Q4 2024 NETSTREIT Corp Earnings Call
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Speaker Change: Greetings and welcome to the NetStreetCorp 4th 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.
Speaker Change: If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Amy An, Investor Relations. Please go ahead.
Speaker Change: We thank you for joining us for NetStreet's fourth quarter 2024 earnings conference call. In addition to the press release distributed yesterday after market close, we posted a supplemental package and an updated investor presentation. Both can be found in the investor relations section of the company's website at www.netstreet.com.
Speaker Change: On today's call, management's remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risk and uncertainties that may cause actual results to differ from those discussed today.
Speaker Change: For more information about these risk factors, we encourage you to review our Form 10-K for the year ended December 31st, 2023, and our other FEC filings.
Speaker Change: All forward-looking statements are made as of the date hereof, and NetStreet assumes no obligation to update any forward-looking statements in the future.
Speaker Change: In addition, certain financial information presented on this call includes non-GAAP financial measures.
Speaker Change: Please refer to our earnings release and supplemental package for definitions of our non-gap measures Reconciliations to the most comparable gap measures and an explanation of why we believe such non-gap financial measures are useful to investors
Speaker Change: Today's conference call is hosted by NetStreet's Chief Executive Officer, Mark Manheimer, and Chief Financial Officer, Dan Donlan. They will make some prepared remarks, and then we will open the call for your questions. Now, I'll turn the call over to Mark. Mark?
Mark Manheimer: Thank you, Amy, and thank you all for joining us this morning on our fourth quarter 2024 earnings call.
Mark Manheimer: I first want to congratulate the team on an outstanding quarter of accelerated transaction activity as we completed over $195 million of gross investments, our highest quarter on record, at a blended cash yield of 7.4% or 8.1% on a straight line basis.
with 14 years of wait at every lease term.
Mark Manheimer: Included in this activity were three development projects totaling over $7 million that commence rent in the quarter.
Mark Manheimer: As of today, our development pipeline consists of five projects with a total estimated cost of $14.6 million, which includes estimated remaining funding of $6.7 million.
Mark Manheimer: Conversely, we continue to see stickiness and less attractive returns as it pertains to the investment-grade opportunities that we have historically acquired.
Mark Manheimer: While these market dynamics have caused a shift in our mix of investment-grade and non-investment-grade opportunity sets, we are continuing to find great assets with healthy unit-level performance, fungible real estate with replaceable rents, and strong credit profiles, all with improved risk-adjusted returns.
Mark Manheimer: Turning to the portfolio, we ended the quarter with investments in 687 properties that were leased to 98 tenants operating in 26 industries across 45 states.
Mark Manheimer: From a credit perspective, nearly 71% of our total ABR is leased to investment grade or investment grade profile tenants.
Mark Manheimer: Our weighted average lease term remaining for the portfolio is 9.8 years with just 2.4% of ABR expiring through 2026.
Mark Manheimer: From an asset management perspective, we were very active this quarter as evidenced by our record disposition activity, which was facilitated by interest from a broad array of real estate investors, including small 1031 buyers, family offices, and large institutions.
Mark Manheimer: This strong level of demand, which has continued into 2025, resulted in our top 10 concentration declining 410 basis points.
Mark Manheimer: to 45.1% of ABR, including a 100 basis point reduction in Walgreens to 3.8% of ABR and a 260 basis point drop in Dollar General to 8.6% of ABR.
Mark Manheimer: While we have made tremendous strides towards our diversification goals, we are not slowing down our efforts.
Mark Manheimer: Moreover, we expect our top 10 concentration to more closely mirror the sector average over the near to intermediate term, which includes having no tenant above 5% of ABR by year end.
Mark Manheimer: Additionally, similar to this quarter's $59 million of dispositions at a blended cash yield of 7.1%, we expect to accretively recycle the proceeds generated by future diversification efforts as we have done each and every quarter since coming public nearly five years ago.
Mark Manheimer: Next, I would like to focus on a few portfolio tenants, namely Walgreens, CVS, Family Dollar, Advanced Auto, and Big Lots, that have remained in the net lease news cycle over the past 12 months as they have struggled to pass on higher prices to their consumers, and therefore they have appropriately decided to close underperforming stores to maximize cash flow.
