Q1 2024 NNN REIT Inc Earnings Call
Okay.
Operator: Greetings. Welcome to the NNN REIT, Inc. First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Stephen Horn, Chief Executive Officer. You may begin.
Speaker Change: Greetings welcome to the N and M REIT, Inc. First quarter 2024 earnings call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Please note. This conference is being recorded I will now turn the conference over to your host Steven Horn, Chief Executive Officer, you may begin.
Stephen A. Horn: Colleague, good morning and welcome to NNNREIT's first quarter 2024 earnings call. Joining me on the call is Chief Financial Officer Kevin Habicht.
Stephen A. Horn: Thanks Ali.
Stephen A. Horn: And welcome to <unk> first quarter 2024 earnings call joining me on the call as Chief Financial Officer, Kevin <unk>.
Stephen A. Horn: As this morning's press release reflects, the company's performance to start 2024 produced strong results, including Continued High Occupancy and Inline Acquisition Volume Driven by a Proprietary Tenant Relationship. We are in position to continue enhancing shareholder value as we move deeper into 2024. Highlights of the first quarter results emphasize our continuous effort in actively managing the portfolio. The portfolio of 3,546 freestanding, single-tenant properties continues to perform exceedingly well, maintaining high occupancy levels at 99.4, which remains above our long-term average at 98%, plus or minus a fraction. The leasing department had a terrific quarter, leasing seven assets to QSR and auto service tenants primarily, with a 91% rent recapture from the prior rent. This recapture is above historical levels of approximately 70%.
Stephen A. Horn: As this morning's press release reflects the company's performance to start 2024 produced strong results, including continued high occupancy and in line acquisition volume driven by our proprietary tenant relationships.
Stephen A. Horn: We are in position to continue enhancing shareholder value as we move deeper into 2024 and beyond.
Stephen A. Horn: Highlights for the first quarter results emphasize our continuous effort actively managing the portfolio. The portfolio of 3546 freestanding single tenant properties continued to perform exceedingly well maintained high occupancy levels at 99, four which remains above our long term average of 98 <unk>.
Stephen A. Horn: <unk> plus or minus a fraction.
Stephen A. Horn: The leasing department had a terrific quarter leasing seven assets to <unk> and auto service tenants, primarily with a 91% rent recapture from the prior rent.
Stephen A. Horn: This recapture is above historical levels of approximately 70% remember the network's hard not to give ti dollars to buy up rent.
Stephen A. Horn: Remember, NNN works hard not to give TI dollars to buy up rent. Currently, NNN only has 22 vacant assets in the portfolio, which is a testament to working with relationship tenants to maximize value for shareholders. During the quarter, we also sold six properties, which were all income-producing, raising almost $19 million of proceeds to be reinvested in the new acquisition. Over the course of the year, NNN sells assets defensively and proactively, but overall, we target the blended disposition cap rate to be 100 basis points lower than the deployment of capital. The last point on the portfolio I'd like to mention is with regard to 2024 lease expirations, of which we originally had 90 for the year. As of the end of the quarter, there are 39 left to handle.
Stephen A. Horn: Currently <unk> only has 22 vacant assets in the portfolio, which is a testament to working with our relationship tenants to maximize value for shareholders.
Stephen A. Horn: During the quarter. We also sold six properties, which were all income producing raising almost $19 million of proceeds to be reinvested into new acquisitions.
Stephen A. Horn: Over the course of the year, and then sales assets defensively and proactively but overall, we target the blended disposition cap rate to be 100 basis points lower than the deployment of capital pricing.
Stephen A. Horn: Last point on the portfolio I would like to mention is with regard to 2024 lease expirations, which we originally had 90 for the year as at the end of the quarter Theres 39 left to handle but I'm not expecting a departure from the $1, 85% renewal at 100% prior Ryan.
Stephen A. Horn: And I'm not expecting a departure from the norms of 85% renewal at 100% prior rent. Turning to acquisitions. During the quarter, we invested $125 million in 20 new properties, an initial cash cap rate of 8%. If we were required to straight line, the gap rent would be $9.2. With an average lease duration of over 18 years, eight of the deals were sub-five million, meaning we realize that small deals can contribute to FFO per share. Twelve of the thirteen deals were from relationship tenants, which we do repeat business with, creating a barrier to competition to solidify an end to deal.
Stephen A. Horn: Turning to acquisitions during the quarter, we invested $125 million in 2000, new properties at an initial cash cap rate of 8%. If we were required to straight line. The GAAP rent would be nine 2% with an average lease duration of over 18 years eight of the deals we're sub $5 million, meaning we realize that deals.
Stephen A. Horn: Small deals can contribute to <unk> per share growth.
Stephen A. Horn: 12 of the 13 deals were from relationship tenants.
Stephen A. Horn: Which we do repeat business, creating a barrier to competition to solidify enhanced deal flow. It is this business model that allows the team feels good about pipeline for second quarter.
Stephen A. Horn: It is this business model that allows the team to feel good about the pipeline for the second quarter. With regard to the acquisition pricing environment, in the last quarter, our initial cash cap rate of 8% was approximately 40 basis points wider than the fourth quarter of 2023 and 100 basis points year over year. The 40-point increase was a result of M&M being top of mind, which created a window of opportunity to push pricing mid-fourth quarter last year for the first quarter deal.
Stephen A. Horn: With regard to acquisition pricing environment in the last quarter. Our initial cash cap rate of 8% was approximately 40 basis points wider than the fourth quarter of 2023, and 100 basis points year over year.
Stephen A. Horn: The 40 point increase was a result of M&A and being top of mind, which created a window of opportunity to push pricing mid fourth quarter last year for the first quarter deal closing.
Stephen A. Horn: NNN was in good position because of our calling effort and our strong balance sheet to take advantage of the opportunity. As I mentioned during the February call, we observed an increase in cap rates, but as they sit today in May, it appears that the cap rate increase is starting to flatten. I anticipate the second quarter pricing of 2024 to be similar to the first quarter. This suggests cap rates are stabilizing as sellers feel lower cap rates may be in the. Sellers assume the macroeconomic environment may improve and the higher for longer narrative dissipates, and then we'll maintain acquisition volume to sell these fact transactions with our stable tenant.
Stephen A. Horn: And then was in good position because of our calling effort and our strong balance sheet to take advantage of the opportunities as.
Stephen A. Horn: As I mentioned during our February call, we observed increase in cap rates, but as it sits today in may the peers and the cap rate increase is starting to flatten I anticipate the second quarter pricing of 2024 to be similar to the first quarter pricing.
Stephen A. Horn: This suggests cap rates are stabilizing as sellers feel lower cap rates may be in the future.
Stephen A. Horn: The sellers assumed the macroeconomic environment may improve in the higher for longer narrative dissipates in the near future.
