: That's helpful, John. And I guess maybe it's just kind of self-evident. But as you get closer to the rent commencement on the UNFI, I assume the appetite to take on new build to suit goes up. Can you just give a sense for kind of where that appetite sits in terms of as a percentage of the total business to have a development pipeline underway?
Speaker Change: That's helpful. John and I guess, maybe just kind of self evident, but as you get closer to the rent commencement on the UNFI I assume the appetite to take on new build to suits goes up can you just give a sense for kind of where that that appetite fits in terms of as a percentage of the total business.
John D. Moragne: To have a development pipeline underway.
John D. Moragne: Yeah, there's a strong appetite for it, and UNFI is progressing really, really nicely right now. We're expecting it to come online at the end of Q3 or the beginning of Q4. As we talked about before, it has an absolute start date of October 15th at the latest, but we believe it's going to come online earlier than that.
John D. Moragne: Yeah.
John D. Moragne: Drawing appetite for it and UNFI is progressing really really nicely right now we're expecting to come online at the end of Q3 or the beginning of Q4 as we've talked about before it has an absolute rent commencement date of October 15th at the latest but we believe it's going to come online earlier than that.
John D. Moragne: And so as we are winding down our remaining commitment to fund there, it starts to open up the opportunity for us to look at additional build-to-suits. And when we look at our core building blocks, having a laddered build-to-suit structure out into the future over the next 12 to 18 to 24 months, we think it is really attractive growth for investors to look at. As you roll from one year to the next, already having a built-in investment pipeline that you know is going to come online from those build-to-suits, we think should provide a differentiated approach to growth that you don't see in the same material way across our industry as we are able to do with these larger industrial build-to-suits.
John D. Moragne: And so as we are winding down our remaining commitment there to fund that starts to open up the opportunity for us to look at additional build to suits and when we look at our core building blocks, having a ladder to build to suit structure out into the future over the next 12 to 18 to 24 months. We think is a really attractive growth for investors to look at.
John D. Moragne: As you roll from one year to the next already having a built in investment pipeline that you know is going to come online from those build to suits. We think should be provide a differentiated approach to growth that you don't see it the same material way across our industry that we are able to do with these larger industrial build to suits. So it's a key focus for US right now as a percentage it's pretty significant in terms of the pipe.
John D. Moragne: So it's a key focus for us right now. As a percentage, it's pretty significant in terms of the pipeline. Not all of those work out, but we're actively pursuing a handful of them and are excited about a few of them coming online in that 25 timeline.
John D. Moragne: One not all of those workout, but were actively pursuing a handful of them and are excited about a few of them coming online in that 25 timeline.
John D. Moragne: That's great. And maybe just the last one for me.
Speaker Change: That's great and maybe just last one for me I know it is not directly comparable but obviously a lot of headlines lately in the pharmacy space and with Wal Mart with its health clinics and I'm just curious.
John D. Moragne: <unk> had good execution on the health care properties year to date.
Speaker Change: Have you seen any change in the tone or the tenor of the discussions you are having.
John D. Moragne: In the last month or so just in terms of how investors are thinking about the health care space and the health care real estate space specifically.
John D. Moragne: I know it's not directly comparable, but there have been a lot of headlines lately in the pharmacy space and with Walmart with its health clinics. And I'm just curious if you've had good execution on the healthcare properties year to date. Have you seen any change in the tone or the tenor of the discussions you've had in the last month or so, just in terms of how investors are thinking about the healthcare space and the healthcare real estate space specifically? Yeah, I think the tone, you know, people I think are
John D. Moragne: Yeah, I think the tone, you know, people, I think, are comfortable with the approach that we're taking. You know, we're very pleased to have roughly 50 percent of our goal already out the door. You know, the plan in the near term is to get our overall health care allocation below 10 percent. At that point, when you're a single-digit ABR, it becomes naturally a less-emphasized portion of the portfolio, and so that's the goal that we have here.
John D. Moragne: Yes, I think the tone people I think are comfortable with the approach that we're taking we're very pleased to have roughly 50% of our goal already out the door.
John D. Moragne: The plan in the near term is to get our overall health care allocation below 10% at that point when Youre a single digit AVR. It becomes naturally a less emphasized portion of the portfolio and so that's the goal that we have here. We've got a good line of sight to the next 20% to 25% and we anticipate that that would close in the second half of 'twenty four and then the last 25% it will take a little bit more time.
John D. Moragne: We've got a good line of sight to the next 20 to 25 percent, and we anticipate that that will close in the second half of 24, and then the last 25 percent will take a little bit more time. I think it's because, in health care, you're looking at a lot of haves and have-nots. There are places that are really well-structured, and so from an investor sentiment standpoint, you know, depending on where they're looking at in the health care sector, there can be a lot of comfort and excitement about where they're going, and then there are a lot of places that are really struggling.
John D. Moragne: It's in health care, you were looking at a lot of haves and have Nots. There's places that are really well structured and so from an investor sentiment standpoint, depending on where theyre looking at the health care sector. There can be a lot of comfort and an excitement about workload and then theres a lot of places that are really struggling.
John D. Moragne: And so, you know, where we sit, and I think executing on the strategic plan fits well in terms of getting rid of that complexity, getting rid of an asset class that is not core to our long-term growth strategy, and we're excited to continue executing on it over the course of the next year or two.
John D. Moragne: And so where we sit and I think executing on the strategic plan fits well in terms of getting rid of that complexity getting rid of or an asset class that is not core to our long term growth strategy.
John D. Moragne: We're excited to continue executing on it over the course of the next year or two.
Speaker Change: Great. Thanks for the time.
Speaker Change: Thank you.
Ryan M. Albano: The next question today comes from the line of Caitlin Burrows from Goldman Sachs. Please go ahead. Your line is now open.