Mark Manheimer: Thus far, we have experienced virtually no impact from these closure announcements, which, while not surprising to us, is a testament to the level of due diligence we complete at underwriting.
Mark Manheimer: Notwithstanding our long-term tenant relationships and the constructive two-way dialogue we maintain with most tenants, our evaluation during the underwriting process includes much more than understanding a tenant's corporate credit.
Mark Manheimer: By utilizing technology and asymmetrical information, we have proven to be highly accurate in how we decipher the unit-level productivity of our locations and the strength of our real estate.
Mark Manheimer: More specifically, Family Dollar, Walgreens, CVS, and Advance Auto have closed or have announced the closure of nearly 10% of their stores in aggregate.
Mark Manheimer: However, despite owning 162 properties, at least to these four tenants, we currently have just one dark store among these concentrations.
Mark Manheimer: which is a smaller asset that generates around $100,000 in ABR with more than eight years of remaining lease term. Based on our assessment, we do not foresee any loss to our small investment given our projection for re-tenanting the asset and the expected lease termination fee.
Mark Manheimer: We saw a similar outcome as it relates to our big loss concentration, whereby the tenant entered bankruptcy with 1,389 stores, which was subsequently reduced to roughly 800 stores under the proposed nexus capital acquisition.
Mark Manheimer: After that acquisition failed and Variety Wholesalers emerged as the new buyer, this was further reduced to an expected 225 to 250 stores.
Mark Manheimer: As we sit here today, we expect to have six of our original seven stores assumed by Variety Wholesalers and just one store in Bowie, Maryland rejected, where we expect a new tenant to pay rent at or above the prior rent.
Mark Manheimer: Again, we believe this stark difference in outcome when comparing our portfolio to the broader market is driven by our aforementioned relationships, experience, and aptitude of our underwriting team and the discipline we consistently exercise when making long-term investments. All told, we are committed to making sure that our portfolio is the best it can be.
Mark Manheimer: This has resulted in an average credit loss of just four basis points since inception. From a risk perspective, we also have very low lease expiration risk with the aforementioned tenants as just 132 basis points of our ABR expiring through 2030 is derived from these concentrations.
Mark Manheimer: While our conviction in the strength of our assets and our underlying locations has remained steadfast, we believe the market should gain similar comfort in our portfolio given the de minimis impact experienced from these store closures to date, and our proven ability to sell properties, at least to these tenants, in an accretive manner.
Mark Manheimer: Before handing the call over to Dan, I wanted to reiterate a message that we have consistently provided in the past.
Mark Manheimer: We strive to remain thoughtful and opportunistic in our mission to maximize total shareholder return, and that includes maintaining balance sheet discipline.
Mark Manheimer: Despite seeing a robust opportunity set that we would prefer to pursue more aggressively, we will not grow for the sake of growth, and we will remain patient with our cost of capital. With that, I'll hand the call over to Dan to go over our fourth quarter financials and then open up the call for your questions.
Thank you, Mark.
Dan Donlan: Looking at our fourth quarter earnings, we reported a net loss of $5.4 million, or $0.07 per diluted share.
Dan Donlan: Core FFO for the quarter was $26.5 million, or $0.32 per diluted share, and AFFO was $25.9 million, or $0.32 per diluted share, which was a 3.2% increase over last year.
Dan Donlan: For the full year of 2024, we reported a net loss of $0.16 per diluted share, Core FFO of $1.26 per diluted share, and AFFO of $1.26 per diluted share, which represented 3.3% growth over 2023.
Dan Donlan: Turn to the expense front. Total recurring G&A in the quarter declined 10% year over year to $4.3 million, while recurring cash G&A declined 6% year over year to $3.3 million.
Dan Donlan: Turn to the capital markets. On January 15, 2025, we closed on $275 million of additional financing commitments.
Dan Donlan: This included a new, fully-drawn $175 million senior unsecured term loan, which was swapped to an all-in-fixed rate of 5.12% through final maturity in January 2030, and an upsized $500 million revolving credit facility, which was increased from $400 million.
Dan Donlan: We also extended the maturity date of our existing $175 million term loan to January 2030 from January 2027, amended all of our existing credit agreements to remove various financial covenants, and provide for improved pricing when we meet certain investment grade rating and leverage targets.