Stephen A. Horn: And then we will maintain acquisition volume through sale leaseback transactions with our stable of tenants.
Stephen A. Horn: Based on our pipeline and dialogue with our partners, we remain comfortable with our ability to meet and hopefully exceed 2024 acquisition guidance of four to 500 million, primarily through the sale leaseback deals on our. Our balance sheet remains one of the strongest in our sector. Our credit facility has plenty of capacity, with only a balance outstanding of $116 million, down from $130 million in. We just increased the capacity by 100 million to 1.2 billion this past month. So NNN is well positioned to fund its operations for 2020.
Stephen A. Horn: Based on our pipeline and dialogue with our partners, we remain comfortable with our ability to meet and hopefully exceed 2020 for acquisition guidance of $4 million to $500 million, primarily due to the sale leaseback deals on our lease form.
Stephen A. Horn: Our balance sheet remains one of the strongest in our sector. Our credit facility has plenty of capacity with only a balance outstanding of $116 million down from $130 million at year end, we just increased the capacity by $100 million to $1 2 billion. This past month. So <unk> is well positioned to fund 2020 for acquisition.
Speaker Change: Got it.
Speaker Change: With that let me turn the call over to Kevin for more color and detail on our quarterly numbers.
Kevin B. Habicht: Thanks, Steve. And as usual, I'll start with a normal cautionary statement that we will make certain statements that may be considered to be forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements.
Kevin: Thanks, Steve and as usual I'll start with our normal cautionary statement that we will make certain statements that may be considered to be forward looking statements under federal Securities law. The company's actual future results may differ significantly from the matters discussed in these forward looking statements and we may not release revisions to these forward looking.
Kevin B. Habicht: and we may not release revisions to these four.
Kevin: These statements to reflect changes after the statements were made.
Kevin B. Habicht: were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in this morning's press release. Okay, with that out of the way.
Kevin: Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in this morning's press release.
Kevin B. Habicht: So yeah, headlines from this morning's press release reported quarterly core FFO results of 83 cents per share for the first quarter of 2024, and that's up three cents, or 3.8% over a year ago. AFFO results were $0.84 per share for the first quarter, which is $0.02 or 2.4% higher than year-ago results. We did have an unusually high lease termination fee income of $4.2 million in the first quarter, and that compares with $1.7 million in the prior year's first quarter. Over the past five years, we've averaged about $3 million in annual lease termination fee income.
Speaker Change: Okay with that and all the way so yes headlines from this morning's press release report quarterly core <unk> results of <unk> 83 per share for the first quarter of 2024 and Thats up <unk>.
Stephen A. Horn: Or three 8% over a year ago results of <unk> 80 per share.
Stephen A. Horn: <unk> results were <unk> 84 per share for the first quarter, which is two <unk> or two 4% higher than year ago results.
Kevin B. Habicht: So this quarter's $4.2 million was well above average. But even with that incremental income, overall, another good quarter and in line with our expectations. Occupancy was 99.4%, and as Steve mentioned, G&A expense came in at $12.6 million for the quarter. That's up 2.7% versus the prior year and represents 5.8% of revenue. Reporter, and again, in line with our guidance.
Stephen A. Horn: We did have unusually high lease termination fee income of $4 2 million in the first quarter and that compares with $1 7 million in the prior year first quarter.
Stephen A. Horn: Over the past five years, we've averaged about $3 million of annual lease termination fee income. So this quarter's $4 2 million was well above average, but even with that incremental income overall another good quarter quarter end in line with our expectations.
Stephen A. Horn: Occupancy was 99, 4% at quarter end as Steve mentioned G&A expense came in at $12 6 million for the quarter Thats up 3.7.
Stephen A. Horn: 7% versus prior year and represented five 8% of revenues for the quarter and again in line with our guidance.
Kevin B. Habicht: Our AFFO dividend payout ratio for the first quarter of 2024 was 67%. That resulted in approximately $50.6 million of free cash flow for the quarter after the payment of all expenses and dividends. We currently anticipate this free cash flow amount coming in at approximately $194 million for the full year of 2024. We ended the quarter with $831 million of annual base rent in place for all leases as of March 31.
Stephen A. Horn: Our <unk> dividend payout ratio for the first quarter of 2024 was 67% that resulted in approximately $50 6 million of free cash flow for the quarter. After the payment of all expenses and dividends. We currently anticipate this free cash flow amount coming in.
Kevin B. Habicht: At approximately $194 million for the full year of 2024.
Stephen A. Horn: We ended the quarter with $831 million of annual base rent in place for all leases as of March 31, 2024, so that would.
Kevin B. Habicht: 2024, so that would take into account all acquisitions and Dispositions completed during the quarter. Switching over to the balance sheet, a couple of just little items. There was a small amount of equity issuance at a little over $42 a share, generating $21 million in net proceeds during the quarter. Shortly after quarter end, we completed a recast of our bank credit facility, increasing capacity by $100 million to $1.2 billion and extending the term out to April 2028. There were no other material changes to the terms of that law.
Stephen A. Horn: We've taken into account all acquisitions and dispositions completed during the quarter.
Stephen A. Horn: Switching over the balance sheet, coupled just little items.
Stephen A. Horn: There was a small amount of equity issuance at a little over $42 a share generating $21 million of net proceeds during the quarter.
Stephen A. Horn: Shortly after quarter end, we completed a recast of our bank credit facility, increasing capacity by $100 million to $1 2 billion and extending the term out to April 2028.
Kevin B. Habicht: There were no other material changes to the terms of that loan.
Kevin B. Habicht: We greatly appreciate the support of our bank group over many, many years. We maintain a good leverage and liquidity profile with over $1 billion of availability on our bank credit facility. As we've talked about maintaining our light capital market footprint, we've funded nearly 56% of our first quarter acquisitions of $124.5 million with free cash flow of the $50.6 million I mentioned and the $18.5 million of disposition closures. And then, based on the midpoint of our acquisition and disposition guidance for 2024, we should fund close to 65% of 2024 acquisitions with free cash flow and disposition proceeds.
Kevin B. Habicht: We greatly appreciate the support of our bank group over many many years.
Stephen A. Horn: We maintain a good leverage and liquidity profile with over $1 billion of availability on our bank credit facility.
Stephen A. Horn: As we've talked about maintaining our light capital market footprint.
Stephen A. Horn: Funded nearly 56% of our.
Stephen A. Horn: First quarter acquisitions of $124 $5 million with free cash flow of $50 6 million I mentioned and the $18 5 million of disposition proceeds.
Kevin B. Habicht: And then based on the midpoint of our acquisition and disposition guidance for 2024, we should fund close to 65% of 2024 acquisitions with free cash flow and disposition proceeds.