John D. Moragne: The next question today comes from the line of Caitlin Burrows from Goldman Sachs. Please go ahead. Your line is now open.
Ryan M. Albano: Hi, good morning. Just as a follow-up to that last one. You mentioned that about 50% of what you want to sell in the healthcare portfolio is now done, and you're in talks on another 20 to 25%, and the rest TBD. So could you talk a little bit more about the differences between the properties that you expect will take longer versus those that you've already closed or are in talks on?
Caitlin Burrows: Hi, Good morning, just as a follow up to that last one so you mentioned how.
Ryan M. Albano: 50% of what you want to sell on the health care portfolio and is now done and you're in talks on another 20% to 25% and the rest is TBD. So could you talk a little bit more about the differences between the properties that you expect will take longer versus those that you've already closed or are in talks on.
Ryan M. Albano: Sure. So the ones that will take a bit longer are likely to be one-off transactions. They were not ones that were viewed as being a good fit for larger portfolio deals. Larger portfolio deals, if you're looking at the private institutions or the public REITs that are evaluating healthcare assets that are on the market right now, need to fit a certain playbook for them. And not everything that we've owned and acquired is going to do that. As a reminder, we've been acquiring healthcare since 2009, 2010, going back to some of the earliest years of our 16-year operating history. So there's a lot that's in there.
Speaker Change: Sure. So the ones that will take a bit longer are likely to be one off transactions. They were not ones that were viewed as being a fit for larger portfolio deals larger portfolio deals if youre looking at the private institutions or the public Reits that are evaluating health.
Ryan M. Albano: Health care assets that are on the market right now need to fit.
Ryan M. Albano: Certain playbook for them not everything that we've owned and acquired.
Ryan M. Albano: Is going to do that as a reminder, we've been acquiring healthcare.
Ryan M. Albano: 2009, 2010 going back to some of the earliest years of our 16 year operating history and so there's a lot that's in there and so these one off transactions of that last little bit. Our focus is optimal disposition outcomes. We're not looking to sell these or just any price and we are good asset managers, we have really strong operational expertise we're in the real estate.
Ryan M. Albano: And so these one-off transactions in that last little bit, our focus is optimal disposition outcomes. We're not looking to sell these at just any price, and we are good asset managers. We have really strong operational expertise.
Ryan M. Albano: We're in the real estate business, and so our plan is to look at each of those individually and not rush through a decision on them. And if it takes a little bit of effort, you know, effort for us to work with a tenant on a lease extension, or maybe we need to invest some TI dollars into it to get the asset repositioned, where it's going to be attractive for somebody to buy on a one-off basis, that's what we're going to do. So it'll take a little bit more time to work through those, but that'
Ryan M. Albano: And so our plan is to look at each of those individually.
Ryan M. Albano: Not rush through a decision on them and if it takes a little bit of effort for us to work with the tenant on a lease extension or maybe we need to invest some ti dollars into it to get the asset repositioning where it's going to be attractive for somebody to buying a one off basis. That's what we're going to do so it will take a little bit more time to work through those but that's okay.
Ryan M. Albano: Got it. And just for the additional health care asset sales that you expect to happen in 2024, would you expect those to be in a single transaction or multiple?
Speaker Change: Got it and just for the additional health care asset sales that you expect to happen in 2024 would you expect those would be in a single transaction or multiple.
Ryan M. Albano: We're currently working on one single transaction, but it would have staged closings, so we would try to... time it out in a couple of different tranches over the course of the second half of the year.
Ryan M. Albano: We're currently working on one single transaction, but it would have stage closings. So we would try to.
Ryan M. Albano: Time it out in a couple of different tranches over the course of the second half of the year.
Ryan M. Albano: Got it. Okay. And then just to follow up on the build to suit opportunities, too, I guess, would those be on land that you already have? You mentioned maybe 12 to 24 months of kind of outlook or impact, but it seems like it could take longer if you need to get the land and the approvals and permits. So just wondering if you could talk about that, kind of what you have, and what you do have on the impact on time.
Speaker Change: Got it Okay, and then just to follow up on the build to suit opportunities to I guess would those be on land that you already have you mentioned, maybe 12 months to 24 months.
Ryan M. Albano: Outlook or impact, but it seems like it could take longer.
Ryan M. Albano: You need to get the laminate approvals and permitting so just wondering if you could talk about that.
Ryan M. Albano: No, we're not.
Ryan M. Albano: What you have no we're not impact on the timing.
Ryan M. Albano: No, we're not buying land for speculative development purposes. These are deals already in place. You know, we would acquire the land on the front end in connection with funding the deal, but these are opportunities we're looking at where the land has already been identified, the tenants have already been identified, and so there's no risk that you would traditionally see in sort of speculative industrial development.
Ryan M. Albano: No, we're not buying land for spec development purposes.
Ryan M. Albano: These are deals that are already in place we would acquire the land on the front end in connection with funding the deal but these are the opportunities. We're looking at where the land has already been identified and it's already been identified and so there's no risk that you would traditionally see in sort of spec industrial development.
Ryan M. Albano: So, like somebody else has already worked on getting it set up, or it just seems like, from what we hear on the industrial side, like, there's some time it takes from talking to a potential partner and saying, we're going to build this, to actually being able to put a shovel in the ground. Is it that that process has already happened, or somehow you're able to do it more quickly?
Ryan M. Albano: So like somebody else has already worked on getting it set up or it just seems like from what we hear on the industrial side like there is some time it takes some time.
Ryan M. Albano: Talking to a potential partner and saying we're going to build this to actually being able to put a shovel in the ground is it that that process has already happened or somehow you're able to get them more quickly.
