Q4 2024 FrontView REIT Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the French Theory, Inc. Q4, 2024 earnings Conference call.
Operator: Good morning, ladies and gentlemen, and welcome to the FrontView REIT, Inc. Q4 2024 Earnings Conference Call. At this time, all lines are in a listen-only mode.
At this time all lines are in a listen only mode. Following the.
Operator: Following the presentation, we will conduct a question-and-answer session. If at any time during this call you need assistance, please press star zero for the operator.
Vacation, we will conduct a question and answer session.
If at any time during this call you need assistance. Please press star zero for the operator.
Operator: This call is being recorded on Thursday, March 20, 2025.
This call is being recorded on Thursday March 20th 2025, I would now let's turn the conference over to Tim Diefenbaker CFO. Please go ahead.
Operator: I would now like to turn the conference over to Tim Dieffenbacher, CFO. Please go ahead.
Speaker Change: Good morning, everyone and welcome to our year end earnings call I'm joined today by Steven Preston, Chairman and co CEO and co President and Randy Star Co CEO and co president.
Timothy Dieffenbacher: Good morning, everyone, and welcome to our year-end earn.
Timothy Dieffenbacher: joined today by Stephen Preston, Chairman, Co-CEO and Co-President, and Randy Starr, Co-CEO and Co-President.
Timothy Dieffenbacher: Before I turn it over to Steve, please note that we will make certain statements that may be considered forward-looking statements under federal security law. Company's actual results may differ significantly from the matters discussed in these four looking and we may not release revisions to these forward-looking statements in the future. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in yesterday's press.
Speaker Change: Before I turn it over to Steve. Please note that we will make certain statements that may be considered forward looking statements under federal Securities law.
Speaker Change: <unk> actual results may differ significantly from the matters discussed in these forward looking statements that we may not release revisions to these forward looking statements in the future.
Speaker Change: 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.
Speaker Change: In yesterday's press release.
Stephen Preston: With that, I'll turn it over. Great. Thank you, Tim. Good morning, everyone.
Steve: With that I'll turn it over to Steve.
Steve: Great. Thank you Tim.
Speaker Change: Good morning, everyone. Welcome to fund use Q4 2024 earnings call.
Stephen Preston: Welcome to FrontView's Q4 2024 earnings call.
Stephen Preston: We are excited to review our first quarter as a public company after our IPO in October of 2024. As a reminder, FrontView is an internally managed, net leased, that acquires, owns, and manages properties with frontage on high-traffic roads that are highly visible to consumers. Over the last two quarters, we have demonstrated our ability to accretively grow the portfolio. During Q4 2024, we acquired 103.4 million of properties at an average cap rate of 7.93 percent and a weighted average lease term of 11 years. So far, in Q1 2025, we have closed on $37.9 million of property at an average cap rate of 7.8% and have an additional $18.2 million under contract at an average cap rate of 8.25%.
Speaker Change: We are excited to review, our first quarter as a public company after our IPO in October.
Speaker Change: 224.
Speaker Change: As a reminder, <unk> is an externally managed net lease REIT that acquires owns and manages.
Speaker Change: Properties with frontage on high traffic roads that are highly visible to consumers.
Speaker Change: Over the last two quarters, we have demonstrated our ability to accretively grow the portfolio during.
Speaker Change: During Q4 224, we acquired a $103 4 million of properties at an average cap rate of 793% and a weighted average lease term of 11 years.
Speaker Change: So far in Q1 225, we have closed on $37 9 million of property at an average cap rate of seven 8% and have an additional $18 2 million under contract at an average cap rate of eight 5%.
Stephen Preston: As previously mentioned, we expect to close approximately $50 million of acquisitions during Q1 2025. Although we previously guided to a Q125 cap rate of 7.5%, we expect to close these assets at an approximately 7.9% to 7.95% average cap rate, exceeding prior guidance by about 40% to 45% basis points, as we are sourcing more accretively than expected, as the marketplace continues to remain slightly imbalanced. As we look forward to the rest of 2025, we are still quite pleased with our ability to acquire at above market cap rates, a testament to our buyer approach and ability to demonstrate surety of close in a fragmented marketplace.
Speaker Change: As previously mentioned, we expect to close approximately $50 million of acquisitions during Q1 to 25.
Speaker Change: Although we previously guided to a Q1 'twenty five cap rate of seven 5%, we expect to close these assets at an approximately seven 9% to 795% average cap rate exceeding prior guidance by about 40% to 45 basis points as we are sourcing more accretively mix than expected as the marketplace continue.
Speaker Change: To remain slightly imbalanced.
Speaker Change: As we look forward to the rest of 225, we're still quite pleased with our ability to acquire at above market cap rates are testament to our buyer approach and ability to demonstrate surety of close in a fragmented marketplace. Although we have seen a slight tightening in the marketplace. At this time through the second quarter of 225, we still built.
Stephen Preston: Although we have seen a slight tightening in the marketplace, at this time, through the second quarter of 2025, we still believe we will acquire above the 7.5% cap rate mark. As we get into the second half of the year, there could be additional tightening if more capital opens up and debt financing for the buyers we typically compete against becomes more attractive.
Speaker Change: We will acquire about seven 5% cap rate Mark.
Speaker Change: As we get into the second half of the year there could be additional tightening if more capital opened up and debt financing for the buyers. We typically compete against becomes more attractive we will provide more direction on the back half of 225 cap rates as we get a little deeper into the year.
Stephen Preston: We will provide more direction on the back half of 2025 cap rates as we get a little deeper into the year. Our balance sheet is strong, and we believe we have sufficient liquidity to fund our planned 2025 investment activity of approximately $175 to $200 million. Of course, we are monitoring our stock price and have the ability to make adjustments to our acquisition cadence very quickly should such actions become sensible.
Speaker Change: Our balance sheet is strong and we believe we have sufficient liquidity to fund our planned 225 investment activity of approximately $175 million to $200 million of course, we are monitoring our stock price and have the ability to make adjustments to our acquisition cadence very quickly should such actions become sensible.
Stephen Preston: A few additional stats on the Q4-2024 acquisition. Number of properties, 29. Average property price, $3.6 million.