Kevin B. Habicht: Our weighted average debt maturity remains 11.8 years at quarter end, which will help us slow the refinance headwind that all companies are facing. A couple of stats, net debt to gross book assets was 41.6%. Debt to EBITDA was 5.5 times at March 31st, interest coverage and fixed charge coverage was 4.5 times for the first quarter. Again, none of our properties are encumbered by mortgage.
Stephen A. Horn: Our weighted average debt maturity remains of 11 eight years at quarter end, which will help us.
Kevin B. Habicht: Slow the refinance headwinds that all companies are facing in the coming years.
Speaker Change: A couple of stats.
Speaker Change: <unk> to gross book assets was 41, 6%.
Kevin B. Habicht: Debt to EBITDA was five five times at March 31.
Kevin B. Habicht: Interest coverage and fixed charge coverage was four five times for the first quarter.
Speaker Change: And again, none of our properties are encumbered by mortgages.
Kevin B. Habicht: So we remained focused on appropriately allocating capital, which to us means ensuring we are getting what we believe are appropriate returns on equity while controlling risk through property underwriting and maintaining a sound balance. Valuing equity adequately, whether that equity is produced by free cash flow disposition proceeds or new equity instruments, is at the heart of growing per share results over the long term in our. So in closing, Q1, a solid start to the year. We believe we are in a relatively good position to navigate the uncertainties that are out there as we continue to focus on growing per share results. And we are mindful that this is a long-term, multi-year endeavor as we think about our remaining Fundamentals of the business.
Stephen A. Horn: So we remained focus on appropriately allocating capital, which to US means ensuring we are getting what we believe are appropriate returns on equity while controlling risks through property underwriting and maintaining a sound balance sheet.
Stephen A. Horn: Valuing equity adequately whether that equities produced by free cash flow disposition proceeds our new equity issuance is at the heart of growing per share results over the long term in our opinion.
Kevin B. Habicht: So in closing Q1 solid start to the year, we believe and we're in relatively good position to navigate the uncertainties that are out there as we continue to focus on growing per share results.
Kevin B. Habicht: And we are mindful. This is a long term multi year endeavor as we think about.
Stephen A. Horn: Business.
Kevin B. Habicht: The fundamentals of the business remain in good shape and with that we will open it up to any questions all of these things.
Stephen A. Horn: And with that, we will open it up to any questions from all of you.
Operator: Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Your first question for today is from Joshua Dennerlein with Bank of America.
Speaker Change: Certainly at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Stephen A. Horn: Confirmation tone will indicate your line is in the question queue.
Stephen A. Horn: You May press Star two if you would like to remove your question from the queue.
Stephen A. Horn: For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Stephen A. Horn: One moment, please while we poll for questions.
Joshua Dennerlein: Your first question for today is from Joshua <unk> with Bank of America.
Joshua Dennerlein: Yeah, hey guys, thanks for the time and morning.
Joshua: Yeah, Hey, guys. Thanks for the time and morning.
Joshua: Just wanted to go over what's in guidance for the year.
Joshua Dennerlein: Do you guys assume as far as bad debt goes and then is there any additional lease term fee income that you include in guidance.
Kevin B. Habicht: Yeah, so as it relates to bad debt, you know, we've assumed 100 basis points of loss, rent loss, in our guidance. That's what we typically do.
Joshua Dennerlein: Yes, so as it relates to the bad debt, we've assumed 100 basis points of loss rent loss and are in our guidance Thats, what we typically do and we're not straying from that practice.
Kevin B. Habicht: And we're not strained from that practice, nor trying to signal that we're worried that it should be higher than that. Historically, our realized loss is less than that, meaning 30 to 50 basis points, and so it still feels like we're kind of in that realm, if you will, of normal kind of collections on that. In terms of lease termination fees, we didn't have $4.2 million in our guidance for the first quarter.
Kevin B. Habicht: No were trying to signal that were worried that it should be higher than that historically in our <unk>.
Joshua: Realized losses.
Kevin B. Habicht: And so no less than that meaning 30 to 50 basis points. So still it still feels like we're kind of in that realm. If you will.
Normal kind of collections on that front in terms of lease termination fees.
Kevin B. Habicht: We didn't have $4 2 million and our guidance for first quarter, we did have some amount, but not that amount not that much.
Kevin B. Habicht: We did have some amount, but not that amount, not that much. And those things kind of come up a little bit more sporadically. Historically, you know, on a longer-term project, meaning a full year projection, you know, 12-15 months out into the future, we don't assume very much of that happening. And so it really comes about by a function of just kind of working the portfolio as we come across particular cases of particular properties, particular circumstances, where there's an opportunity to create some value via lease termination income possibility, then we pursue it. And so, we understand that it's, you know, lumpy and, It's not particularly a nuisance, like I said. We typically run around three million.
Kevin B. Habicht: Sure.
Joshua: All those things kind of come up a little bit more sporadically and so.
Kevin B. Habicht: Historically on a longer term project meeting our full year projection of 12 15 months out into the future. We don't assume very much of that happening and so it's really comes about by a function of just kind of working the portfolio as we come across particular cases.
Kevin B. Habicht: Particular properties in particular circumstances that there is an opportunity to create some value.
Joshua: Lease termination.
Joshua: Income profitability, then that we pursue it.
Kevin B. Habicht: We understand that its lumpy.
Kevin B. Habicht: It's not particularly a notice like I said, we typically run around $3 million a year. So in some senses has some degree of.
Kevin B. Habicht: regularity to it, but it
Kevin B. Habicht: Regularity to it but.
Kevin B. Habicht: It varies quarter to quarter and so the answer to your question. We have we assume we will get some more of this year, just because we always listen we'll get some more but.
Kevin B. Habicht: We don't give any guidance around that just because it's a little too tough to predict.
Speaker Change: We don't give any guidance around that.
Kevin B. Habicht: A little too tough to do.
Kevin B. Habicht: To predict.
Speaker Change: I appreciate that color and then sorry, if I missed it but did you say what the lease term fee related to like what tenant.
Kevin B. Habicht: Now, yeah, we really, I mean, we'd rather not get into the details of that. But, but it We think it's a value-enhancing activity for us, and so it always involves a tenant and either potentially a new tenant or potentially a potential buyer of the property, and so it's a bit of a three, three, tri-party kind of negotiation we're trying to work out, but yeah, we don't plan to go into details on, you know, which tenant or tenants, and usually it's not
Speaker Change: No we really I mean, we're not rather not get into the details of that but.
Kevin B. Habicht: But we think it's value enhancing activity for us and so it always involves.
Kevin B. Habicht: I'll turn it in either potentially a new tenant or potentially buyer of the property and so it's a bit of a three three.
Kevin B. Habicht: <unk> Tri party kind of.