Dan Donlan: Turning to the balance sheet, when accounting for the impact of the aforementioned debt transactions, our pro forma total adjusted net debt, which includes the impact of all forward equity, was $848 million.
Dan Donlan: On a pro forma basis, our weighted average debt maturity was 4.3 years.
and our weighted average interest rate was 4.53 percent.
Dan Donlan: including extension options which can be exercised at our discretion. We have no material debt insuring until February of 2028.
Dan Donlan: In addition, our pro forma liquidity was $635 million at year end, which consisted of $14 million of cash on hand, $436 million of availability in our revolving credit facility, and $185 million of unsettled forward equity.
Dan Donlan: From a leverage perspective, our adjusted net debt to annualized adjusted EBITDA RE was four and a half times at quarter end, which remains well within our targeted leverage range of four and a half to five and a half times.
Dan Donlan: Moving on to guidance, we are introducing our 2025 AFFO per share guidance range at $1.27 to $1.30.
Dan Donlan: Additionally, we expect our net investment activity for the year to range between $75 to $125 million, and our cash G&A to range between $14.5 to $15.5 million, which is exclusive of transaction costs and severance payments.
Dan Donlan: From a rent loss perspective, our guidance assumes roughly 100 basis points of unknown rent loss at the midpoint of our range, which we believe should prove conservative as the year unfolds.
Dan Donlan: Lastly, on February 21st, the board declared a quarterly cash dividend of 21 cents per share. The dividend will be payable on March 31st to shareholders of record as of March 14th.
Dan Donlan: Based on the dividend amount, our AFO payout ratio for the fourth quarter was 66%.
Dan Donlan: With that operator, we will now open the line for questions.
Dan Donlan: Thank you. Well, now we conduct a question and answer session.
Dan Donlan: If you'd like to ask a question, please press star 1 on your telephone keypad.
Dan Donlan: A confirmation tone will indicate your line is in the question queue.
Dan Donlan: You may press star two to remove your question from the queue.
Dan Donlan: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Our first question is from Greg McGinnis with Scotia Bank. Please proceed with your question.
Greg McGinnis: Thanks. Good morning. This is Elmer Chang. I'm with Greg. So you sort of killed two birds with one stone by reinvesting asset sales of your riskier exposures into another record quarter of transaction volume at a mildly accretive spread, but you didn't settle any equity forwards. So how should we think about the use of those forwards?
Speaker Change: this year and how you're planning to optimize potential investment spreads with your capital sources.
Speaker Change: Hey Elmer, it's Dan. You should expect us to settle the equity in the back half of 2025.
Speaker Change: Got it, okay. And then are you required to settle them at the end of the year, or can you potentially extend them another?
six months or so.
Speaker Change: Right now the the agreement calls for us to settle them by the end of the year We could always push that out further if we want, but I think we're likely to sell them You know in the back half of this year
Okay
Yeah, and then.
Speaker Change: And then you also mentioned in the release taking a more measured approach to investing this year, you're seeing more silly spec opportunities. Does that help much on cap rates?
Speaker Change: You know, as you think about investments throughout the year and will transacting still or will transacting still require, you know, slightly less investment grade exposure.
Speaker Change: We really just haven't seen a big enough move, I should say, with some of the investment-grade tenants. There are some that have moved up and some haven't. So, you know, we've kind of mentioned this on several of the last...
Speaker Change: we're really not dogmatic about whether something's investment grade or not. We're really trying to maximize our risk adjusted returns and sometimes those opportunities are investment grade and sometimes they're not. We've had quarters where we've been one hundred percent investment grade and obviously we've had some where we're you know kind of twenty five, thirty percent.
Speaker Change: And right now, the best opportunities that we're seeing largely are on the sales-risk backside, the blend and extend side, you know, with various other retailers. Some are new relationships and some are ones that we continued, like Gerber Collision.
Okay, thanks so much. That's helpful. That's it for me.
Our next question is from Michael Goldsmith with UBS.
Speaker Change: Depending on really the quality of the asset and at least are certainly driving some of that so we've seen a pretty wide range there, yes some of them.
Yeah pretty far north of that so.
Speaker Change: And then as it relates to the P. P F.