Speaker Change: A few additional stats on the Q4 224 acquisitions.
Speaker Change: Number of properties 29.
Average property price $3 6 million.
Stephen Preston: Number of new tenants? 12.
Speaker Change: A number of new tenants 12 number of new states for.
Stephen Preston: Number of new states?
Stephen Preston: 4. 95% corporate and only 5% franchising. investment grade percentage, approximately 27%.
Speaker Change: 95% corporate.
Speaker Change: And only 5% franchisee.
Speaker Change: Investment grade percentage approximately 27%, we purposely did not acquire <unk> tenants in the pharmacy space or properties that could otherwise be AIG, but did not meet our frontage requirements.
Stephen Preston: We purposefully did not acquire IG tenants in the pharmacy space or properties that could otherwise be IG but did not meet our frontage requirements.
Stephen Preston: At the end of 2024, we had $68.5 million drawn on our $250 million revolving line of credit. We anticipate having sufficient borrowing capacity under our facility to fund our investment activity for the year, coupled with our ability to reinvest surplus cash flow and generate accretive funds from the sale of property.
Speaker Change: At the end of 224, we had $68 $5 million drawn on our $250 million revolving line of credit, we anticipate having sufficient borrowing capacity under our facility to fund our investment activity for the year, coupled with our ability to reinvest surplus cash flow and generate accretive funds from the sale of properties.
Stephen Preston: We sold a Freddy's during Q1, prompted by the closing of our only other Freddy's in Jacksonville, at a sales price of $2.050, which was higher than our original purchase price and represented a cap rate of $6.9%. Moving now to Portfolio Highlights. Our portfolio continues to perform well. As of December 31st, our portfolio consisted of 307 freestanding properties with an average remaining lease term of over seven years. We are heavily diversified across 35 states and 109 metro areas. We are pleased to keep a very diversified portfolio with limited exposure to any one tenant. At quarter end, we decreased our tenant exposure by about 50 basis points from 3.4% of ABR to 2.9% of ABR.
Speaker Change: We sold a freddy's during Q1 prompted by the closing of our only other Fridays in Jacksonville at a sales price of 205 out.
Speaker Change: It was higher than our original purchase price and represented a cap rate of six 9%.
Speaker Change: Moving now to portfolio highlights.
Speaker Change: Our portfolio continues to perform well as.
Speaker Change: As of December 31, our portfolio consisted of 307 freestanding properties with an average remaining lease term of over seven years, we're heavily diversified across 35 states and 109 Metro areas. We are pleased to keep a very diversified portfolio with limited exposure to any one tenant at quarter end, we decreased our largest.
Speaker Change: Exposure by about 50 basis points from three 4% of ABR at two 9% of ABR.
Stephen Preston: Occupancy was strong at approximately 98% with seven assets vacant, and rent-to-collections on contractual rent were also strong at approximately 98% for the period, generally in line with our historical ranges.
Speaker Change: Occupancy was strong at approximately 98% with seven assets vacant and rent to collections on contractual rent were also strong at approximately 98% for the period generally in line with our historical ranges.
Stephen Preston: One of our differentiating qualities as a management team is our ability to successfully repurpose assets and bring them back online. Although anyone can sell off vacant assets quickly, we will also take the time to either sell, release, or re-tenant troubled assets to maximize economics, which we believe ultimately creates the best long-term value for our shareholders. In these situations, there is usually a little short-term AFFO pain for long-term gain as we incur tax and insurance costs to carry the assets through the process. As of today, on our previously noted watchlist, we have already taken back or expect to take back one Freddy's, two TGI Fridays, one World Auto, four Hooters, three On the Borders, and a Joanne's Fabrics, representing about 4% of our AVR at the end of the year.
Speaker Change: One of our differentiating qualities as a management team is our ability to successfully repurpose assets and bring them back online.
Speaker Change: Although anyone can sell off vacant assets quickly. We will also take the time to either sell reliefs are re tenant troubled assets to maximize economics, which we believe ultimately creates the best long term value for our shareholders. In these situations. There is usually a little short term <unk> pain for long term gain as we incur tax on it.
Speaker Change: Sure it's cost of carry of the assets through the process.
Speaker Change: As of today on our previously noted watch list, we have already taken back or expect to take back one Freddie to TGI Fridays one world auto for Hooters three on the borders and Joann fabrics, representing about 4% of our ABR at the end of the year.
Stephen Preston: We are very pleased with our progress to date to repurpose or sell off these assets, bringing income back online relatively quickly. We are already in negotiations to lease or sell half of these properties. In addition to these negotiations, we believe that two of our four Hooters could be candidates to remain leased post Hooters bankruptcy, so we are already in discussions to sell both Hooters should they come back. Based upon current negotiations, we expect that a substantial majority of these properties should be back online in late 2025 at meaningful recovery rates. Most of these portfolio issues have stemmed from the sit-down fast-casual space, which is clearly having performance issues in general.
Speaker Change: We are very pleased with our progress to date to repurpose or sell off these assets, bringing income back online relatively quickly we're already in negotiations to lease or sell half of these properties. In addition to these negotiations we believe that two of our four hooters could be candidates to remain leased post tuners bankruptcy. So we are already and discuss.
Speaker Change: <unk> to sell both tutors should they come back.
Speaker Change: Based upon current negotiations, we expect that a substantial majority of these properties should be back online in late two O 25 at meaningful recovery rates.
Speaker Change: Most of these portfolio issues have stemmed from a sit down fast casual space, which is clearly having performance issues in general.
Stephen Preston: We have continued to reduce our exposure to this asset class over the years and believe that our portfolio should come out stronger as a result. Our exposure to the sit-down fast casual space at the end of Q3 2024 was 19.3% of ABR, and that figure has already declined to approximately 15% at the end of Q4 2024, with the expectation of further declines continuing into 2025. The pharmacy space has also been challenged for some time, with significant store closings, and we have been reducing our exposure there as well. We currently only own three Walgreens properties and four CVS properties, representing just 3.3% of our combined ABR.