Joshua: Negotiation trying to work out and but.
Kevin B. Habicht: But yes.
Kevin B. Habicht: We don't plan to go into details on.
Kevin B. Habicht: Which tenant or tenants unusually it's not just one.
Kevin B. Habicht: One or two or three that we.
Joshua: I have some level of dialog with one bank fraud like I say the amounts can be small enough that would be larger.
Kevin B. Habicht: But yes, we.
Joshua: We don't have any details to give you on that.
Joshua Dennerlein: And then maybe if I could just sneak one more in, just on the top tenants, I saw some that look like Friction has sold or closed some stores recently. What's the latest with them? And are you guys having any dialogue with them?
Speaker Change: Alright, and then maybe if I could sneak one more in <unk>.
Joshua: Top tenants.
I saw some like it looks like a frictionless has sold or close some stores recently whats the latest with them and are you guys, having any dialogue with them on potentially closing stores.
Kevin B. Habicht: Yeah, so, I mean, we've talked about friches as being, you know, on our watch list for a period of time. But, you know, we don't have any news to report there. There's no rumblings of, you know, restructuring per se. In our mind, it conforms somewhat to our history of any tenants that have had some challenges. It's, you know, kind of the 80-20 rule where 80% of the stewards are fine, and 20% have challenges, and so those are the ones I think that they just need to get, you know, to work on, and I think that's the case with them as well, but yeah, no news there. We're just kind of working through that with time. I don't really have anything new to report.
Joshua Dennerlein: Yes, so I mean, we've talked about parishes.
Kevin B. Habicht: On our watch list they have been for a period of time.
Kevin B. Habicht: We don't have any news to report there theres no rumblings of restructuring per se.
Joshua: In our mind.
Kevin B. Habicht: It's.
Kevin B. Habicht: It conforms somewhat to our.
History of any tenants that have.
Kevin B. Habicht: Some challenges, it's kind of the 80 20 rule, where 80% of the stores are fine and 20%.
Kevin B. Habicht: We have challenges and so.
Kevin B. Habicht: So those are the ones I think that basis.
Kevin B. Habicht: To work on and I think thats, the case with them as well.
Kevin B. Habicht: So.
Kevin B. Habicht: But yes, no news there and so we're.
Kevin B. Habicht: Just kind of working through that with time.
Kevin B. Habicht: Don't really have anything new to report.
Kevin B. Habicht: Yeah, just kind of carry out that thought. Yeah, we're working with, you know, all our tenants that they want to work on a site to get out of it or what may be the reason, and Frisch's we're working day to day with them, but today's the first, and rent is due.
Kevin B. Habicht: Just kind of carrying out that thought.
Kevin B. Habicht: We're working with all of our tenants.
Kevin B. Habicht: Work on our site.
Kevin B. Habicht: To get out of it or what may be the reason Tricia is we're working day to day with him, but today's the first in rent is due.
Joshua Dennerlein: I appreciate it, bye guys. Thanks for calling.
Speaker Change: Appreciate it guys. Thanks for the color.
Bradley Barrett Heffern: Your next question is from Brad Heffern with RBC Capital Markets.
Joshua Dennerlein: Your next question is from Brad Heffern with RBC capital markets.
Bradley Barrett Heffern: Yeah, thanks. Kevin, on that lease termination commentary, I'm not sure I really understood that. So are you saying that you proactively reach out to tenants and suggest that they might want to terminate their leases so that you can release the properties or sell them to someone else? Or can you just explain how that works? Yeah.
Bradley Barrett Heffern: Yes, thanks, Kevin on that lease termination commentary I'm not sure I really understood that so are you, saying that you're proactively reach out to tenants and suggest that they might want to terminate their leases. So that you can re leased the properties or sell them to someone else or can you just explain how that works. Yes. Every every circumstance is different and so.
Kevin B. Habicht: Yeah, every circumstance is different, and so, you know, it varies all over the place. And so, because we get store-level performance, we know how stores are performing or not performing. And so, it's a potential, and we're in dialogue with our tenants, and so we know, have a feel for what they're thinking as it relates to particular properties. And so we're, we're just actively involved with our tenants and the properties.
Kevin B. Habicht: It varies all over the lot.
Kevin B. Habicht: So because we get store level performance, we know how stores are performing or nonperforming and so.
Kevin B. Habicht: It's a potential and we're in dialogue with our tenants and so we know.
Kevin B. Habicht: I have a feel for what they are.
Kevin B. Habicht: Our thoughts are as it relates to particular properties and so we're just actively involved with our tenants and the properties.
Kevin B. Habicht: And if there's an economic, a good economic outcome that might include lease termination income, then, you know, we're going to pursue it. But despite that, it's not annuity income, but we're not going to turn our backs on it because it's not, but it's really case by case. The devil is always in the details, but it comes from working the portfolio, maintaining relationships with tenants, and trying to extract value from 3,500 properties as best we can.
Kevin B. Habicht: If there is an economic a good economic outcome that might include lease termination income then we're going to pursue it despite that.
Kevin B. Habicht: It's not.
Kevin B. Habicht: Our newest as income, but we're not going to turn our back on it because it's not but.
Kevin B. Habicht: It's really case by case.
Kevin B. Habicht: Perfect.
Kevin B. Habicht: <unk> always in the details, but it comes from working the portfolio maintaining relationships with tenants.
Kevin B. Habicht: And trying to extract value from 3500 properties as best we can.
Bradley Barrett Heffern: Okay, thank you for that. And then you talked about...
Speaker Change: Okay. Thank you for that.
Speaker Change: And then you talked about appreciate it but can you go through the others on the watch list I'm, specifically wondering about Joanne, but a quick sound bite on the usual suspects would be great too.
Kevin B. Habicht: Yeah, yeah, yeah, yeah, and the size and composition of the list really haven't changed. We've talked about Frisch's in recent quarters, and obviously, everybody's talked about Theaters for many, many quarters. And we've mentioned Joanne's, which did file for bankruptcy; we only had two stores with them, so it's a.1, less than.1 percent tenant of ours. They have since kind of worked through that bankruptcy process, and both of our stores will be affirmed; those leases will be affirmed. And so we're not looking at any loss exposure there.
Bradley Barrett Heffern: Yes.
Bradley Barrett Heffern: The size and composition of the list really Hasnt changed we've talked about parishes in recent quarters. We've obviously everybody is talking about theaters for many many quarters.
Kevin B. Habicht: And we've mentioned.
Kevin B. Habicht: Joanne which did file for bankruptcy, we only have two stores with them. So.
Kevin B. Habicht: It's a 0.1 less than 1% tenant of ours.
Kevin B. Habicht: <unk>.
Kevin B. Habicht: They have since it's kind of worked through actually that bankruptcy process in both of our stores will.
