Q4 2024 NNN REIT Inc Earnings Call
Greetings and welcome to the end and REIT, Inc. Fourth quarter 2024 earnings call at.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host.
Dave Horn: Dave Horn CEO you may begin.
Speaker Change: Hey, Thanks Ali.
Speaker Change: Morning, and welcome to <unk> fourth quarter 2024 earnings call. Joining me today is the current Chief Financial Officer, Kevin Habicht.
Speaker Change: Our incoming CFO Vincent Chao.
Speaker Change: As outlined in this morning's press release, and then delivered one 8% core <unk> growth for 2024.
Speaker Change: Alongside over $550 million in acquisition volume the year concluded with a strong $98 five occupancy rate.
Speaker Change: Physicians of income producing assets were executed at a cap rate 40 basis points lower than our acquisition yield <unk>.
Speaker Change: Including several strategic and defensive asset sales. These achievements reflect the dedication and the expertise of our best in class team positioning us well for the near term.
Speaker Change: Highlights I'm, particularly proud of for the year 35 consecutive years of annual dividend increases maintaining a sector, leading $12 one year weighted average debt maturity and strategically positioning our executive team for the future.
Speaker Change: Despite the overall theme of maintaining a light capital markets footprint for 2020 for our core philosophy remains unchanged delivering long term value with below average risk for our shareholders at its simplest our strategy focusing on bottom up investment approach continuing to increase the annual dividend while maintaining a.
Speaker Change: Top tier payout ratio.
Speaker Change: <unk> growth per share in the mid single digits over multiple years.
Speaker Change: Disciplined approach drives our acquisition and disposition strategy as well as our balance sheet management, ensuring we stay on track to achieve our objectives.
Speaker Change: Before diving into the market conditions and operational updates I would like to formally welcome Vincent jobs to the executive team Vincent joined <unk> in early January early January and officially assumes the CFO role at the start of the second quarter.
He has extensive public company, an investment banking experience with an expertise in capital markets Corporate Finance Investor Relations I look forward to our partnership as we continue to grow Internet.
Speaker Change: And now to Kevin after over 30 years of dedicated service, including four Ceos and over $5 billion of cash dividends paid.
Speaker Change: Kevin's commitment to excellence and an integral part of the fabric of Internet. His work ethic leadership and passion for doing the right thing has been consistently evident leaving an indelible mark that is woven deeply into the very DNA of internet.
Speaker Change: Through average challenge is not only contributed to our success, but has shaped the values of the culture that will continue to guide us long after his departure.
Speaker Change: Legacy is not just in the work completed but in the principles and standards <unk> still to those who had the privilege to work alongside him with that Kevin on behalf of the entire company. The board the analysts and the Investor community, we want to express our heartfelt gratitude and knowledge.
Speaker Change: Youll have you undoubtedly missed as we move forward as you move forward to the next chapter in our lives we wish you nothing but the best.
Speaker Change: This is when you kind of wish you record these phone calls.
Speaker Change: Hey, as we move forward to the first quarter of 2025.
Speaker Change: And then then maintains a robust position we anticipate another strong quarter of acquisitions and are making significant progress with the assets related to the freshest and Bangkok home furniture.
Speaker Change: Kevin will provide a lot more detail on the activities concerning these tenants during the upcoming remarks.
Speaker Change: In the fourth quarter financial highlights our portfolio now comprises 3568 freestanding single tenant properties and they continue to perform exceptionally well occupancy decreased to $98 five due to the challenges with two specific tenants. However, this rate remains above our long term average of roughly 98% plus or minus.
Speaker Change: And I anticipate.
Speaker Change: <unk> the level, increasing as the year progresses, because as we report today I feel good about the remaining tenants in the portfolio and the activity. The leasing team is generating currently.
Speaker Change: In terms of acquisitions during the quarter, we invested $217 million in 31, new properties achieved an initial cap rate of seven six average lease duration basically 20 years.
Over 80% of the capital deployed this quarter was allocated to our business relationship partners. Additionally, the long term projected yield on these acquisitions would be eight 8%, reflecting our preference from our sale leaseback acquisition model.
Speaker Change: The purchasing existing shorter term leases. Despite they may offer higher yields they don't align with the assessment of our optimal risk adjusted returns.
Speaker Change: Disposition activity was elevated this year with nearly $150 million sold at a seven three cap at the start of the year as I mentioned earlier the team identified several nonperforming assets for strategic and defensive sales leading to more of a compressed spread between disposition and acquisition cap rate compared to previous years.
Speaker Change: However, this proactive portfolio management enhances the overall strength of the portfolio as we move forward.
Speaker Change: We need to go back over a decade to find the acquisition year with an initial cap rate higher than our 2020 for deal flow. The current current pricing for the pipeline coming in this quarter will be slightly tighter than the fourth quarter of seven six and as I look ahead. The next few quarters I expect pricing to compress a little bit further in the March.
Speaker Change: Due to the heightened competition as market players push to achieve high acquisition volumes that said I am confident in our team's ability to identify and execute the right risk adjusted deals to meet our 2025 annual objective with that let me turn the call over to Kevin for the final time to provide more color and detail on our quarterly numbers.
Kevin Habicht: In 2025 guidance great. Thanks, Thank you, Steve as usual im going to start with the cautionary statements that we will make certain statements that may be considered to be forward looking statements under federal Securities law. The company's actual future results may differ significantly from the matters discussed in these forward looking statements and we may not release revision.
Kevin Habicht: <unk> to these forward looking statements to reflect changes after the statements were made factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in this morning's press release.