Speaker Change: We've continued to reduce our exposure to this asset class over the years and believe that our portfolio should come out stronger as a result, our exposure to the sit down fast casual space at the end of Q3 224 was 19, 3% of ABR and that figure has already declined to approximately 15% at the end of Q4 224 with the expectation of.
Further declines continuing into 2025.
Speaker Change: The pharmacy space has also been challenged for some time with significant store closings and we have been reducing our exposure there as well. We currently only have three walgreens properties and for Cvs properties, representing just three 3% of our combined ABR.
Stephen Preston: We have one Walgreens expiring in 2025 that we expect will not renew, and we do not have any CVS properties expiring in 2025. These tenants hitting all at one time is a historical anomaly, and just because tenants are on a watch list, there is not necessarily an expectation that they would become or come offline from an income standpoint, especially all at one time. We fortunately own and operate properties with frontage, which are sought after by tenants and can generally be repurposed or recycled in relatively short order when the situations arise.
Speaker Change: We have one Walgreens expiring 225, we expect will not renew and we do not have any Cvs property is expiring in 2025.
Speaker Change: These tenants hitting all at one time is a historical anomaly just because tenants are on our watch list. There is not necessarily an expectation they would become or come offline from an income standpoint, especially all at one time.
Speaker Change: Fortunately owned and operated properties with frontage, which are sought after by tenants and can generally be repurposed or recycled in relatively short order when those situations arise.
Speaker Change: We do not have any debt maturities in the near term and we recently locked in our $200 million term loan for three years at a super rate of 366% representing an all in borrowing rate of 496% lastly, given the makeup of our capital structure as the market knows our earnings are a bit more sensitive to short term super swings until we.
Stephen Preston: We do not have any debt maturities in the near term, and we recently locked in our $200 million term loan for three years at a SOFR rate of 3.66%, representing an all-in borrowing rate of 4.96%. Lastly, given the makeup of our capital structure, as the market knows, our earnings are a bit more sensitive to short-term SOFR swings until we achieve greater scale.
Speaker Change: Achieve greater scale. Thank.
Timothy Dieffenbacher: Thank you, and let me turn it over to Tim for more detail on the quarterly numbers and guidance. Thanks, Steve. I'll begin by discussing our financial results for the quarter, followed by an overview of our capital markets activities and our guidance for. In 2024, we reported AFFO per share of 33 cents in line with our Order benefited from our 3.4% fixed rate ABS. maximizing AFFO dollars and allowing us to return more cash to shareholders in the form of As we highlighted in our earnings release and in prior...
Speaker Change: Thank you and let me turn it over to Tim for more detail on the quarterly numbers and guidance.
Tim Diefenbaker: Thanks, Steve.
Tim Diefenbaker: I'll begin by discussing our financial results for the quarter, followed by an overview of our capital markets activities and our guidance for 2025.
Tim Diefenbaker: 224, we reported <unk> per share of 33.
Tim Diefenbaker: In line with our guidance.
Tim Diefenbaker: Order benefited from our three 4% fixed rate ABS notes, maximizing <unk> and allowing us to return more cash to shareholders in the form of dividend.
Tim Diefenbaker: As we highlighted in our earnings release and in prior releases, we repaid the ABS notes in full on December 30.
Timothy Dieffenbacher: We repaid the ABS notes in full on December 30. on a pro forma basis.
Tim Diefenbaker: On a pro forma basis, assuming the repayment of these fixed rate notes at the beginning of the quarter <unk> per share would have been 27.
Timothy Dieffenbacher: Assuming the repayment of these fixed-rate notes at the beginning of the quarter, AFFO per share would have been $25,000. Which, as we've highlighted on previous calls, is an appropriate basis for reflecting future growth. Our DNA and property leakage figures came in better than expected. Reflecting our conservative views to minimize surprises as we season as a publicly moving We are extremely pleased with our acquisition volumes in the quarter at above market cap rates, thanks to our ability to capitalize on our niche market.
Tim Diefenbaker: Which as we've highlighted on previous calls an appropriate basis for reflecting future growth expectations.
Tim Diefenbaker: Our G&A and property leakage figures came in better than expected, reflecting our conservative views to minimize surprises as we season as a publicly traded Reits.
Tim Diefenbaker: We're extremely pleased with our acquisition volumes in the quarter at above market cap rates, thanks to our ability to capitalize on our niche market.
Timothy Dieffenbacher: We expect these to contribute significantly to 2025. We have recognized approximately 200 basis points of bad debt during the quarter. All on watch list properties, which we view as a short-term impact to AFFO that we anticipate resolving during.
Tim Diefenbaker: We expect these to contribute significantly to 2025 growth rates.
Tim Diefenbaker: We have recognized approximately 200 basis points of bad debt during the quarter. All on watch list properties, which we view as a short term impact <unk> that we anticipate resolving during 2025.
Timothy Dieffenbacher: We concluded the year with a net death EBITDA ratio 5.2 times, underscoring our prudent approach to leverage in a robust in terms of capital markets activities.
Tim Diefenbaker: We concluded the year with a net debt to EBITDA ratio five two times underscoring our prudent approach to leverage and a robust balance sheet.
Tim Diefenbaker: In terms of capital markets activities fourth.
Timothy Dieffenbacher: Fourth quarter was pivotal. IPO capital enabled us to retire legacy debt and establish a more flexible capital. As we've mentioned before, we've secured a new $250 million revolving credit facility and a $200 million term loan, both on favor... This enhanced financial flexibility positions us well to capitalize on future growth opportunities. As Steve highlighted, we fixed the term loan with interest rate swaps in an attractive all-in rate of 4.9%. Over 60 basis points lower than our current...
Tim Diefenbaker: Fourth quarter was pivotal for us the IPO capital enabled us to retire legacy debt and establish a more flexible capital structure.
Tim Diefenbaker: As we've mentioned before we secured a new $250 million revolving credit facility and a $200 million term loan both on favorable terms.
Tim Diefenbaker: This enhanced financial flexibility positions us well to capitalize on future growth opportunities.
Tim Diefenbaker: As Steve highlighted we fix the term loan with interest rate swaps and an attractive all in rate of 496% over 60 basis points lower than our current revolver borrowings.