Kevin B. Habicht: We will be affirm those leases will be affirmed and so we're not looking at any any loss exposure there. The other ones. We've mentioned in recent quarters as big lots again, we have three stores, we will see where that goes 1% tenant.
Kevin B. Habicht: The other one we've mentioned in recent quarters is Big Lots. Again, we have three stores; we'll see where that goes with 0.1% kind of tenant. We've talked about at-home stores, which is a larger exposure for us at 1.1% of our rent. We have 12 stores with them, and the challenge with those, potentially, is that they're just bigger boxes, so if you get one of those back, it's a little more work, but again, they're current on rent, and it feels like they have some runway to continue with that, so we don't have any news to Those are the names we've talked about in recent quarters that haven't changed, and the situations don't feel like they've changed notably.
Kevin B. Habicht: We've talked about at home stores, which is a larger exposure for us at one 1% of our brands we.
Kevin B. Habicht: We have 12 stores with them and the challenge with those potentially is that they're just bigger boxes. So if we get one of those back.
Kevin B. Habicht: No more work.
Kevin B. Habicht: But again they are current on rent and it feels like they have some runway to continue with that.
Kevin B. Habicht: So we don't have any news really to report on that those are the names we've kind of talked about in recent quarters that havent changed.
Kevin B. Habicht: And the situations that don't feel likely to change notably.
Bradley Barrett Heffern: Okay, I appreciate the comments. Thanks.
Speaker Change: Okay I appreciate the comments thanks.
Smead's Rose: Your next question is coming from Smead's Rose with Citi.
Bradley Barrett Heffern: Your next question is coming from Smedes rose with Citi.
Smead's Rose: Hi, thank you. Um, we were just wondering what you have in terms of debt maturities coming up later this year. Just wondering what's in what's, what are you seeing in your guidance around those maturities?
Rose: Hi, Thank you.
Smead's Rose: We were just wondering I think you have some debt maturities coming up.
Rose: Later this year just wondering what's in what's what are you assuming in your guidance around those.
Smead's Rose: Maturities.
Kevin B. Habicht: Yeah, I mean, uh... We don't give any guidance on capital markets activities, but I'll say this. [inaudible] We have options. And so we love that.
Smead's Rose: Yes.
Kevin B. Habicht: Okay.
Kevin B. Habicht: We don't give any guidance on capital markets activities, but I'll say this.
Kevin B. Habicht: And so that's one of the things we try to position our balance, to create that optionality. And so, meaning we can issue debt long term, 10 years, we've not issued anything less than 10 years during my tenure here. And so today that would be kind of priced in the mid to high fives. But we could also park it on our bank line because we have such availability there. [inaudible] material cost difference at the moment. 10-Year Debt, and our bank line, and so whichever option we end up choosing won't have much impact on the bottom line between those two alternatives. So, we'll see how that plays out. Stay tuned.
Kevin B. Habicht: We have optionality and so we love that and so that's one of the things we've tried to position our balance sheet too.
Kevin B. Habicht: Create.
Kevin B. Habicht: That optionality and so meaning we can issue debt long term 10 year, we've not issued anything less than 10 years.
Kevin B. Habicht: My tenure here.
Kevin B. Habicht: And so today that would be kind of price in the mid to high fives.
Kevin B. Habicht: And but we also could park it on our bank line, because we have such availability there.
Kevin B. Habicht:
Kevin B. Habicht: For a period of months, we could leave it there we had a view that maybe rates will be ticking lower later, so that would be an option and that cost today is call. It in the low sixes and so theres not a huge.
Kevin B. Habicht: Material cost difference at the moment between 10 year debt and our bank line and so whichever option, we ended up choosing won't have much.
Kevin B. Habicht: Impact on the bottom line.
Kevin B. Habicht: Between those two alternatives.
Kevin B. Habicht: We will see how that plays out.
Kevin B. Habicht: Stay tuned.
Smead's Rose: Okay, thanks. And I just wanted to ask a sort of bigger picture question, you know, when you're out looking at acquisition opportunities, any change in the kind of pool of other providers of capital or where you maybe feel like you're having a, you know, a distinct advantage relative to them or things sort of eroding on that side, or maybe just speak to that.
Speaker Change: Okay. Thanks, and I just wanted to ask sort of bigger picture when you are.
Smead's Rose: Looking at acquisition opportunities.
Smead's Rose: Any change in kind of the pool of other.
Smead's Rose: Providers.
Smead's Rose: Capital or where you maybe you feel like you are.
Smead's Rose: However.
Smead's Rose: That's been the advantage relative to them are things sort of loading on that side or maybe you could just speak to that.
Kevin B. Habicht: On the acquisition side, we're really mining with our current portfolio; the vast majority of the acquisition volume has come from our current tenant roster. And our current tenant roster, you know, believes in the sale leaseback model, not owning the real estate. So they're not really out there looking for other sources of capital that we're competing against. They're just looking at sale leaseback providers and what they're going
Smead's Rose: Now on the acquisition side, we're really mining with our current portfolio.
Kevin B. Habicht: Vast majority of the acquisition volume has come from our current tenant roster and our current tenant roster believes in the sale leaseback model.
Kevin B. Habicht: Not owning the real estate, so theyre not really out there looking for other sources of capital that we're competing against.
Kevin B. Habicht: They're just looking at sale leaseback providers and what the going rate is.
Kevin B. Habicht: So, yeah, no; we're not seeing any other buckets of money coming into our sector for what we're looking to do. Now, if we had to do $1.5 billion or $2 billion, we would probably have more competition, but at current guidance, we're not seeing any competition hindering our ability to execute.
Kevin B. Habicht: No we're not seeing any other buckets of money coming into our sector for what we're looking to do now if we had to do $1 5 billion or $2 billion.
Kevin B. Habicht: Probably have more competition, but our current guidance, we're not seeing any competition hindering our ability to execute.
Smead's Rose: Okay, thank you. I appreciate it.
Speaker Change: Okay. Thank you I appreciate it.
Speaker Change: Thanks, Amit.
Spenser Bowes Allaway: Your next question for today is from Spenser Allaway on Green Street.
Sensor Alloy: Your next question for today is from sensor alloy with Green Street.
Spenser Bowes Allaway: Thank you. Maybe just continuing on the tenant health topic, and Kevin, you mentioned receiving unit-level operations. Can you just comment on whether there have been any changes to rent coverage levels? Or if there's been anything notable that's come up in
Spenser Bowes Allaway: Thank you maybe just continuing on the tenant health topic and Kevin you mentioned receiving unit level operation can you just comment on whether there have been any changes to coverage levels.
Spenser Bowes Allaway: Or if there's been anything notable that's come up in our negotiations with tenants in recent months.
Kevin B. Habicht: Yeah, no. The answer is no.