Speaker Change: We can move those at lower cap rates I think there is.
Speaker Change: More ability to get a better cap rate on some of the Cvs opportunities that we're essentially looking at and then dollar stores. Yeah. We've been we've seen a really robust market to be able to sell those which is what's been encouraging not just from individual 10, 31 buyers, but also a larger institutions.
Speaker Change: Thanks for that.
Speaker Change: The follow up right.
Speaker Change: Junction with your dispositions this quarter.
Speaker Change: You saw strong levels of demand from the buyers so I guess.
Speaker Change: The question is then what sort of competition are you seeing out there when you're purchasing and then maybe you could split out.
Speaker Change: How that looks for investment grade properties are with investment.
Speaker Change: Great.
Speaker Change: Tenants versus non investment grade, which you've been targeting more thanks.
Speaker Change: Yeah, Yeah. That's a good question so as it relates to investment grade.
Speaker Change: Yeah tenants there is more competition there is like I really always been a little bit more competition. There. It's easier for 10, 31 said buyers to go get financing from a bank because it's getting better.
Speaker Change: Investment grade rating.
Speaker Change: And then on then on the non investment grade side really I think.
Speaker Change: Everything that we acquired last quarter, we really there was no Austin process. There was no bidding process it was really us.
Speaker Change: Negotiating with the seller.
Speaker Change: Versus what their expectations were on <unk>.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Thank you very much.
Speaker Change: Our next question is from Ravi via via with Min Luo. Please proceed with your question.
Speaker Change: Hi, Barry Good morning, Hope you guys are doing well.
Speaker Change: Just wanted to think about how do you view your acquisition criteria today are you still focusing on the investment grade.
Speaker Change: What can we expect for a minimum acquisition spread in the current environment.
Greg McGinnis: Yeah. So yeah. Thanks, Ravi I'll take the first part of that question I'll, let Dan kind of tackled.
Speaker Change: The spread side of the equation.
Speaker Change: Criteria has not changed one iota.
Speaker Change: Really since inception, we continue to look for the best risk adjusted returns that we can find.
There's really three big pieces I mean, there's probably 100 things that go into where our underwriting, but theres really three big pieces are.
Speaker Change: That fall.
Speaker Change: Paul into our investment criteria, one of which is Ah corporate credits.
Speaker Change: Some people thinking about some great not investment grade, we're really trying to understand you know, what's the cash flow generated versus the financial obligations of the of the tenant and.
Speaker Change: And how how volatile is that going to be are they going to have a fixed charge coverage ratio.
Speaker Change: Oh, well north of two for a long period of time or are we going to start starting on any conversations when that gets below one which we obviously want to avoid those situations as much as possible and that is correlated investment grade tenancy and correlated to.
Speaker Change: Credit rating, but not entirely.
Speaker Change: And then the second big piece that we're focused on is we want to buy assets, whether that's no that's a great tenant or not.
Speaker Change: Where they are generating strong cash flow at the unit level. So that at the end of the lease term.
Speaker Change: Restructuring the tenant wants to stay there.
Speaker Change: The negotiation is pretty simple if they're generating a lot of gaslog location.
Speaker Change: No. There is no conversation on reducing rent, we're rejecting a store or not renewing as Dorothy.
Speaker Change: And then the third big piece of course is the real estate, which is ultimately what we're buying.
Speaker Change: And then if we have to if we get the first two things wrong and we have to take it back where the world changes and that use doesn't work anymore. You know how much is it going to cost us.
Speaker Change: Put a new tenant in what's the demand going to be and what's the what's the market rent at that location. So how much rent are we going to lose or how much did that Brent would we potentially gain.
So that really kind of all filters through to what's the expected loss.
Speaker Change: At each in each investment and we're trying to minimize that well while maximizing the returns and so right now just the opportunity set is really all that has changed and so while.
Speaker Change: While we might be doing fewer.
Speaker Change: Fewer acquisitions that might have an investment grade.
Speaker Change: Our rating at the tenant level, we think that in most cases, we're actually taking less risk in getting better returns.
Ravi: Yeah, Hey, Ravi.
Speaker Change: With our.
Speaker Change: So our guidance doesn't assume any equity raising in it and so I think you can infer that spreads for US right now relative to where we are acquiring are less than 100 basis points.