Ryan M. Albano: No, the process has already happened. Think of this as the same sort of scenario we've been seeing for the last 12 months, starting for us with UNFI, the dislocation you're seeing in commercial real estate lending, where they haven't been able to find a capital provider, but they've already got a project in mind. They've got the land secured. They've got the permits they need. They're ready to break ground, but they don't have the funding to do it. And we can step in and provide them with the funding. Got it. Okay, thanks.
Speaker Change: No the process has already happened.
Ryan M. Albano: Got it, OK, thanks.
Ryan M. Albano: Think of this as the same sort of scenario, we'd been seeing the last 12 months starting for us with UNFI.
Ryan M. Albano: The dislocation youre seeing commercial real estate lending, where they haven't been able to find a capital provider, but they've already got a project in mind, they've got the lands accord secure they've got the permits they need the ready to break ground, but they don't have the funding to do it and we can step in and provide them with funding.
Ryan M. Albano: Got it okay. Thanks.
John D. Moragne: The next question today comes from the line of Mitch Germain from JMP Securities. Please go ahead; your line is now open.
Ryan M. Albano: The next question today comes from the line of Mitch Germain from JMP Securities. Please go ahead. Your line is now open.
John D. Moragne: Thanks so much. John, do you have a committed team that is now, you know, dedicated to these development opportunities? Or is it just part of the, you know, broad skill set of your acquisitions people?
Mitchell Bradley Germain: Thanks, so much.
Mitchell Bradley Germain: John are you.
John D. Moragne: The committed team.
John D. Moragne: It is now dedicated to these development opportunities or is it just part of the.
John D. Moragne: Broad.
Mitchell Bradley Germain: The skill set of your acquisitions.
John D. Moragne: People.
John D. Moragne: Yeah, so we're leveraging existing experience and expertise. Our head of acquisitions has done a significant number of build and suits over the course of his career. We have a 25-year-licensed architect on staff that's able to come in and provide us with really strong expertise and work through the build structure and the construction over the course of the period of time. And we've got a team that has gone through this with UNFI, as well as a handful of retail sites during 2023, that's continuing to grow their expertise. So it's built into the fabric of our acquisitions and investment team, and we're very excited about the types of opportunities that they're seeing.
John D. Moragne: Yes.
John D. Moragne: Leveraging existing experience and expertise.
John D. Moragne: Our head of acquisitions has done a significant number of build to suits over the course of his career, we have a 25 year license to architect on staff, that's able to come in and provide us with.
John D. Moragne: Really strong expertise in working through the build structure and the construction over the course of the period of time and we've got a team that having gone through this with UNFI as well as a handful of retail sites. During 2023 eight is continuing to grow their expertise. So its built into the fabric of our acquisitions and investment team and we're very excited about the types of opportunities that theyre seeing.
John D. Moragne: Great. And I think you had said, you know, you're looking at yields in the mid-seven area, give or take right now. Is that consistent with one of these development transactions, or do these transactions maybe skew a little bit higher versus what you could be acquiring a similar asset for?
John D. Moragne: Great.
John D. Moragne: I think you had said.
John D. Moragne: Looking at yields in the mid seven area give or take right now is that consistent with H, one business development transactions or these transactions, maybe skew a little bit higher versus what you could be acquiring a similar asking for.
John D. Moragne: Runs the gamut. Mid sevens is really on a blended basis. You know, there's a handful of things that we're looking at in that low seven to seven cap range, a handful of things in the higher cap range. A place that we continue to see a lot of great benefit from the build the suits in the industrial space, as well as sort of regular way acquisitions, is what the straight line yield on these becomes when you start building in long lease terms with the rent bumps, and the rent bumps are consistently Those straight-line yields, these opportunities are really attractive, even when you're talking about cap rates in the low seven.
John D. Moragne: It runs the gamut mid Sevens is really on a blended basis theres a handful of things that we're looking at in that low 7% to seven cap range and full of things and the higher cap range.
John D. Moragne: A place that we continue to see a lot of great benefit from the build to suits in the industrial space as well as sort of regular way acquisitions is what the straight line yield on these becomes when you start building in long lease terms with the rent bumps and the rent bumps are consistently above 2% at this 0.2 and a half to 75, 3% those straight line yields on these opportunities are.
John D. Moragne: Really attractive even when youre talking about cap rates in the low sevens.
Speaker Change: Great last one for me.
John D. Moragne: Great. Last one for me. The
John D. Moragne: <unk>.
John D. Moragne: You referenced 25-30% of the healthcare expected sales may be maybe kind of extended into 2025. Was that always the expectation, or did that come about from the experience of marketing those properties and seeing where the demand and the market was?
John D. Moragne: You referenced 25, 30% of the health care.
John D. Moragne: <unk> sales may be.
John D. Moragne: Maybe kind of extended into 2025.
John D. Moragne: Was that always.
John D. Moragne: The expectation or did that come about from the education of marketing those properties and seeing where the demand in the marketplace.
John D. Moragne: So I think the answer is both, you know, as I talked about during our Q4 earnings call, you know, it takes a long time to run a process and get to the point where we were when we made the announcement about the healthcare portfolio simplification strategy in February. We had started that process early in 2023, worked through the process internally and with our board over the course of the summer, and brought on JLL and CBRE to work with us on the process So we went into it with an open mind as to how we might be able to execute on it, but when we came out and announced the strategy to the market, we fully anticipated that we'd be able to execute really quickly on the first half, the next 25%; we were looking to stretch out a little bit in the last 25%. We're going to be onesie twosies that we're going to take more time. So this is exactly what we thought it was when we started talking about it a few months ago. Great, thanks a lot.
Speaker Change: So I think the answer is both.
John D. Moragne: As we as I talked about during our Q4 earnings call. It takes a long time to run a process and get to the point, where we were when we made the announcement about the healthcare portfolio simplification strategy in February we.