Tim Diefenbaker: Looking ahead.
Timothy Dieffenbacher: Looking ahead. We are initiating AFFO per share guidance in the range of $1.20 to $1.25. Key assumptions underlying this guidance include Real estate acquisitions between $175 million and $200 million. property dispositions ranging from $5 million to $20 million. They had debt expense anticipated to be between 2% and 3% of cash NOI inclusive of properties already noted on our watchlist. Non-reimbursed property and operating expenses projected between $2,000,000 and $2,600,000. And lastly, total cash, general and administrative expenses estimated between $8.9 million and $9.5 million. This projected growth is driven by our ability to acquire assets at above market capital.
Tim Diefenbaker: 2025, we are initiating <unk> per share guidance in the range of $1 20 to $1 26.
Tim Diefenbaker: Key assumptions underlying this guidance include.
Tim Diefenbaker: Real estate acquisitions between $175 million and $200 million <unk>.
Tim Diefenbaker: Property dispositions, ranging from $5 million to $20 million.
Tim Diefenbaker: Bad debt expense anticipated to be between 2% and 3% of cash NOI inclusive of properties already noted on our watch list.
Tim Diefenbaker: Non reimbursed property and operating expenses projected between 2 million and $2 6 million and lastly, total cash general and administrative expenses estimated between $8 9 million and $9 5 billion.
Tim Diefenbaker: This projected growth is driven by our ability to acquire assets at above market cap rates.
Timothy Dieffenbacher: As Steve mentioned, our disciplined underwriting and sourcing of assets outside the competitive Public REIT landscapes are key differentiators.
Tim Diefenbaker: As Steve mentioned, our disciplined underwriting of sourcing of assets outside of the competitive.
Tim Diefenbaker: Public REIT landscape are key differentiators for the full year as a public company ahead, and a capital structure optimized post ABS note repayment, we are well positioned to execute on our acquisition strategy and achieve meaningful <unk> per share growth in 2025.
Timothy Dieffenbacher: With a full year as a public company ahead in our capital structure, optimized post-ABS note repayment, you're well positioned to execute on our acquisition strategy and achieve meaningful AFFO per share growth in 2020. We remain committed to returning capital to shareholders.
Tim Diefenbaker: We remain committed to returning capital to shareholders. Our board has declared a quarterly dividend of $21.05 per share for the first quarter, reflecting a prudent annualized payout ratio that balances shareholder returns with reinvestment into our high growth strategy.
Timothy Dieffenbacher: Our board has declared a quarterly dividend of 21 1⁄2 cents per share for the first quarter, reflecting a prudent annualized payout ratio that balances shareholder returns with reinvestment into our high growth.
Timothy Dieffenbacher: Thank you for your attention.
Tim Diefenbaker: You for your attention I will now turn it back to Steve for closing remarks before opening it up for a Q&A session.
Stephen Preston: I'll now turn it back to Steve for closing remarks before opening it up for our Q&A. Thanks, Tim. Let me leave you all with a comment as we continue to build this company going forward.
Steve: Thanks, Tim.
Steve: Let me leave you all with a comment as we continue to build this company going forward.
Stephen Preston: We are always going to use our best judgment to try to make the right decisions for our shareholders to maximize long-term value for the company. We've demonstrated our ability to provide outsized growth by exploiting our market niche with prudent capital allocations. We decided to take a chunk of interest rate risk off the table to fix $200 million of debt and a SOFR spread of 3.66%. We are quickly and effectively addressing our current watch.
Steve: We are always going to use our best judgment to try to make the right decisions for our shareholders to maximize long term value for the company.
Steve: We have demonstrated our ability to provide outsized growth by exploiting our market niche with prudent capital allocation.
Steve: We decided to take a chunk of interest rate risk off the table to fixed $200 million of debt and a super spread of 366% were quickly and effectively addressing our current watch list.
Operator: With that, I will turn it back to the operator for the Q&A portion of our call. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the 2. And if you are using a speakerphone, please lift the handset before pressing any button.
Steve: With that I will turn it back to the operator for the Q&A portion of our call today.
Steve: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone you will hear prompts that you had has been made.
Speaker Change: Should you wish to decline from the polling question. Please press star followed by the two and if you are using a speaker phone. Please lift the handset before pressing any case.
Speaker Change: The first question comes from Ronald Camden at Morgan Stanley. Please go ahead.
Ronald Kamden: The first question comes from Ronald Kamden at Morgan Stanley. Please go ahead. Hey, just two quick ones for me. One, I just wanted to talk a little bit more about the acquisition pipeline. Obviously, over $100 million in 4Qs, some deals at the end of the quarter. I think I heard you say you could continue to get sort of above market sort of cap rates, which is very impressive. Just can you talk a little bit more about sort of the activity, cap rate trends, what industries are you leaning into? I'd just love to hear more about the Sure.
Ronald Camden: Hey, just two quick ones for me one I just wanted to talk a little bit more about the acquisition pipeline.
Ronald Camden: Obviously, you're over $100 million <unk> from <unk>.
Ronald Camden: Deals at the end of the quarter I think I heard you say you could continue to get sort of.
Ronald Camden: Above market sort of cap rates, which is which is very impressive just can you talk a little bit more about sort of the activity cap rate trends.
Ronald Camden: What industries are you leading into.
Ronald Camden: To hear more about the pipeline.
Speaker Change: Sure Hey, Ron how are you doing Randy start thanks for tuning into us and happy to discuss the pipeline, which continues to be very robust. We continue to acquire on average in the high sevens from a cap rate standpoint, given the current market conditions, but also given our market niche in what we would call our entrepreneurial approach to sourcing new acquisitions with <unk>.
Randy Starr: Hey Ronald, how are you doing? Randy Starr. Thanks for tuning in to us and happy to discuss the pipeline which continues to be very robust. We continue to acquire on average in the high sevens from a cap rate standpoint given the current market conditions but also given our market niche and what we would call our entrepreneurial approach to source new acquisitions which creates pricing arbitrage. From a tenant niche standpoint we are targeting strong credit, proven operators and essential services, health and wellness, and we are purposely avoiding casual dining and pharmacy as Steve alluded to earlier.