Speaker Change: Got it.
Speaker Change: Helpful. Just one more here.
Speaker Change: How should we think about your tenant credit.
Speaker Change: Watch list and any reserves.
Speaker Change: Mind us of your target exposures with some of your tenants Sirius was Walgreens and Cvs and do you have any further color on on big lots regarding the remaining six boxes that you. Thank you.
Speaker Change: Yeah. So I'll go in reverse order here, so yeah, I mean big lots obviously.
Speaker Change: Next is capital acquisition, we got it settled in with.
Speaker Change: Six of the seven locations, where we're going to get as we had in Asia.
Speaker Change: I'll use that took over and assumed his current partners as we kind of exclude that from the analysis.
Speaker Change: We expect the.
Speaker Change: The negotiation as you know.
Speaker Change: You know what.
Kind of getting that done I think are almost complete so we think that it's going to look very similar to where we ended up with six assets.
Speaker Change: We do have a lot of demand.
Speaker Change: For those assets. So you know there there's the possibility of that'd be try to negotiate something.
With big lots and with variety.
Speaker Change: To potentially try to get a new tenant in there that's willing to pay a lot more rent, but you know variety wholesalers also.
Speaker Change: It may or May not know it was also an investment grade profile attendant with no debt a large operator that has a long history of being very successful.
Speaker Change: And then I'm sorry, what was the what was the other part of the question.
Just wanted to ask about the target exposure levels, where some of your your underperforming tenants with Walgreens and Cvs and.
Speaker Change: Broad commentary regarding tenant credit watch list stand your reserves.
Speaker Change: Sure Yeah. So I mean big lots was really on the on the watch list last year. So we're not really anticipating.
Speaker Change: Any specific.
Speaker Change: Issues with any of our tenants. This year of course, you know, we're always kind of have a.
Speaker Change: Little bit left in the budget in case that yeah. There is something that we're not thinking of a pattern, which has always been which is always of course the risk.
Speaker Change: Then in terms of our concentration we'd really like to get all tenants below 5%.
Speaker Change: You see Walgreens already down three 8% that'll that'll come down maybe not as rapidly as it has in the past few quarters, you, maybe it'd be a little bit more active with some of the other tenants and just trying to get a more diversified top five and top that.
Speaker Change: Thanks, so much I appreciate it.
Thanks Robyn.
Speaker Change: Our next question from Smedes Rose with Citi.
Speaker Change: Is your line on mute.
Speaker Change: Okay.
Speaker Change: When you try to.
Speaker Change: But on that Sonya.
Speaker Change: Our next question is from Michael Gorman with <unk>.
Michael Gorman: Yeah. Thanks, Good morning, I appreciate the additional disclosure in the presentation on the.
Speaker Change: Lease explorations for some of the top tenants I'm curious.
Speaker Change: For dollar general does any of that kind of 120 basis points of loans receivable does any of that burn off in 2020 five that could potentially help reduce some of the concentration there or are there loans also marketable or would these be kind of property dispositions.
Speaker Change: Yeah.
Speaker Change: It'll be a little bit of both it's a good question I think and correct me if I'm wrong, but I think it's 170 basis points of loans that could roll this year.
Speaker Change: So that certainly helps reduce the exposure so that kind of get those down below seven and then well make up the rest with the with this.
Speaker Change: And then and I don't really think there's a huge market. It wasn't because they are just short term loans that they were longer term I think we would yeah. It should be able to build those longer.
Speaker Change: Got it that's helpful and then maybe.
Speaker Change: Maybe just stepping back and I don't know if I've missed it so I apologize if I did but do you have a kind of a coverage level or a red coverage level across the portfolio and how we should think about that in terms of kind of buckets across the portfolio in terms of below two above two kind of situation.
Speaker Change: Yeah, and so we have not disclosed what that was.
Speaker Change: Coverages across the entire.
Speaker Change: Portfolio.
Speaker Change: But yeah, we mainly just because we're extrapolating.
Speaker Change: What that coverage is in many cases, where we're not getting a whole P&L in many cases, we get sales. Many in many cases, we have conversations directly with it that they gave us a pretty good indication of what the cash flows are that are generated in another situation. Yeah, we're driving that from placer.