Spenser Bowes Allaway: Yes.
Kevin: The answer is no I mean, there has been a little bit of softening in coverages, but not notable.
Spenser Bowes Allaway: I mean, there's been a little bit of softening and coverage, but not notable. And so, so far, our tenants really have been able to generally hang in there, if you will, and maintain a reasonable margin, if you will. And so, from an ability to pay rent standpoint, you know, it's, it's... Our concerns have not grown at all. And so we still feel good on that front.
Spenser Bowes Allaway: And so so far our tenants really have been able to generally hanging there if you will and maintain.
Spenser Bowes Allaway: A reasonable margin, if you will and so from our ability to pay rent standpoint.
Spenser Bowes Allaway: It's.
Spenser Bowes Allaway: Our concerns have not grown at all.
Spenser Bowes Allaway: And so we still feel good on that front.
Kevin B. Habicht: Okay, and then specifically on the property insurance side, and I realize your tenants bear that cost, but just given the spikes in insurance premiums nationwide, is this something that's been brought to your attention in terms of this line item becoming a burden?
Speaker Change: Okay, and then specifically on the property insurance side and I realize your tenants bear that cost, but just given the spikes in insurance premiums nationwide and is this something that's been brought to your attention in terms of.
Kevin B. Habicht: This line item behind burning send it off anytime soon.
Kevin B. Habicht: I mean, we're aware of that issue, but yes, but we're not hearing that as a big impact on their business. I mean, for many of our tenants, rent, I mean, rent, is a real expense, but it's not the driver of their profitability and property insurance to a lesser degree. And because we deal with tenants, you know, they operate hundreds, if not thousands of stores, they generally are pretty sharp on getting those coverages, property insurance coverages across a large number of properties. I think that helps them a bit at the margin, get reasonable rates, and make the whole property as best they can be.
Speaker Change: We're aware of that issue, but yes.
Kevin B. Habicht: But we are not hearing that as.
Kevin B. Habicht: As a big impact on their business I mean.
Kevin B. Habicht: For many of our tenants rent rent.
Kevin B. Habicht: A real expense, but it's not the driver of their of their.
Kevin B. Habicht: Our profitability.
Kevin B. Habicht: Property insurance to a lesser and lesser degree because we deal with a tenant they operate.
Kevin B. Habicht: If not thousands of stores they.
Kevin B. Habicht: Generally a pretty sharp.
Kevin B. Habicht: On getting those coverages property insurance coverages across.
Kevin B. Habicht: A large number of properties and so I think that helps them a bit at the margin.
Kevin B. Habicht: Okay.
Kevin B. Habicht: Get reasonable.
Kevin B. Habicht: Kind of rates are as best they can be but yes, the whole property insurance market is.
Kevin B. Habicht: It's up a bit.
Spenser Bowes Allaway: Okay, and then last one for me, I know you mentioned the 22 vacant assets, and sorry if I missed this, but have you guys kind of laid out a plan yet in terms of which portion, or like, what portion of the 22 assets have been earmarked for sale versus re-tenanting? Or do you just provide some commentary on the plan for those assets? So I'm out of the office.
Speaker Change: Okay, and then last one for me I know you mentioned the 22 vacant assets.
Speaker Change: Sorry, if I missed this but.
Spenser Bowes Allaway: Do you guys kind of laid out a plan yet in terms of which portion are like what portion of the 22 assets have been earmarked for sale versus returning or can you just provide some commentary on the plans for those assets.
Kevin B. Habicht: So out of the 22, they're all earmarked for re-tenanting. That's the first thing we always try to do, then after a certain time frame, if we're not getting acceptable rental rates, at the end of the day, we just do a present value analysis, you know, re-tenant it, sell it, scrape and rebuild it. Truth be told, more times than not, the economic decision is you would sell a vacant asset because of the time delay to get a new tenant into it.
Spenser Bowes Allaway: Out of the 22 Theyre all earmarked for re tenanted.
Spenser Bowes Allaway: Okay, great. Thanks a lot.
Kevin B. Habicht: That's the first thing we always try to do that after a certain timeframe. If we're not getting acceptable rental rates at the end of the day, we just do a present value analysis.
Spenser Bowes Allaway: <unk> 10 is it.
Spenser Bowes Allaway: Sell it scrape and rebuild it.
Spenser Bowes Allaway: <unk> totaled more times than not the economic decision as you would sell a vacant asset because of the time delay.
Spenser Bowes Allaway: Particularly the tenant into it but when we first always trying to get the reoccurring revenue by re tenanted.
Spenser Bowes Allaway: Okay, great. Thanks, a lot.
Linda Tsai: Your next question is from Linda Tsai with Jeffreys.
Spenser Bowes Allaway: Your next question is from Linda Tsai with Jefferies.
Linda Tsai: Hi, can you talk a little bit more about what you're seeing on the QSR and automotive services front in terms of
Linda Tsai: Hi.
Linda Tsai: Talk a little bit more about what youre seeing on the USR in Idaho motive services front in terms of cap rate expansion.
Linda Tsai: Yes.
Kevin B. Habicht: Given we had an eight cash cap rate for the quarter and, you know, we did a little bit more auto services this past quarter, that we're seeing, you know, the bandwidth is pretty tight around the eight, you know, I mean, high sevens, low eights, is what we're seeing currently in today's market, and car wash and kind of collision repair in the car auto service sector. But all cap rates, you know, just on the sequential increase we've had, really, for five straight quarters, that we're starting to see, you know, the eight, now do I see it going above eight for the second quarter, I think it's right at there, the pricing's on top of the first quarter, or too far out, Linda, for the third and fourth quarter, but if the higher for longer narrative continues, I would expect to see an eight in the third quarter as well.
Linda Tsai: Given we had an eight cap cash cap rate for the quarter and we did a little bit more auto services.
Kevin B. Habicht: This past quarter.
Kevin B. Habicht: We're seeing the bandwidth, it's pretty tight around the high sevens low eights.
Kevin B. Habicht: What we're seeing currently in today's market.
Kevin B. Habicht: Carwash and kind of collision repair in the.
Kevin B. Habicht: Auto service sector.
Kevin B. Habicht: But all cap rates just on the sequential increase we've had really for five straight quarters.
Kevin B. Habicht: That we're starting to see the eight.
Kevin B. Habicht: Now do I see it going above eight for the second quarter I think its right out there the pricing on top of the first quarter.
Kevin B. Habicht: Too far out Linda for the third and fourth quarter, but if the higher for longer narrative continues I would expect to see an eight in the third quarter as well.
Linda Tsai: And then just for any tenants on a cash basis, does that include Frisbees, AMC, at home, Big Lots?
Speaker Change: Thanks for that and then just for any tenants on cash basis does that conclude parishes AMC at home big lots.