Ronald Camden: <unk> pricing arbitrage.
Speaker Change: From a tenant mix standpoint, we are targeting strong credit proven operators in our central services health and wellness and we are purposely avoiding casual dining in pharmacy as Steve alluded to.
Speaker Change: Earlier, we're very we're also very cautious I would say about car washes at this time given the over saturation of the market. So the specific sectors, which we required within include medical dental veterinary services automotive services convenience stores fitness finance as well as a couple of dollar tree stores that met our frontage traffic count.
Randy Starr: We're very we're also very cautious I would say about car washes at this time given the oversaturation in the market. So the specific sectors which we've acquired within include medical, dental, veterinary services, automotive services, convenience stores, fitness, finance, as well as a couple of Dollar Tree stores that met our frontage traffic count and real estate criteria. Out of the 29 properties acquired in Q4 only two were technically franchisees and the rest were company operated stores. I think importantly we have also received financials if you include the publicly traded companies for 98% of new acquisitions since the IPO.
Speaker Change: Real estate criteria.
Out of the 29 properties acquired in Q4, only two were typically franchisees and the rest of our company owned company operated stores and I think importantly, we have also received financial if you include the publicly traded companies for 98% of new acquisitions since the IPO.
Speaker Change: And from a cap rate standpoint.
Randy Starr: And, you know, from a cap rate standpoint, Steve mentioned, you know, cap rates remain fairly consistent in the private investor market where we saw them and really where we saw them in Q4. Should the Fed, I think, recommence rate cuts, we would expect cap rates to adjust slightly downward. We are seeing those slight tightening overall in the institutional space, especially for widely marketed deals from the national brokerage firms. But as a reminder, you know, our market niche is working with the many smaller and mid-sized brokerage firms across the country that specialize in smaller transactions, usually dominated by the private buyer.
Speaker Change: Steve mentioned cap rates have remained fairly consistent and the private investor market, where we saw them and really where we saw into Q4 should the fed I think recommence rate cuts, we would expect cap rates to adjust slightly downward we are seeing though a slight tightening overall in the institutional space, especially for widely marketed deals from the national brokerage firms, but as a reminder.
Speaker Change: Minder, our market niche is working with many smaller and midsize brokerage firms across the country.
Speaker Change: Specialize in smaller transactions, usually dominant by the private buyers.
Speaker Change: Great. That's Super helpful. My second question was just on sort of a tenant health, having I think I saw the occupancy was down quarter over quarter I'm, assuming that some of the store closings and so forth. When you think about the guidance for this year for the bad debt.
Ronald Kamden: Great, that's super helpful.
Ronald Kamden: My second question was just on sort of the tenant health. I mean, I think I saw the occupancy was down quarter to quarter. I'm assuming that's some of the store closing and so forth. When you think about the guidance for this year for the bad debt, I guess is that addresses most of the stuff for this year?
Speaker Change: I guess does that addresses most of the stuff for this year like how do we think about.
Ronald Kamden: Like, how do we think about this year versus like a historical year and, you know, the amount of time before you sort of get through all these, you know, closures and resolutions and so forth. So, just a little color on the tentative health of the bad debt guidance this year versus what we should expect in a regular run rate year.
Speaker Change: This year versus like a historical year and the amount of time before you sort of get through.
Speaker Change: All of these.
Speaker Change: Closure as it releases and so forth so.
Speaker Change: Just a little color on the health of the bad debt guidance this year versus what we should expect in a regular run rate year.
Tim Diefenbaker: Yes, Thanks, Ron it's Tim.
Timothy Dieffenbacher: Yeah, thanks, Ron.
Timothy Dieffenbacher: It's Tim. So, historically, I would have looked at bad debt expectations around that 1 to 2% range. Obviously, this quarter end and then Q1, a lot of these tenants had hit fairly unexpectedly and not what we expect on a go-forward basis. So, guidance for the year is to have bad debt in that 2 to 3% range. vast majority of that relates to those tenants that Steve had highlighted on the call, with a little bit of buffer for, you know, one, maybe two tenants to, to have some difficulties during the year. But we expect that once once we're through this slug of tenants, that will return to normalcy.
Tim Diefenbaker: So historically I would have looked at bad debt expectations around that 1% to 2% range.
Tim Diefenbaker: This quarter end and in Q1, a lot of these tenants it hit fairly unexpectedly and not what we expect on a go forward basis. So guidance guidance for the year is to have bad debt in that 2% to 3% range.
Speaker Change: The vast majority of that relates to those tenants that Steve highlighted on the call with a little bit of buffer for one maybe two tenants too.
Speaker Change: You have some difficulties during the year, but we expect that once once we're through this slug of tenants that will return to normalcy. So we're looking forward to we think that at the end of 2020 fives vast majority of these will come back online. So so we're excited about that but obviously understand that.
Timothy Dieffenbacher: So we're looking forward to, you know, we think that at the end of 2025, vast majority of these will come back online. So, so we're excited about that. But obviously understand that there's a little bit of headwinds that we have.
Speaker Change: There's a little bit of headwinds that we have to face in the near term.
Ronald Kamden: Great. That's it for me. Thanks so much. Thanks, Ronald. Thank you.
Speaker Change: Great. That's it for me thanks, so much.
Ronald Camden: Thanks Ronald.
Speaker Change: Thank you. The next question comes from John Keller Celski at Wells Fargo. Please go ahead.
John Kilichowski: The next question comes from John Kilichowski at Wells Fargo. Please go ahead. Thank you.
Speaker Change: Thank you good morning, everyone.
John Kilichowski: Good morning, everyone. Maybe if I could just kind of go back to the last question, I was hoping we can kind of drill into the most recent press release on the names and the vacancies and kind of timing. And then, Tim, maybe if you could just expound upon the last point you made, the bad debt guidance. I'd love to know out of those assets that went dark in the first quarter, what's included and what's that buffer room that you're leaving for yourself on the bad debt side for names that weren't included in the press release?