John D. Moragne: We have started that process early in 2023 work through the process internally and with our board over the course of the summer brought on <unk> and CBRE to work with us on the process in the fall.
John D. Moragne: So we went into it with an open mind as to how we might be able to execute on it but when we came out and announced the strategy to the market, we fully anticipated that we'd be able to execute really quickly on the first half of the next 25% we were looking to stretch out a little bit in the last 25%, we're going to be onesie twosies that we're going to take more time. So this is exactly what we thought it wasn't.
John D. Moragne: We started talking about this a few months ago.
John D. Moragne: Yeah.
John D. Moragne: Great. Thanks a lot. Good quarter.
Speaker Change: Great. Thanks, a lot good quarter.
Speaker Change: Thank you.
John D. Moragne: The next question today comes from the line of Ki-Bin Kim from Tuist. Please go ahead. Your line is now open.
John P. Kim: The next question today comes from the line of Keybanc Kim from <unk>. Please go ahead. Your line is now open.
John D. Moragne: Okay.
John D. Moragne: Thanks. Just going back to that last question on the additional 20% of health care assets that you might look to sell, any sense of what the cap rate range might be?
Ki Bin Kim: Thanks, just going back to that last question on the additional 20% of health care assets that you might look to sell.
Ki Bin Kim: Any sense of what the cap rate range might be.
John D. Moragne: Similar to the first half.
Speaker Change: Similar to the first half.
John D. Moragne: Okay. And going back to your comments about consumer health and maybe the impact of inflation that certain retailers might be feeling, I know you went through a list of some of the credit risks that you see today, but do you see other restaurants or retailers that are perhaps kind of getting closer to that red zone where you start to worry more about them?
John D. Moragne: Okay.
Speaker Change: And going back to your comments about consumer health and maybe the impacts of inflation that certain retailers might be feeling.
John D. Moragne: I know you went through a list of some of the credit risk that you see today, but.
John D. Moragne: Do you see other restaurants or retailers that are perhaps kind of getting closer to that red zone, where you have to worry more about them.
John D. Moragne: Consumer discretionary industries like restaurants, casual dining, some retail, wherever else are absolutely a focus for us right now. The ones that we talked about are the ones that are at the top of our list for things that we're concerned about. And it's sort of an obvious list that we've been talking about for a little bit here.
John D. Moragne: Consumer discretionary industries like restaurants casual dining some retailers or whatever else are absolutely a focus for US right now the ones that we talked about are the ones that are at the top of our list for things that we're concerned about.
John D. Moragne: But there still continues to be some resilience. Our rent coverage ratios are still strong. You saw us announce more than 3.2, I think, for this quarter for our restaurant assets. Retail stuff continues to perform generally well. They are experiencing some pressures on a corporate basis, but our sites themselves continue to perform well, and that gives us a lot of confidence.
John D. Moragne: It's sort of an obvious list that we've been talking about for a little bit here, but.
John D. Moragne: There still continues to be some resiliency our rent coverage ratios are still strong you saw us announce more than there was $3. Two I think for this for this quarter for our restaurant assets retail staff continues to perform generally well they are experiencing some pressures on a corporate basis, but our sites themselves continue to perform well and that gives us a lot of confidence.
John D. Moragne: And, you know, you don't have a ton of lease expirations this year or next year. I think 80 basis points this year and then 1.6% next year. Any early indications of renewal probabilities for those types of tenants? For this year, we're really pleased with it.
John D. Moragne: And you don't have a ton of lease expirations. This year or next year I think about 80 basis points. This year and then one 6% next year.
John D. Moragne: Any early indications of renewal probabilities for those type of tenants.
John D. Moragne: For this year, we're really pleased with it. On an aggregate basis, we're north of 100% rent recapture on those, so some good assets that are rolling that had below-market lease expirations. Next year, we're starting to work on it now, but we don't have a direct line of sight or absolute view as tenants are going to continue to work on those right up until they make their final decision.
John D. Moragne: For this year, we're really pleased with it on an aggregate basis, we're north of a 100% rent recapture on those.
John D. Moragne: So some good assets that are rolling that had below market lease expirations.
John D. Moragne: Next year, we're starting to work on it now, but no direct line of sight or absolute view as tenants are going to continue to work on those right up until they make their final decision.
Speaker Change: Okay. Thank you guys.
Speaker Change: Thank you.
John D. Moragne: As a reminder, if you would like to ask a question, please press star followed by 1 on your telephone keypad. The next question today comes from the line of Ronald Kamdem from Malkin Stanley. Please go ahead. Your line is now open.
John D. Moragne: As a reminder, if you would like to ask a question. Please press star followed by one of your telephone keypad.
Ronald Kamdem: The next question today.
Ronald Kamdem: It comes from the line of Arun.
Ronald Kamdem: From Morgan Stanley. Please go ahead. Your line is now open.
John D. Moragne: Hey, two quick ones. Just starting on the guidance raised on sort of the redeployment timing and so forth was really interesting, but trying to figure out what the bad debt assumption in the guidance was and did that change at all? And to be a little bit more specific, I'm curious about Red Lobster and what's sort of contemplated in that.
Ronald Kamdem: Hey, two quick ones just starting on.
John D. Moragne: The guidance raise on sort of the redeployment.
John D. Moragne: Timing and so forth is really interesting, but trying to figure out what's what's the bad debt assumption in the guidance and does that change at all and to be a little bit more specific I'm curious about red lobster.
John D. Moragne: And what sort of contemplated that.
John D. Moragne: Got that number.
Kevin M. Fennell: Hey, Ron, it's Kevin. I'll take the first part, and John can take the second.