Kevin B. Habicht: Yeah, it includes AMC and Frisch. Those are the primary ones.
Linda Tsai: Yes, it includes AMC and.
Speaker Change: And freshness.
Speaker Change: Those are the those are the primary ones.
Kevin B. Habicht: But at home, it's not really something you're worried about. No, no, no. I mean, it is a judgment call. And to be honest, it's
Speaker Change: But at home is not really.
Speaker Change: No no.
Kevin B. Habicht: No.
Kevin B. Habicht: No.
Kevin B. Habicht: It is a judgment call.
Kevin B. Habicht: To be honest.
Kevin B. Habicht: <unk>.
Kevin B. Habicht: Yeah.
Kevin B. Habicht:
Kevin B. Habicht: You know, it's something we look at quarterly. And we evaluate, we're not adverse, to be quite honest, Kamden, about putting tenants on cash bases. I think it's a better accounting method. But right now, about 5% of our tenants, which are mostly AMC and Frisch, make up the cash base.
Kevin B. Habicht: Yes.
Kevin B. Habicht: Something we look at quarterly.
Kevin B. Habicht: We evaluate we're not adverse to be quite honest candid about putting tenants on cash basis, I think it's a better better accounting method.
Kevin B. Habicht: But right now it's about.
Kevin B. Habicht: 5% of our.
Kevin B. Habicht: Tenants, which is mostly AMC and parishes.
Kevin B. Habicht: Cup that cash basis.
Linda Tsai: And then just a clarification on Frisch's, to the extent you have any of those 20%, you talked about the 80-20 stores that would close, and you don't think they're restructuring and the rent is due, if they do move out, do you think they're mostly, you know, better as backfills, or would they get sold vacant?
Speaker Change: Got it and then just a clarification on Christians to the extent you have any of those 20% you're talking about the 80 20 stores that would close and you don't think the restructuring and the right to if they do move out do you think they are mostly.
Linda Tsai: Patterns backfill or would they get sold vacant.
Kevin B. Habicht: I think that the... Being a restaurant asset, it's a well-located piece of real estate with a drive-thru, so I think we would have an easy time re-tending the freshest assets. For the most part, it's really good real estate.
Linda Tsai: I think the.
Kevin B. Habicht: Great.
Kevin B. Habicht: Being a restaurant asset, it's a well located piece of real estate with a drive through.
Kevin B. Habicht: I think we have an easy time re cut any of the <unk>.
Kevin B. Habicht: <unk> assets for the most part is really good real estate.
Kevin B. Habicht: Thanks last question on lease term fees should we model something similar in the future quarters.
Kevin B. Habicht: Yeah, I mean, we don't give guidance on that, in no small part because, like I said, it's very kind of episodic and hard to predict how and when that's all going to play out, but I wouldn't encourage you to annualize $4.2 million in the first quarter as a run rate, that's for sure. And that's why I really kind of drew attention to that, our annual averages.
Speaker Change: Yes, I mean, we don't we don't give guidance on that in no small part because like I said, it's very kind of episodic and hard to predict how and when that's all going to play out but.
Kevin B. Habicht: I wouldn't encourage you to annualize for $2 million in the first quarter as a run rate that's for sure.
Kevin B. Habicht: And that's why I really kind of drew attention to that our annual average is $3 million. So so this was an unusual quarter.
Kevin B. Habicht: Obviously may have more term fee in the future, but it's not we're not going to give guidance around that.
Kevin B. Habicht: We generally don't anticipate large sums of it.
Speaker Change: Thank you.
John Massocca: Your next question for today is from John Massocca with B. Reilly Securities.
Kevin B. Habicht: Your next question for today is from John Masako with B Riley Securities.
John Massocca: Good morning.
John Massocca: Ryan.
John Massocca: So maybe kind of building on that last answer, you know, was that kind of outsized lease termination fee income known when you guys contemplated your initial guidance, and I guess if it was the case that it wasn't known, then maybe why wasn't that additive to the year-end number that you guys are anticipating?
John Massocca: So any kind of building on that last answer was that kind of outsized lease termination fee income.
John Massocca: When you guys contemplated your initial guidance I guess.
John Massocca: <unk>.
John Massocca: If it was the case that it wasn't known then maybe why not why wouldn't that additive.
John Massocca: For the year end number that you guys are anticipating.
Kevin B. Habicht: Yeah, I mean, if you back out our lease termination fee income in the first quarter, I think our guidance is appropriate. Meaning, I shouldn't say that if you don't annualize the first quarter lease termination fee income, you might feel that our guidance is reasonable, and we may have opportunity for the high end of that guidance. But yeah, it. That's what I mean, that's our view of it is that yeah, we really, really didn't feel like it.
Speaker Change: Yes, I mean, if you back out our lease termination fee income in the first quarter I think our guidance is.
Kevin B. Habicht: Appropriate, meaning I Shouldnt say that if you don't annualize the first quarter lease termination fee income.
Speaker Change: Thank you.
Kevin B. Habicht: I feel that our guidance is reasonable.
Kevin B. Habicht: And we may have opportunity for the high end of that guidance, but.
Kevin B. Habicht: But yes.
Kevin B. Habicht: But I mean, that's our view of it is that we really.
Kevin B. Habicht: Really didn't feel like it.
Kevin B. Habicht: Margin moving guidance based on that that one time income in the first quarter.
John Massocca: Okay, and then on occupancy, Eric has split hairs here at 99.4%, but does that include any? kind of leased but dark boxes? And to the extent you know, what's the spread maybe between leased and true occupancy in the portfolio today, roughly?
Kevin B. Habicht: Okay.
Kevin B. Habicht: And then on occupancy split.
John Massocca: Split hairs here at 99, 4%, but does that include any.
John Massocca: And at least but dark boxes.
John Massocca: And to the extent you know whats the spread between leased and true occupancy in the portfolio today roughly.
Kevin B. Habicht: Yeah, so now our occupancy is always always based on leased properties. And so that's, that's the way we report it. And we also, we also track it based on dollars, investment costs that are leased as well. So, but yeah, there's always a component of dark properties out there, but they're, they're least encountered in the Occupy, are counted as leased.
John Massocca: Yes.
John Massocca: <unk> is always is always based on leased properties.
Kevin B. Habicht: And.
Kevin B. Habicht: So that's the way we reported and we also we also track that based on.
Kevin B. Habicht:
Kevin B. Habicht: Investment cost.
Kevin B. Habicht: At least lease as well.
Kevin B. Habicht: And so but yes, there is always a component of dark properties out there, but they're leased and counted as occupied.
Speaker Change: At least yes.
John Massocca: Do you know kind of roughly how large that is in the portfolio today? The Dark Properties.
Kevin B. Habicht: You know kind of roughly how large that is in the portfolio today.