Speaker Change: Maybe if I could just kind of go back to the last question I was hoping we can kind of drill into the most recent press release on the names and the vacancies and kind of timing and then Ted maybe if you could just expand upon the last point you made the bad debt guidance, Yes, I'd love to know out of those assets that went dark in the first quarter, what's included and what's that buffer.
Speaker Change: But you are leaving for yourself on the bad debt side for names that Werent included in the press release.
Speaker Change: Sure Yeah. Thanks, So let me let me just touch base quickly on.
Timothy Dieffenbacher: Sure. Thanks. Let me just touch base quickly on where we sit and what we think from a timing standpoint. Ultimately, we want to be conservative with the projections, but we're currently in negotiations with six different users for 12 of those assets. We've got two that are LOI sales. We've got one that is a lease that's being negotiated, and then we also have three that are currently under contract. The three just for context, if the three assets that are currently under contract move to close and we receive those proceeds and reinvest those proceeds, we're expecting a little over 30 plus percent, maybe 32, 34 percent of the 4 percent of ABR to come back online just with those three alone.
Speaker Change: Sort of where we sit and what we think from a timing standpoint, and ultimately we want to be conservative with the projections, but we are we're currently in negotiations with <unk>.
Speaker Change: Six different users for 12 of those assets and we've got two that are LOI sales.
Speaker Change: One that has a lease thats being negotiated and then we also have three that are currently under contract.
Speaker Change: The three just for context, if the three assets that are currently under contract.
Speaker Change: To close and we received those proceeds and reinvest those proceeds we're expecting a little over 30%, maybe 32% to 34%.
Speaker Change: 4% of ABR to come back online just with those three alone. So I think we see some very good opportunity to bring back these assets and then to bring them back at a very meaningful recovery rates and if you look at.
Timothy Dieffenbacher: I think we see some very good opportunity to bring back these assets and then to bring them back at very meaningful recovery rates. If you look at, we're sort of right in line, but if you look at adding the two LOI sales and the one lease, we're looking at close to 50, if not more, percent of that lost rent coming back online. We feel like we're in a good place addressing it very quickly. Again, I think it's a testament to not only the team, but the team has deep-rooted experience in the real estate space, and this is not something that we're not able to do and execute on.
Speaker Change: Sort of right in line, but if you look at.
Speaker Change: Adding the two LOI sales and the one lease we're looking at close to 50, if not more.
Speaker Change: <unk> of that loss rent coming back online. So we feel like we're in a good place addressing it very quickly and again I think it's a testament to not only the team, but the team has deep rooted experience in the real estate space and this is not something that.
Speaker Change: We were not able to do and execute on and the assets themselves helped make the team look a little bit better when when youre taking properties back.
Timothy Dieffenbacher: The assets themselves help make the team look a little bit better when you're taking properties back. John just kind of touched on the kind of progression from Q4 to Q1. So just kind of referencing Steve's four percent of ABR, you have essentially a stratification two percent that occurred in Q4 and then those were out of ABR and then another two percent that occurs in Q1 of 25. And so when you think relative to the guidance range that we put out for bad debt of two to three percent, it's essentially incremental 25 to 50 basis points of bad debt that we have in our guidance.
John: And John just.
John: The kind of progression from Q4 to Q1.
John: Just kind of referencing steves, 4% of ABR.
John: Essentially our stratification to percent that occurred in Q4, and then those were out of AVR and then another 2% that occurs in Q1 of 'twenty five if so when you sit relative to the guidance range that we put out for bad debt of 2% to 3% is essentially incremental 25 to 50 basis points of bad debt that we have in our guidance.
Yes.
Stephen Preston: Okay, thank you. That was very helpful. And then, Steve, just kind of on those newer updates in terms of the releasing time, how much of that is included in guidance? I don't know when you've had those conversations with those tenants about potentially releasing, but maybe if you hit the high end of that, would that be above and beyond maybe what your current guide includes? Or is that roughly at the high end of guides? Yeah, so what I would say is we're trying to be pretty conservative with the timing of when these assets could come back online.
John: Okay. Thank you that was very helpful. And then Steve just kind of on those.
Steve: Newer updates in terms of the re leasing time.
Steve: <unk> of that is included in guidance I don't know when you've had those conversations with those times about potentially releasing but maybe if you hit the high end of that would that be above and beyond maybe what your current guide includes or is that roughly at the at the high end of guide.
Steve: Yes, so what I would say is we're we're trying to be pretty conservative with the timing of when these assets could come back online and we're estimating for the purposes of our guidance that we're pushing a lot of that back into the later part of 225 and if for example, these three contracts that were talking.
John Kilichowski: And we're estimating for the purposes of our guidance that we're pushing a lot of that back into the later part of 2025. And if, for example, these three contracts that we're talking about that would be pretty substantial for three of these 12 assets come back, the expectation, if they all continue to make, they'd be coming back online well before the end of the half year. So I think we've got we've got some navigation there that can help us if the leasing continues to go at the pace. Understood. Thank you for the time. Thank you. Thanks.
Steve: About it would be pretty substantial.
Steve: For three of these 12 assets come back the expectation if they all continue to make they'd be coming back online well before the end of the half year.
Steve: We've got we've got some navigation there that can help us if the leasing continues to go at the pace.
Steve: Understood. Thank you for the time.
Speaker Change: Yes, thanks, Kevin Thanks, Jeff.
Steve: Okay.
Operator: Thank you.
Speaker Change: Thank you. The next question comes from Janney Guglielmo at capital One Securities. Please go ahead.
Daniel Guglielmo: The next question comes from Daniel Guglielmo at Capital One Security. Please go ahead.
Speaker Change: Hi, everyone. Thanks for taking my questions.
Daniel Guglielmo: Hi, everyone. Thank you for taking my questions. On the acquisition side, how does the underwriting for the new leases compare with the in-place lease portfolio? Looks like the lease terms are longer, but are the yearly escalators still in that 1.7% to 2% range? And are most of them full triple net coverage? Yeah, I would say that the rental increases are consistent with where we've been historically in between one and a half to two percent. And I would say that our from a credit standpoint, I think we're very pleased, as I mentioned, I think Steve mentioned, you know, about 95 percent of corporate credits we've been receiving financials literally for almost 100%, about 98%.