John D. Moragne: Hey, Brian It's Kevin I'll take the first part and John can take the second but we started the year with 75 basis points of cash revenue, which we did last year as well we hold out throughout the year and so as you saw at 15 basis points for the quarter operating inside of that.
Kevin M. Fennell: But we started the year with 75 basis points of cash revenue, which we did last year as well. We will hold that throughout the year. And so, as you saw, 15 basis points for the quarter operating inside of that. And, you know, we'll certainly update as the quarter rolls forward or the year rolls forward. And on the Red Lobster point, we're actively monitoring that. I mean, it's certainly in the news about its anticipated bankruptcy. They haven't done it yet,
Kevin M. Fennell: We'll certainly update as the quarter rolls forward the Euro goes forward.
Kevin M. Fennell: The Red Lobster point, we're actively monitoring that I mean, there's certainly in the news anticipated bankruptcy they haven't done it yet.
Kevin M. Fennell: We've gone through and evaluate our portfolio every single quarter for the last few years as we've talked about a handful of times, we reduced that exposure from 25 assets down to 18, when we first initiated that position in 2016. It was four 5% of our ABR. It's one 6% today some of that attrition from the growth in the portfolio some of that from us being able to sell it off.
John D. Moragne: But we've gone through and evaluated our portfolio every single quarter for the last few years. As we've talked about a handful of times, we reduced that exposure from 25 assets down to 18. You know, when we first initiated that position in 2016, it was 4.5% of our ABR. It's 1.6% today.
John D. Moragne: Some of that's attrition from the growth of the portfolio, and some of that's from us being able to sell it off. We've got really strong real estate, about two times coverage across the portfolio. The real estate is performing well there. You know, Red Lobster, on a going forward basis, is going to need quality real estate to be able to operate their restaurants and get people in the door. And we think that we can offer that to them.
John D. Moragne: We've got really strong real estate about two times coverage across the portfolio. The real estate is performing well there are red lobster on a going forward basis is going to need real estate to be able to operate the restaurants and get people in the door and we think that we offer that to them.
John D. Moragne: But even if we're just looking at it from an investment standpoint, we're 82 cents on the dollar out of these, including the one Red Lobster that we sold at a mid-six cap rate in Q4. So it doesn't take much for us to get our money back out. We're not in the business of just making our money back, though, and we expect that there's going to be plenty of opportunities here in the future.
John D. Moragne: But even if we're just looking at it from an investment from our standpoint were 82.
John D. Moragne: Out of these including the one red lobster that we sold at a mid six cap rate and Q4. So it doesn't take much for us to get our money back out we're not in the business of just making our money back, though and we expect that theres going to be plenty of opportunity here into the future.
John D. Moragne: As I've said a handful of times, we're cautiously optimistic about where this goes, even if it goes through Chapter 11. Thai Union proved to not have the chops to be able to manage casual dining in the continental United States.
John D. Moragne: As I've said, a handful of times, we're cautiously optimistic about where this goes even if it goes through a chapter 11.
John D. Moragne: Thai Union proved to not have.
John D. Moragne: Chops to be able to manage casual dining in the continental United States and someone's going to see a good opportunity here with a strong brand strong real estate strong historical performance and there'll be able to take it over and be able to do something with it. So I feel good about or cautiously optimistic I should say about where we're headed.
John D. Moragne: And someone's going to see a good opportunity here with a strong brand, strong real estate, and strong historical performance, and they'll be able to take it over and be able to do something with it. So I feel good about, or cautiously optimistic, I should say, about where we're headed.
John D. Moragne: Okay.
John D. Moragne: Great. And then on the portfolio simplification. Obviously, a big chunk of it got done, so nicely done, but the sort of move in rates, does the timing slip a little bit, or do you have sort of enough line of sight where you do feel like you'll be below that 10% by the end of the year or potentially?
John D. Moragne: Right.
John D. Moragne: Then on the portfolio simplification, obviously, a big chunk of it got done so so nicely done with the sort of move in rates does does it.
John D. Moragne: Timing slipped a little bit or do you have sort of enough line of sight, where you do you feel like you'll be below that 10%.
John D. Moragne: By the end of the year.
John D. Moragne: Or potentially.
John D. Moragne: Yeah, we're pretty confident that we'll be below 10% by the end of the year. You know, with the next 20, 25%, having a good line of sight to where that's headed, that gives us a lot of confidence. And then, as we work through the rest of the portfolio on an individual basis, we think we can get there pretty confidently. And then we'll take our time with the rest of it, as we said, focus on there are optimal disposition outcomes and not just sort of pushing about the back of the truck.
Speaker Change: Yeah, we're pretty confident we are below 10% by the end of the year with the next 2025% having a good line of sight to where that's headed that gives us a lot of confidence and then as we work through the rest of the portfolio and individual basis, we think we can get there pretty.
John D. Moragne: Great, thanks so much.
John D. Moragne: Pretty confidently and then we will take our time with the rest of it is we said focus there is optimal disposition outcomes and not just sort of pushing about the back of the truck.
John D. Moragne: Sure.
Speaker Change: Great. Thanks, so much.
John D. Moragne: The next question is a follow-up question from Caitlin Burrows from Goldman Sachs. Please go ahead; your line is now open.
John D. Moragne: The next question is a follow up question from Caitlin Burrows from Goldman Sachs. Please go ahead. Your line is now open.
John D. Moragne: Hi, I don't know if you were suggesting this might be something more for the second quarter call, but I was just wondering if you could talk about the retail deal for a little bit, kind of how it came to be. It seems like a different kind of unique strategy in terms of, I think also the wording in the press releases that you invested or something rather than acquired. So, investing in that property seems like you're generally like, quote, keeping the out parcels, and then we'll be ground leasing the rest of the retail center. But could you just kind of talk about how that came to be? And if that's something you'd be interested in doing more of.