Kevin B. Habicht: The Dark Properties I mean, the dark properties for us historically are probably in the 1% kind of range.
John Massocca: The dark properties.
Kevin B. Habicht: I mean, the dark properties for us historically are probably in the 1% kind of range.
Kevin B. Habicht: Okay.
John Massocca: Okay. And then, sorry if I missed this in the kind of prepared remarks. I had a little connectivity issue there at the beginning of the call, but did you have any color on the cadence of acquisition volume over the course of the remainder of the year?
Kevin B. Habicht: And then sorry, if I missed this in the kind of prepared remarks.
John Massocca: It can be issued at the beginning of the call but did.
John Massocca: Did you have any cadence any.
John Massocca: The color on the cadence of acquisition volume over the course of the remainder of the year sorry.
Kevin B. Habicht: Yeah, I mean, what we're seeing in the second quarter, I feel it's going to be kind of in line with the first quarter. But again, John, as you know, the third and fourth quarter, we don't have any clarity currently on that. You know, one reason we leave our guidance at the four to $500 million is because we don't know about the macroeconomic changes that could occur. But given the discussion we've had with our tenants, I feel very comfortable in that four to $500 million range of hitting that number. Okay, that's fine.
Speaker Change: Yes, I mean, what we're seeing in the second quarter I feel it's going to be kind of in line with the first quarter, but again, John as you know the third and fourth quarter.
John Massocca: Okay, that's very helpful. That's it for me. Thank you.
John Massocca: We don't have any clarity currently on that.
John Massocca: One reason, we leave our guidance at the $4 million to $500 million.
John Massocca: Because we don't know and the macroeconomic changes that could occur but given the discussion we've had with our tenants I feel very comfortable in that $4 million to $500 million range of hitting that number this year.
Speaker Change: Okay. That's very helpful. That's it for me thank you.
John Massocca: As a reminder, if you would like to ask a question. Please press star one.
Operator: As a reminder, if you would like to ask a question, please press star 1. Your next question for today is from Ronald Kamdem with Morgan Stanley.
John Massocca: Your next question for today is from Ronald Camden with Morgan Stanley.
Ronald Kamdem: Hey, just two quick ones. Just starting with the sort of the cap rates, obviously, you hit the 8% mark that's ticked up this quarter. Maybe can you just talk about is that sort of the right number we should be looking forward to given sort of this interest rate environment? Are there other opportunities to sort of even get higher cap rates than that? And what are you hearing from tenants?
Ronald Kamdem: Hey, just two quick ones, just starting with the sort of the cap rates, obviously, you hit the 8% Mark which ticked up this quarter. Maybe can you just talk about is that sort of the right number we should be looking forward given sort of this interest rate environment are there other opportunities to sort of even get higher cap rates than that and what your.
Ronald Kamdem: Hearing from tenants.
Kevin B. Habicht: No, I think for right now, as we said, that's probably the right cap rate to use currently. Now that being said, yeah, there are things you hear a lot about, you know, the market's down 50%. But bear in mind, that's the 1031 market. So you're dealing with a lot of unsophisticated sellers and buyers, for that matter. But the sale leaseback market, we're dealing with, you know, highly sophisticated tenants and companies that understand that the cost of capital is increased.
Speaker Change: No I think for right now as we said Thats, probably the right cap rate to use currently now that being said, yes. There is you hear a lot about.
Kevin B. Habicht: The markets down, 50%, but bear in mind Thats, the 10 31 market.
Kevin B. Habicht: Dealing with a lot of unsophisticated sellers and buyers for that matter, but the sale leaseback market, we're dealing with highly sophisticated.
Kevin B. Habicht: Tenants in companies that understand that cost of capital has increased and if they want to continue to grow and they accept that.
Kevin B. Habicht: And if they want to continue to grow, they accept that. So if the hire for longer persists, I would see some further cap rate expansion possibly in the back half of the year. But for modeling purposes, going into the unknown, and not wanting to, you know, take a bet on either side, I feel comfortable that the 8% should continue.
Kevin B. Habicht: So if the higher for longer persists.
Kevin B. Habicht: Would see some further cap rate expansion, possibly in the back half of the year, but for modeling purposes going into the unknown and not wanting to take a bet on either side I feel comfortable that the 8% should continue.
Ronald Kamdem: Great. And sorry if you touched on have you have you hit on what the plan is for?
Speaker Change: Great and sorry, if you touched on have you have you hit on what what the plan is for the maturities and where you could issue debt right now.
Kevin B. Habicht: Yeah, um, yeah, so new issuance 10-year debt today is kind of mid to high fives. And then, you know, the other option that we have is, given that we have an unused bank line, we could park it on our bank line, which is below sixes.
Ronald Kamdem: Yes.
Ronald Kamdem: So new issuance of 10 year debt today is kind of mid to high fives.
Kevin B. Habicht: Today.
Kevin B. Habicht: <unk>.
Kevin B. Habicht: And then the.
Kevin B. Habicht: Other option that we have is given that we have a unused bank line, we could park on our bank line, which is in the low sixes and so really the delta between those two options is not very large so in terms of modeling out this year.
Kevin B. Habicht: And so really, the delta between those two options is not very large. And so, in terms of modeling out this year, You can choose either one and be relatively close to how it will play out. We don't give guidance on capital markets; that's it. In part, we try to be opportunistic and take advantage of what the best options are at the moment. So we'll see how it plays out. But that's the way I think about our re-five. It's June 3.
Kevin B. Habicht: You can choose either one.
Kevin B. Habicht: It would be relatively close to.
Kevin B. Habicht: How it will play out we don't give guidance on capital markets activities.
Kevin B. Habicht: In part we try to be opportunistic.
Kevin B. Habicht: Take advantage of what the best options are at the moment.
Kevin B. Habicht: So we'll see how it plays out but that's the way I think about our refi June.
Kevin B. Habicht: That's the way I think about our refi.
Kevin B. Habicht: June $350 million three 9% coupon.
Kevin B. Habicht: Two.
Ronald Kamdem: Great. That's it for me. Thanks.
Speaker Change: Great that's it for me thanks.
Speaker Change: Thanks, Sean.
Stephen A. Horn: We have reached the end of the question and answer session, and I will now turn the call over to Steve for closing remarks.
Ronald Kamdem: We have reached the end of our question and answer session and I will now turn the call over to Steve for closing remarks.
Stephen A. Horn: Thank you guys for your time this morning. We look forward to executing for the second quarter, and we'll see you guys in the upcoming conference season.
Steve: Thank you guys. Our time this morning, we look forward to executing for.
Steve: For the second quarter, and we'll see you guys in the upcoming conference season. Thanks.
Stephen A. Horn: Okay.
Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Speaker Change: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.