Speaker Change: Laser, which tells us what the foot traffic versus the average foot traffic and then you can extrapolate from from there what the Delta or then apply margins and so overall our portfolio rent coverage.
In the past, but since you asked.
Speaker Change: I guess the extraordinarily healthy.
Right.
Speaker Change: Yeah.
Speaker Change: Great. That's really helpful. And then maybe just last one maybe just an offshoot of that Mark you've talked about kind of your experience with the portfolio versus some of the headline risk and obviously you've done a good job of underwriting.
Speaker Change: You have a significant platform here, how do you think about the opportunity to get better risk adjusted returns based on the quality of your platform and underwriting and credit monitoring while also kind of bridging the gap with market sentiment and expectations versus some of the tenants.
Speaker Change: Whether they are currently in the portfolio are future investment opportunities.
Speaker Change: How do you balance that out between your capabilities and getting better returns for shareholders versus also maybe dealing with some market sentiment issues.
Speaker Change: It's a great question Mike.
Speaker Change: Michael That's certainly that's something that we've been wrestling with for the better.
Speaker Change: Part of the last year or so.
Speaker Change: We've been very confident in our ability to underwrite, especially at the asset level in the real estate level and getting very comfortable that we've got locations that even if there is some disruption or some headlines, but not going to impact economically really at all.
Speaker Change: But then where we've been hit somebody got durations being a little bit higher getting some headlines.
Speaker Change: There can be a knee jerk reaction with some investors and it certainly has an impact of that so really the where we've kind of come down. It will continue to underwrite the way that we have and continue to try to get better.
Speaker Change: And learn as much as we can but I think very comfortable with our ability to underwrite assets, but we just need to get the concentrations lower on a go forward basis and that really kind of allows us to keep our.
Speaker Change: I had down did not get impacted by headlines that might not have a real economic impact on our business.
Speaker Change: Fantastic Thanks for the time.
Speaker Change: Thanks, Mike.
Speaker Change: Okay.
Speaker Change: Our next question is from Alex Hagan with Baird. Please proceed with your question.
Alex Hagan: Hey, good morning, and thank you for taking my question on the acquisition side curious, which categories are you prioritizing great now I saw that there's five new tenants quarter over quarter, you can speak on maybe which categories or who they are.
Speaker Change: Yeah sure so yeah.
Alex Hagan: Yes, I mean, we've seen a lot of opportunity.
Speaker Change: Dorothy <unk> quick service restaurants.
Speaker Change: I guess auto service auto collision and then grocery.
Speaker Change: So and even foreign supplies, we continued to invest.
Speaker Change: With tractor supply.
Speaker Change: Are there competitors that we think are pretty attractive as well so.
Speaker Change: It's a pretty diversified mix.
Speaker Change: And the new tenant relationships are they.
Speaker Change: Or as you mentioned.
Speaker Change: Did you say that again.
Speaker Change: I ask with the with the new tenant relationships are they in the categories you mentioned.
Speaker Change: Yes, they are yes.
Speaker Change: Okay, and Mark you mentioned the belief that total credit losses since inception is a very small number but can you maybe give the specifics for what that was in 2024.
Speaker Change: Yeah, I mean, it's a four basis points.
Speaker Change: Annually per year and all of that was in 2024, so that should be a pretty good idea.
Speaker Change: Got it thank you.
Speaker Change: Thank you our next question from Linda Tsai with Jefferies.
Linda Tsai: Hi in terms your underwriting helping to limit store closure exposure I know you mentioned placer AI what are some examples of asymmetrical asymmetrical information you utilize.
Linda Tsai: Yeah. So certainly plays there is a is a phenomenal tool that we have.
Linda Tsai: Uh huh.
Linda Tsai: We've taken advantage of and really helps us understand.
Linda Tsai: The assets and the foot traffic.
Linda Tsai: But yeah I don't I don't think you can ever completely replace your relationships directly with defendants in your conversations with them and how they're thinking about their assets.
Linda Tsai: And the cash flow generated at the asset level and so that's the that's kind of where our religion.
Linda Tsai: Relationships play.
Linda Tsai: Play a big part.
Speaker Change: And then in terms of G&A coming down I realize there's natural positive leverage from you growing your revenue base, but are you also running any processes differently to improve efficiencies.