Caitlin Burrows: Hi, I don't know if youre, suggesting this might be something more for the second quarter call, but I was just wondering if you could talk about the retail deal for a little bit kind of how it came to be it seems like a different kind of unique strategy.
John D. Moragne: In terms of I think also the wording in the press releases that you invested or something rather than acquired so invested in that property. It seems like you're generally like keeping the out parcels and then will be ground leasing the rest of the retail center, but could you just kind of talk about how that came to be and if that's something you'd be interested in getting more RF.
John D. Moragne: So, this is one that we're really excited about. I think it's a great example of the creativity that we can show in a market like this. You know, net lease rates, as I said during my previous remarks, I think we're not going to be able to rely on the low interest rate-fueled growth that we saw for 15 years post-GFC.
Speaker Change: Yeah. So this.
John D. Moragne: This is one that we're really excited about I think it's a great example of the creativity that we can show in a market like this.
John D. Moragne: These rates as I said during my prepared remarks, I think we're not going to be able to rely on the low interest rate fueled growth that we saw for 15 years post GSE, we have to start relying on our real estate expertise operational expertise direct relationships finding creative solutions and the pullback in commercial real estate lending has provided us that opportunity and we're jumping into it with both feet.
John D. Moragne: We have to start relying on real estate expertise, operational expertise, direct relationships, and creative solutions. And the pullback in commercial real estate lending has provided us with that opportunity, and we're jumping into it with both feet. So, this is a direct opportunity that was brought to us. We partnered with Sansone, who is also our partner in UNFI, on this.
John D. Moragne: So this is a direct opportunity that was brought to US we partnered with Samsung Samsung is also our partner on UNFI.
John D. Moragne: They have been managing this retail location for 30 years, and they initially constructed it. So, we have a ton of confidence in their ability to manage this. The current, well, not the current, we're the current owner, but the prior owner had a closed-end fund that they needed to harvest and roll those funds into something else and make distributions to investors. And they were in a position where there wasn't a huge opportunity from commercial real estate lending or other capital sources to fill the gap, and we were able to do so.
John D. Moragne: They have been managing this retail location for 30 years initially constructed it.
John D. Moragne: So we have a ton of confidence in their ability to manage this the current well the current where the current owner, but the prior owner had a closed end fund that they needed to harvest and roll those funds into something else and make distributions to Lps.
John D. Moragne: And they were in a position where there wasn't a huge opportunity from commercial real estate lending or other capital sources to fill the gap and we were able to do so and so we went in and this is a creative unique solution, where we're really really happy to have acquired at above average cap rates seven retail sites that have a ton of value as I mentioned in my remarks.
John D. Moragne: And so, we went in, and this is a creative, unique solution where we're really, really happy to have acquired, at above average cap rates, seven retail sites that have a ton of value, as I mentioned in my remarks, Bass Pro Shops, Chick-fil-A, Longhorn Steakhouse, Burger King. I mean, really some quality names that we can add to the portfolio.
John D. Moragne: Remarks, bass pro shops, Chick Fil, a longhorn steakhouse Burger King I mean really some quality names that we can add to the portfolio.
John D. Moragne: And to do that, we needed to step in and provide a holistic capital solution. So, the transitional capital we've provided to this site is really in two tranches. One tranche, Spencer, as you alluded to, Caitlin, excuse me, we are looking over time to shift that into a ground lease. There's some work to do, you have to work with the tenants on that, so we need to see where that one goes. And the second tranche of that is likely to be a three to five year hold period.
John D. Moragne: And to do that we needed to step in and provide a holistic capital solutions. So the transitional capital we've provided to this site.
John D. Moragne: Early in two tranches, one tranche Spencer as you alluded to Caitlin excuse me, we are looking over time too.
John D. Moragne: Shift that into a ground lease there is some work to do and you got to work with the tenants on that so we need to see where that one goes.
John D. Moragne: And the second tranche of that is likely a three to five year hold period, it's transitional and sense that there's some lease up activity and some lease extensions that need to be done we're already 95% leased on this site. So it's in great shape.
John D. Moragne: It's transitional in the sense that there's some lease-up activity and some lease extensions that need to be done. We're already 95% leased on this site, so it's in great shape. And then converting that over time as they look to find a long-term, permanent owner. Sandstone's been a great partner. There are other people out there that have similar situations. This is a creative opportunity for us to allocate capital and resources. We're seeing historical lows on traditional net lease transaction activity.
John D. Moragne: And then converting that over time as they look to find a long term permanent owner.
John D. Moragne: So it's been a great partner there are other people out there that have similar situations. This is a creative opportunity for us to allocate capital in an environment, where youre seeing historical lows.
John D. Moragne: On traditional net lease transaction activity and so we will happily look at this this may be a unique one off opportunity that we pursue and it may be something that we do again, we'll just have to wait and see what the opportunities that brings us.
John D. Moragne: And so we'll happily look at these. This may be a unique one-off opportunity that we pursue, or it may be something that we do again. We'll just have to wait and see what the opportunity set brings up.
John D. Moragne: Got it. That sounds good. And then maybe just similarly on the industrial deal, I guess, bigger picture, like to have acquisition cap rates in the mid 7% range for retail and industrial does seem like a really good outcome for you guys. So, additional to what you just said on the retail side, is there anything else you could add for kind of how you expect to achieve those kinds of yields over the rest of the year?
Speaker Change: Got it that sounds good and then maybe just similarly on the industrial deal I guess bigger picture I'd like to have acquisition cap rates in the mid 7% range for retail and industrial does seem like a really good outcome for you guys. So incremental to what you just said on the retail side is there anything else you could add for kind of how.