Janney Guglielmo: On the acquisition side, how does the underwriting to the new leases compare with the in place lease portfolio. It looks like the lease terms are longer but are the yearly escalator is still in that one 7% to 2% range and are most of them full triple net coverage.
Janney Guglielmo: Yes, I would say that the rental increases are consistent with where we've been historically in between one 5% to 2%.
And I would say that our.
Speaker Change: From a credit standpoint, I think we're very pleased as I mentioned I think Steve mentioned about 95% of our corporate credits, we've been receiving financials literally for.
Speaker Change: Almost 100% about 98% it is a mix of absolute naphtha and either we would we would technically called double net where the landlord we have limited responsibilities such as roof restructure.
Randy Starr: It is a mix of absolute net, and we would technically call it double net, where the landlord may have limited responsibilities, such as roof or structure. But the leases are typical for what you'd see in the out-parcel net lease space.
Speaker Change: But the leases are typical for what you would see in the out parcel net lease space.
Speaker Change: Great. Thank you and then I know you all have great standing relationships with the brokers and our very plugged in there can you just give us a sense of who the primary sellers of properties are right now.
Daniel Guglielmo: Great, thank you.
Randy Starr: And then I know you all have great standing relationships with the brokers and are very plugged in there. Can you just give us a sense of who the primary sellers of properties are right now? Yeah, so that's a great question. Glad you asked that. We continue to see a lot of motivated sellers in the private investor market space, and these typically are individual sellers, at least in the market that we compete in. The traditional REIT market, sometimes they're buying from other institutions who have major portfolios that they're trying to divest of, but that's not where we compete.
Speaker Change: Yes.
Speaker Change: That's a great question glad you asked that we can we continue to see a lot of motivated sellers in the private investor market space and these typically are individual sellers at least in the market that we compete in.
Speaker Change: The traditional REIT market. They will sometimes they are buying from other institutions, who have major portfolios that theyre trying to divest it but that's not where we compete.
Randy Starr: And we're actually seeing, which is helping us, less buyers in our specific competitive landscape currently. The traditional supply of 1031 exchange buyers has decreased slightly compared to years past, due in large part to the sustained high interest rates. And traditional bank financing is often difficult for the smaller private buyer. That really creates pricing opportunities for an institutional quality buyer like FrontView that can execute and close quickly and reliably. But we also continue to acquire properties that we lost, you know, technically, you know, quote, unquote, lost the first time around when we were looking at them due to pricing, but where the buyer who was originally chosen was not able to that puts FrontView back in the driver's seat, and that puts us in a very favorable position from a pricing arbitrage standpoint.
Speaker Change: And we're actually seeing which is helping us less buyers in our specific competitive landscape. Currently the traditional supply of 10 31 exchange buyers has decreased slightly compared to years past due in large part of a sustained high interest rates and traditional bank financing is often difficult for the smaller private buyers that really creates pricing opportunities.
Speaker Change: <unk> for institutional quality buyer like front view that can execute and close quickly and reliably but we also continue to acquire properties that we lost technically quote unquote lost the first time around when we were looking at them due to pricing, but where the buyer who is originally chosen was not able to perform and know that puts you back in the driver's seat.
Speaker Change: Just at a very favorable position from a pricing arbitrage standpoint, so I would say the majority of sellers. We're seeing are for a private sellers and many of them have distress in other parts of the portfolio and the market uncertainty now with the political climate and obviously is it helping in a lot of People's psyches that create it puts us into some very favorable situations on the pipeline.
Randy Starr: So I would say the majority of sellers we're seeing are private sellers, and many of them have distress in other parts of the portfolio. And the market uncertainty now with the political climate, obviously, isn't helping in a lot of people's psyches. So that puts us into some very favorable situations on the pipeline.
Speaker Change: That's great. Thank you. Thank you.
Daniel Guglielmo: That's great, thank you. Thank you.
Speaker Change: Thanks, Jeff Thank you.
Speaker Change: Ladies and gentlemen, as a reminder, should you have any questions. Please press star one.
Operator: Ladies and gentlemen, as a reminder, should you have any questions, please press star 1.
Speaker Change: The next question comes from Anthony Powell alone at J P. Morgan. Please go ahead.
Anthony Paolone: The next question comes from Anthony Paolone at J.P. Morgan. Please go ahead. Good morning, guys. You guys have Nahum on for Tony this morning.
Speaker Change: Good morning, guys you guys have now home on for Tony This morning.
Nahum: I guess my first question, I guess, given, you know, the current cost of equity for you guys, what's the runway or how far are you guys willing to push your leverage to pursue a creative acquisition? Yeah, hey, Nahum, how are you? So I'll take that. Obviously, where the share price is today and what that implies from a cost of equity perspective. It's not great. What I would say is we monitor our costs every day with the share price fluctuations. On the roadshow, past conference calls, we've discussed that our ideal leverage profile is six times net debt over time, which may mean that we could go above six times, we could be below six times.
Speaker Change: Okay. My first question I guess, given the current cost of equity for you guys.
Speaker Change: Whats the runway or how far are you guys willing to push your leverage to pursue accretive acquisitions.
Speaker Change: Yes.
Speaker Change: Are you.
Speaker Change: So I'll take that obviously, where the share prices today, and what that implies from a cost of equity perspective it.
Speaker Change: It's not great what I would say as we monitor our costs every day with the share price.
Speaker Change: Fluctuations.
Speaker Change: On the road show past conference calls, we've discussed that are ideal leverage profile.
Speaker Change: Is six times net debt to EBITDA over time, which May mean that we could go above six times, we could be below six times.
Nahum: And so we just given the current share price, we're not racing towards any equity offerings at this point in time. But we do have and we do feel that we have enough runway to get through the year and get us into the beginning of next year while staying in the six times. What I would say relative to our cost with, you know, just looking at our guidance range of $1.20 to $1.26, $1.23 at the appointment. If you look at our weighted average cost of equity, you know, it's not very conducive to an equity offering today, but we're not far away from having 75 basis points to 100 basis points.