Linda Tsai: Yeah.
Linda Tsai: Sure Linda we were always looking to improve efficiencies across the board.
Linda Tsai: I'd say, our cash G&A is going up in 2025 versus 2024.
Linda Tsai: And that is just kind of increasing the head count on.
On the margin across a couple of different roles.
Linda Tsai: As you continue to scale the portfolio.
Linda Tsai: Thanks.
Linda Tsai: Yeah.
Speaker Change: Our next question is from Daniel Guglielmo with capital One Securities. Please proceed with your question.
Daniel Guglielmo: Hi, everyone. Thanks for taking my questions I'm not acquisitions on the disposition side are there any material differences between our weighted average lease escalation for the leases coming in versus those going out.
Daniel Guglielmo: Yeah, I would say the on the disposition side the leases are shorter in general and so when we're looking at dispositions.
Daniel Guglielmo: Oftentimes, we're looking at either a decreasing exposure overall and oftentimes you know trying to get out ahead of some potential risks.
Daniel Guglielmo: Get closer to renewal.
Daniel Guglielmo: So in general you're going to see the the lease term, but we're going to be.
Daniel Guglielmo: On the margin a little bit shorter.
Daniel Guglielmo: Okay great.
Daniel Guglielmo: With around kind of like the renewal.
Daniel Guglielmo: Lease escalation bumps each year is that.
Daniel Guglielmo: At the same site.
Daniel Guglielmo: Like each quarter the bumps are each year the bumps.
Speaker Change: Yeah, absolutely so what we're acquiring.
Speaker Change: Yeah significantly better internal growth than what we're just closing up and that's just really I mean do you think about Walgreens do you think about CBS.
Speaker Change: Many dollar stores kind of a mix or whether they've got bumps or not but most of those are going to be entirely flat leases and so and really what we're focused on what we are seeing the best opportunities.
Speaker Change: But.
Speaker Change: Getting annual increases, which is what you saw.
Speaker Change: Certainly helpful.
Speaker Change: Perfect. That's really helpful and I appreciate that and then the next one is just there were a few changes to the dippers diversification by state map quarter to quarter and I know there can be lots of ins and outs with the acquisitions and then increased disposition.
Speaker Change: <unk> about that map are there certain states or regions, where you would expect kind of material changes there.
Speaker Change: No I wouldn't I wouldn't think so and I think overall, you'll likely see us continue to grow more in.
Speaker Change: In the Sunbelt, where youre seeing population increases, they're just gonna be.
Speaker Change: New construction and more opportunity there but.
But we're somewhat agnostic what part of the country and as long as we get comfortable with the individual market and the market dynamics and the potential demand for other tenants in the event that we have.
Speaker Change: Taking a step back.
Speaker Change: Great. Thank you.
Speaker Change: Our next question from Jay Kornreich with Wedbush Securities. Please proceed with your question.
Speaker Change: Alright, thank you.
Speaker Change: So earlier you mentioned them.
Speaker Change: Aiming to get it all kind of exposure to under 5%.
Speaker Change: Just beyond that which is really just the top three tenants how much additional work do you really wanted to do on the tenant exposures. This year and is there a ballpark of disposition volume you're really aiming for in 2025.
Speaker Change: Yes, I mean, I think we're gonna be pretty opportunistic as it relates to the dispositions, but you know we're getting.
Speaker Change: Pretty good demands them or be able to sell at attractive cap rates, we made push push that a little bit harder but.
Speaker Change: But I think you know if we're not then we're going to.
Speaker Change: Just work hard to try to find the right buyers for assets, we're not going to Firesale anything and yes, I mean, I think you'll likely see of course.
Speaker Change: I'll send is below 5%, but I think it makes sense for.
Speaker Change: That's the only that to be the exception not the rule and really have both tenants.
Speaker Change: Even if we like them below 3%.
Speaker Change: Yeah.
Speaker Change: Okay. I appreciate that and then just one more going back to the $185 million of unsettled forward equity, which you mentioned planning to settle at the end of the year I guess, if you saw a compelling acquisition opportunities during the year and the first half for example would you consider deploying that capital or is the plan for this year you are really to focus on tenant exposures and wait closer.