John D. Moragne: Do you expect to achieve those kinds of yields over the rest of the year and if there's any other additional color you could give on the industrial property again like how you source that what made it unique for you guys.
John D. Moragne: And if there's any other additional color you could give on the industrial property again, like how you source it, what makes it unique for you guys? Yeah, anything else on that? Yeah, so the industrial deal that we sourced.
John D. Moragne: Yeah anything else on that.
John D. Moragne: Yeah, so the industrial deal that we sourced.
John D. Moragne: Directly sourced internally from a personal relationship, it was an opportunity that was brought to us because they were looking for someone that would provide surety of closing, ease of execution, and the ability to cut a big check and provide a holistic solution for an acquisition that they were working on. We're very pleased with it. We'll have more detail on that in the future. But, you know, again, it's an industrial campus in California. You're in the seven-cap range on that. That feels really good right now.
John D. Moragne: Directly sourced internally from a personal relationship. It was an opportunity that was brought to us because they were looking for someone that would provide surety of clothing.
John D. Moragne: Use of execution and the ability to cut a big check and provide a holistic solution for.
John D. Moragne: That acquisition that they were working on.
John D. Moragne: We're very pleased with it we'll have more detail on that in the future, but again its an industrial campus in California, you are in the seven cap range on that feels really good right now.
John D. Moragne: Going into the future, to take the other part of your question, you know, we are continuing to see some good opportunities, mid-market, and industrial, in that seven-cap range. We're excited about them. So is everybody else.
John D. Moragne: Going into the future to take the other part of your question. We are continuing to see some good opportunities midmarket industrial in that seven cap range. We're.
John D. Moragne: We're excited about those so is everybody else. If you look at what a lot of people are pursuing right now from public REIT buyers as well as private institutional buyers. They really like mid cap industrial so those are highly competitive.
John D. Moragne: If you look at what a lot of people are pursuing right now from public reef buyers, as well as private institutional buyers, they really like mid-cap industrials. So those are highly competitive. We're going to continue to exercise really strong discipline. We're not going to chase those to a place where the risk reward doesn't make sense anymore. And if we lose them, we lose them. That's okay.
John D. Moragne: We're going to continue to exercise it really strong disciplined we're not going to chase those to a place where the risk reward doesn't make sense anymore.
John D. Moragne: If we lose them, we lose them that's okay.
John D. Moragne: Conversions are harder right now, but if we can find the right ones and the right relationships, and that's why the direct relationships and the off-market opportunities are so critical right now. If you're trying to build a pipeline by going out and just bidding on the things that are showing up in the email blasts from the brokers, that's going to be pretty hard over the next little bit. So working on those, working on creative opportunities like the retail center, and working on building out and laddering out that pipeline of build-to-suit transactions is where a lot of our focus is right now.
John D. Moragne: <unk> are harder right now, but if we can find the right ones and the right relationships and that's why the direct relationships in the off market opportunities are so critical right now if youre trying to build a pipeline by going off and just bidding on the things that are showing up in the email blasts, where the brokers that's going to be pretty hard over the next little bit here. So working on those working on creative opportune.
John D. Moragne: Like the retail center.
John D. Moragne: And working on building out and lateral out that pipeline of build to suit transactions is where a lot of our focus is right now.
John D. Moragne: Thanks.
Speaker Change: Thanks, Kevin.
John D. Moragne: Yeah.
John D. Moragne: The next question today comes from the line of Eric Borden from BMO Capital Markets. Please go ahead; your line is now open.
John D. Moragne: The next question today comes from the line of Eric Bolton from BMO Capital markets. Please go ahead. Your line is now open.
John D. Moragne: Hey, good morning, everyone. Just on that last point around lagging the potential development opportunities, how are you guys thinking about that? Just given, you know, the delay between, you know, the capital outlay and then when the NOI kind of comes online for you guys?
Eric Borden: Hey, good morning, everyone.
Eric Borden: Just on that last point around <unk> potential development opportunities. How are you guys thinking about that just given the delay between the capital outlay and then when the NOI comes online for you guys.
John D. Moragne: Yeah, there's a balance there. I think it's really attractive from a differentiated growth strategy, but you have to balance it with current rent and new opportunities. One of the things that we want to spend time on is the pro forma leverage that we included this quarter for the first time. We are sitting on a low levered position already at 4.8, but when you pro forma in the way that we're UNFI coming online, you get down to 4.6.
Speaker Change: Yes, there is a balance there I think it's a really attractive from a differentiated growth strategy, but you have to balance it with current rent paying.
John D. Moragne: New opportunities one of the things that we want to spend time on is the pro forma leverage that we included this quarter for the first time, we are sitting on a low levered position already at four eight but when you pro forma in the way that we're UNFI coming online you get down to four 6%. So we've got a lot of room there, but it is a balance between these things with capitalized interest there is some near.
John D. Moragne: So we've got a lot of room there, but it is a balance between these things. With capitalized interest, there is some current benefit as we are funding these over time, but the real benefit is when they come online. So being able to ladder them, I think, is important. You know, if you've got these big, huge balloons and nothing in between, that gets a little bit more difficult. But if you've got them coming online on a more consistent basis, which is the hope that we have, we need to prove that out, then it starts to be a really attractive way to allocate capital.
John D. Moragne: Current benefit as we are funding these over time, but the real benefit is when they come online.
John D. Moragne: So being able to ladder them I think is important.
John D. Moragne: Got these big huge balloons and nothing in between that gets a little bit more difficult, but if you've got them coming online in a more consistent basis, which is the hope that we have we need to prove that out.
John D. Moragne: Then it starts to be really attractive way to allocate capital.
John D. Moragne: Yeah.