Speaker Change: So we just given the current share price, we're not racing towards any equity offerings at this point in time.
Speaker Change: But we do have and we do feel that we have enough runway to get through the year and get us into the beginning of next year, while staying in the six times range.
Speaker Change: What I would say relative to our cost.
Speaker Change: With just looking at our guidance range of $1 20 to $1 26 by 'twenty three of Yoplait midpoint. If you look at our weighted average cost of equity.
Speaker Change: Not very conducive to an equity offering today, but we're not far away from having 75 basis points to 100 basis points of accretion, which is which is really where we target from a from a spread investing perspective. So.
Nahum: of accretion, which is which is really where we target from a from a spread investing perspective. So, you know, we're very confident with these tenant related issues. I think if you look at the implied cap rate that we're trading at right now around a 9%, I think we would all agree that that's not characteristic of the true underlying value of the portfolio.
Speaker Change: We're very confident with these tenant related issues I think if you look at the implied cap rate that we're trading at right now around 9%.
Speaker Change: I think we would all agree that thats not characteristic of the true underlying value of the portfolio.
Nahum: And so we're excited to put some of these tenant related things behind us and hopefully have some share price but we feel we have plenty of runway to execute this year and as we've said in the past We're certainly very sensitive to the share price, and if some of these share price headwinds continue, we have levers that we can pull, which includes peeling back on our acquisition activity to make sure that we continue to have enough liquidity and runway and to continue to prudently Got it. Okay.
Speaker Change: We're excited to put some of these kind of related things behind us and hopefully have some share price adjustments, but we feel we have plenty of runway to execute this year.
And as we've said in the past.
Speaker Change: We're certainly very.
Speaker Change: Sensitive to the share price and if some of the share price headwinds continue we have levers that we can pull which includes peeling back on our acquisition activity to make sure that we continue to have enough <unk>.
Speaker Change: Liquidity and runway to continue to prudently allocate capital.
Speaker Change: Got it okay.
Nahum: And last one for me. It looks like the expected G&A costs for the year are just a little higher than what was previously expected. I guess, is that adding, is that from adding people to like the acquisitions team or just, I guess, other ancillary costs? Yeah, no, thanks. Thanks for the question has absolutely no impact from additional headcount related matters. We stand by our previous sentiments there that we think we're a platform that's poised to grow with the existing infrastructure. We may may add a few lower level positions, such as a property manager account and things like that.
Speaker Change: And last one for me.
Speaker Change: Thanks, It looks like the.
Speaker Change: Expected G&A costs for the year or just a little higher than what was previously expected I guess is that adding is that from adding people to like the acquisitions team or just I guess the other ancillary costs.
Speaker Change: Yes, no. Thanks. Thanks for the question has absolutely no impact from additional head count related matters.
Speaker Change: We stand by our previous sentiments. There that we think we are a platform thats poised to grow with the existing infrastructure. We may it may add a few lower level positions such as a property manager account and things like that but no significant hires the uptick that you're seeing in that G&A guidance is really just a holistic view.
Nahum: But no, no significant. The uptick that you're seeing in that GNA guidance is really just a holistic view of all of the costs of running a publicly traded. So that's the primary. Got it. Okay. Thanks, guys. Thank you.
Speaker Change: All of the cost of running a publicly traded company and so that's the primary driver.
Speaker Change: Got it okay. Thanks, guys.
Speaker Change: Yes.
Speaker Change: Thank you. The next question is a follow up from Ronald Camden at Morgan Stanley. Please go ahead.
Ronald Kamden: The next question is a follow-up from Ronald Kamden at Morgan Stanley. Please go ahead. Hey, just a quick one. I want to make sure I understood it correctly. So, just how many vacant boxes do you have and that you plan to open by the end of the year? And I guess the question is just, if you're still in lease negotiations, isn't that kind of fast, right? What gives you confidence that you can get those open by the end of the year? Hopefully that made sense. Yeah, sure, of course.
Ronald Camden: Hey, just to just a quick one I wanted to make sure I understood. It correctly. So just how many vacant boxes are you do you have and that you plan to open.
Ronald Camden: By the end of the year and I guess the question is just if you are still in lease negotiations isn't that kind of SaaS right. What gives you confidence that you can get those opened by the end of the year hopefully that makes sense.
Ronald Camden: Yes sure of course, yes.
Randy Starr: Yeah, we're right now in lease negotiations on one of the assets and the remaining are sales. Sales typically come back online a little bit quicker, and we think that's going to be a balance going forward with these 12 assets. Thus far, we've got a little bit more of a preponderance on the sales side. The leases typically will take, based on sort of fixturing periods and lease negotiations and permitting periods, they can extend out a little bit longer, certainly, than the sales. So we expect that we'll have a little bit more on the sales side for the back six that are in discussions, and a lot of those are discussions on the sales side as well.
Ronald Camden: We are right now in lease negotiations on one of the assets and the remaining are sale sales typically come back online a little bit quicker and we think thats going to be a balance going forward with these 12 assets. So thus far we've got a little bit more of a preponderance on the sales side.
Ronald Camden: <unk> typically will take.
Ronald Camden: Just on sort of fixed during periods and lease negotiations and permitting periods. They can they can.
Ronald Camden: Can extend out a little bit longer certainly than the sales. So we expect that we'll have a little bit more on the sales side for the back six that are in discussions and a lot of those are discussions on the sales side as well.
Ronald Camden: Helpful. Thank you.
Ronald Kamden: helpful. Thank you.
Ronald Camden: You bet.
Ronald Camden: Thank you we have no further questions I will turn the call back over to Stephen question for closing comments.
Operator: We have no further questions.
Stephen Preston: I will turn the call back over to Stephen Preston for closing comments. Okay. Thank you all again for your support in FrontView. We look forward certainly to seeing everyone very soon. And wherever you're going, please make sure you go in health and safety. Take care. Thank you.
Okay. Yes. Thank you all again for your support in front of you. We look forward certainly to seeing everyone very soon.
Speaker Change: Wherever you're going please make sure you go in the health and safety take care. Thank you all.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your line.
Speaker Change: Okay.
Speaker Change: Okay.