Speaker Change: 2026, really tried to acquisition volume backdrop.
Speaker Change: Yeah, I mean look I think the the net investment activity guidance at least that is really driven with the viewpoint.
Speaker Change: The floor is embedded in the leverage that we're assuming so I think we'd really in order for us to get more aggressive on the net investment front and.
Speaker Change: And start to be more acquisitive, we've laid out we have to see a more attractive cost of equity I didn't come alongside that.
Speaker Change: As you can tell it what we've done in the fourth quarter, which was a record quarter for us now.
Speaker Change: The capability to do significantly more than you're currently guiding to we just want to see your cost of capital.
Speaker Change: We have returned to more appropriate levels.
The other piece of that it's a good question Jay.
Speaker Change: In the event that we see an attractive acquisition, we are pretty close on price on some dispositions that we can potentially push forward. If we really just love an opportunity.
Speaker Change: Right.
Speaker Change: Alright, I appreciate it thanks, so much.
Speaker Change: Thanks Jay.
Speaker Change: Our next question is from Paul <unk> with Keybanc capital markets. Please proceed with your question.
Speaker Change: Great. Thanks for taking my question.
Speaker Change: You know Mark I appreciate the update on the big lots, so far but do you anticipate any downtime from any of your six locations and how is that baked into your guidance for this year.
Speaker Change: We do not expect any downtime at all.
Speaker Change: Okay great.
Speaker Change: And then.
Speaker Change: Last one for me would be just thought.
Speaker Change: What kind of investors are you selling your Walgreens to and giving you were successful in selling several of your Walgreens properties over the last few weeks few months.
Speaker Change: What did you learn about the appetite from investors to buy some of these troubled tenants.
Speaker Change: Yeah, no. It's a good question. So most really all of the temporary all of the buyers on the Walgreens side of about 31 buyers and it just takes a little bit more handholding.
Speaker Change: And it does for some of the other tenants just because they've been in the news so much and just getting the buyers comfortable that this is not going to be a location.
Speaker Change: That's going to be close were extraordinarily confident in that all of the Walgreens that we own are not going to get close.
Speaker Change: And so getting.
Speaker Change: Investors.
Comparable but that's an unlikely outcome.
Speaker Change: It's really just kind of what made that a little bit slower than being able to sell settled dollar generals, but the appetite is there once people get comfortable.
Speaker Change: Okay, Great that was helpful. Thank you.
Speaker Change: Thanks.
Speaker Change: Our next question is from apparel granted with Bank of America. Please proceed with your question.
Speaker Change: Hi, Thank you so much for taking my question.
Speaker Change: I was curious what do you see your cap rate expectations, especially associated with your guidance that you have in place for 2025.
Speaker Change: Yeah and in terms of cap rates.
Speaker Change: Really only have call it 90 days maximum.
Speaker Change: Disability.
Speaker Change: So it's always a little bit of a dangerous game.
Speaker Change: Yes, predicting where cap rates are going to be but we feel very comfortable at least for the next quarter that will be.
Speaker Change: We're above where we were this quarter most likely above.
Speaker Change: Hey, Thank you and I guess also a little bit more on the macro front when thinking about the consumer and the impacts that may be having on some of your tenants piece, how have you seen that trend going forward.
Speaker Change: Yeah. That's a it's a good question I mean, I think inflation.
Speaker Change: Is ramping as it wasn't it certainly isn't gone yet.
Speaker Change: Nowhere near what it was so I think we've really seen the worst of it.
Speaker Change: And so now it's really going to come down to the consumer at the lower end certainly continues to struggle and we've tried to adjust for that yeah. You here on the short term, but I think most of.
Speaker Change: The damage has been done by inflation, which was I think the bigger problem.
Speaker Change: But we're always focused on trying to understand the health of the consumer overall, which does seem to be softening a little bit.
Speaker Change: Okay. Thank you so much.
Speaker Change: Yeah.
Speaker Change: Thank you there are no further questions at this time I'd like to hand, the floor back over to Mark Manheimer for any closing comments.
Speaker Change: Thank you everyone for joining today and for your interest in industry. We look forward to seeing many of you at the upcoming conferences here in the next couple of weeks.
Speaker Change: Yeah.
Speaker Change: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Yeah.