John D. Moragne: That's helpful. And then, you know, outside of, you know, traditional net lease transactions, some of your peers have had success in the sale-leaseback financing market. I'm just curious to hear your thoughts around what you're seeing today and if that is a potential solution for you guys to kind of grow externally.
Speaker Change: That's helpful and then outside of traditional net lease transactions and some of your peers have had success in the sale leaseback financing market.
John D. Moragne: I'm just curious to hear your thoughts around what youre seeing today and if that is a potential solution for you guys to kind of grow externally.
John D. Moragne: Yeah, there's still some sale leasebacks that we're evaluating. The key thing for us is, you know, why is the company pursuing them? Do they have a growth objective? Is there an acquisition that they're working on? We're not necessarily interested in solving a capital structure problem if it's not one that we feel really confident about going forward, if they've got limited access to alternative sources of capital, and so they're turning to the sale leaseback market.
Speaker Change: Yes, there is still some sale leasebacks that were evaluating.
John D. Moragne: The key thing for US is why is the company pursuing it do they have a growth objective is there an acquisition that they are working on.
John D. Moragne: We're not necessarily interested in solving a capital structure problem. If it's not one that we feel really confident about going forward.
John D. Moragne: Got limited access to alternative sources of capital and so they are turning to the sale leaseback market, but it's more limited now than it was I think theres a lot of corporate coffers that are pretty full cash right now and so theyre not necessarily needing sale leasebacks in the same way that they used to but we will absolutely evaluate them when they come online and really honed into why what is the point whats the purpose that they are driving.
John D. Moragne: But it's more limited now than it was. I think there are a lot of corporate coffers that are pretty full of cash right now, and so they're not necessarily needing sale leasebacks in the same way that they used to, but we'll absolutely evaluate them when they come online and really hone in on why. You know, what is the point? What's the purpose that they're driving for the funds that they're seeking
John D. Moragne: The funds that they are seeking.
John D. Moragne: I'll leave it there. Thank you. Thank you. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. The next question today comes from the line of Spenser Allaway from Greenwich.
Speaker Change: Helpful. I'll leave it there thank you.
Spenser Bowes Allaway: Thank you.
Operator: As a reminder, if you would like to ask a question, please press star followed by 1 on your telephone keypad. The next question today comes from the line of Spenser Allaway from Green Street. Please go ahead. Your line is now open. Thank you.
John D. Moragne: As a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.
Spenser Bowes Allaway: The next question today comes from the line of Spenser <unk> from Green Street. Please go ahead. Your line is now open.
Spenser Bowes Allaway: Thank you and maybe just a bigger picture question.
Spenser Bowes Allaway: Just given the more cautious cost of capital signal, that's being provided by the market right now how has your thinking changed at all regarding redeploying the disposition proceeds into new investments versus buying back shares bringing down leverage further or perhaps just sitting on dry powder until that cost of capital improves.
Operator: Yes.
John D. Moragne: Yeah, so our job is to allocate capital in the most advantageous way possible. And so we're always evaluating all the alternatives that are in front of us. And the ones that you set out, Spenser, are really the ones that we're thinking about.
Spenser Bowes Allaway: Yes, so our job is to allocate capital seven days way possible and so we're always evaluating all the alternatives that are in front of us and the ones that you've set out those are really the ones that we're thinking about.
John D. Moragne: We're in a great spot right now from a leverage standpoint, so we have looked at paying down some debt. But where our debt currently sits relative to what we can get on a straight line yield basis from investing in new opportunities isn't necessarily that attractive, particularly given the additional cash proceeds that we have from the healthcare sales. But if you take share repurchases, we have that tool in the toolkit for a reason.
Spenser Bowes Allaway: We're in a great spot right now from a leverage standpoint, so we have looked at paying down some debt but.
John D. Moragne: But where our debt currently sits relative to what we can get on a straight line yield basis from investing in new opportunities.
John D. Moragne: Isn't necessarily that attractive, particularly given the additional cash proceeds that we have from the healthcare sales.
John D. Moragne: But if you take share repurchases, we have that tool in the toolkit for a reason, it's something that we'll evaluate and we will think about given where our shares are trading currently at an implied cap rate north of 8%.
John D. Moragne: It's something that we'll evaluate and think about, you know, given where our shares are trading currently and the implied cap rate north of 8%. The fact that we are in a low levered position, and the fact that we have some additional dry powder relative to the healthcare sales makes it an interesting conversation. So it's something that we'll evaluate and make sure that we're allocating capital to the most advantageous place possible. Thank you.
John D. Moragne: The fact that we are in a low levered position in fact, we have some.
John D. Moragne: Additional dry powder relative to the health care sales makes it an interesting conversation. So it's something that we'll evaluate and make sure that we're allocating capital to the most advantageous place possible.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
John D. Moragne: As a final reminder, if you would like to ask a question, please press star followed by 1 on your telephone keypad. There are no additional questions waiting at this time, so I'd like to pass the call back over to John Moragne for any closing remarks.
Speaker Change: As a final reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.
John D. Moragne: There are no additional questions waiting at this time, so I'd like to pass the call back over to Jim <unk> for any closing remarks.
John D. Moragne: Thank you and thanks everybody for joining us today. I hope you can hear the confidence and the conviction that we have and the execution we've had so far this year and where we believe we're headed over the course of the rest of the year. We look forward to talking with you more about it during the upcoming conference season. Thanks all and have a great day.
John D. Moragne: Thank you and thanks, everybody for joining us today I hope you can hear the confidence and the conviction that we have and the execution. We've had so far this year and where we believe we are headed over the course, the rest of the year and we look forward to talking with you more about it at the upcoming conference season, Thanks to all and have a great day.
Operator: This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.
Speaker Change: This concludes today's conference call. Thank you will feel participation you may now disconnect your lines.
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