Kevin Habicht: Okay with that headlines from this morning's press release report quarterly core <unk> results of <unk> 82 per share for the fourth quarter of 2024, that's flat with year ago results. Once you adjust 2023 results for the incremental accrued rental income.
We noted in footnote one on the press release.
Kevin Habicht: <unk> results were <unk> 82 per share for the fourth quarter, which was also flat compared to a year ago results for the year core <unk> and <unk> were $3 32 per share at $3 35 per share respectively.
Kevin Habicht: And that results in a one 8% increase in core <unk> per share results for 2024 at a two 8% increase in.
Kevin Habicht: <unk> per share of.
Kevin Habicht: These results were generally in line with our expectations and put us at the top of our previous guidance range.
Kevin Habicht: Results in the fourth quarter did include $1 $2 million of lease termination fee income and for the full year of 2024, 11 $4 million, which as we noted throughout last year as well above historical norms and was above our full year 2023.
Kevin Habicht: $2 $4 million of lease termination fee income.
Kevin Habicht: Also in the fourth quarter 2020 for G&A expense included a state franchise tax refund due to a retroactive change in Tennessee tax law that reduced G&A by $1 $7 million to $8 7 million for the fourth quarter and a $43.
Kevin Habicht: 443.
Kevin Habicht: With a $44 3 million for the full year.
Kevin Habicht: That represented five 1% of total revenues for the year and five 2% of total NOI.
Kevin Habicht: Occupancy was 98, 5% at quarter end, which as anticipated 80 80 basis points for the quarter due to two failing tenants we've talked about on last quarter's call.
Kevin Habicht: More about which in a moment.
Kevin Habicht: Our <unk> dividend payout ratio for the year 2024 was 68, 2% that resulted in approximately $196 million of free cash flow and that's after the payment of all expenses and dividend.
Kevin Habicht: We ended the quarter with $866 million of annual base rent in place for all leases as of December 31, 2024, which would that would take into account all of the acquisitions and dispositions completed through year end.
Kevin Habicht: So first a quick update on our two troubled tenants, which we discussed last quarter <unk>.
Kevin Habicht: Bad Cop furniture, which was in liquidation they completed their going out of business sales in the fourth quarter rejected the leases on all 32 properties, we had leased to them.
Kevin Habicht: Prior to the fourth quarter, those leases produced $5 $2 million of annual base rent and that was six 0.6% of our ABR at the beginning of the fourth quarter.
Kevin Habicht: Prior to reject the leases bad comp paid us roughly half of what they would normally would have paid us during the fourth quarter.
Kevin Habicht: Been working on plans to lease or sell these properties and we've had a good start in that effort given we've just got possession of the stores mid fourth quarter.
Kevin Habicht: So by year end, we were able to release five of those properties at roughly our long term average of 70% recovery again with no ti for for our vacancy leasing. Additionally, we were able to sell six properties generating net proceeds of $21 $8 million.
Kevin Habicht: Which using.
Kevin Habicht: BEC prior bad cop rent on these properties would produce a five 1% cap rate on those dispositions.
Kevin Habicht: So assuming we invested these sales proceeds at the fourth quarter's seven 6% acquisition cap rate. This would result in generating 49% more rent on those stores than bad cough was previously paying us.
Kevin Habicht: If you combine the outcome of the <unk> re lease properties and the six sold properties. The rent recovery on those 11 stores is approximately 113% of prior rent.
Kevin Habicht: Now while these averages may not hold up for all backlogs, we are off to a very good start in terms of economic outcome as well as minimizing the downtime for this first batch of or call. It 35% of our former <unk> stores.
Kevin Habicht: Next second tenant of note is parishes Midwest Big Boy Hamburger concept, that's been around for several decades, they only paid us half the rent <unk> in the third quarter of last year and they paid us no rent in the fourth quarter.
Kevin Habicht: We owned 64 refreshes properties at the beginning of the.
Kevin Habicht: Fourth quarter, which represented one 5% of our annual base rent or $12 $6 million.
Kevin Habicht: As you May recall in this case the tenant did not file for bankruptcy. So we had to go through the time intensive process of getting back possession of the stores through evictions.
Kevin Habicht: We've initiated that eviction process for all 64 stores and as of year end had possession of 33 stores.
Kevin Habicht: Those 33 stores, we released 28 of those stores to another restaurant operator.
Kevin Habicht: Because we had a read on prior store sales for these properties and also in order to speed up the leasing process on a large group of property, we were really willing to trade off some base rent for more potential percentage trend. So these 28 stores will produce approximately $2 8 million.
Kevin Habicht: Of annual base rent.
Kevin Habicht: But we will also get 7% of store sales above a fixed breakpoint.
Kevin Habicht: That rent commences may.
Kevin Habicht: May one of 2025.
Kevin Habicht: We're really not at this time, we're not looking to articulate other lease terms.
Kevin Habicht: And as we have a number of other freshness to release, we will soon have possession of all of the former <unk> properties and are in full re leasing mode on that batch of stores.
Kevin Habicht: Bigger picture and really the key point of the combined bad comp parishes vacancy.
Kevin Habicht: Consistent with these early resolutions I just reviewed we remain optimistic to a good government lease re leased or sold.
Kevin Habicht: More quickly than usual and be hopefully improve upon our typical vacant property rent recovery of 70% versus prior rent with no ti.
Kevin Habicht: We will provide further updates with first quarter results, but most importantly, when the dust settles on all of this is a 2026, we believe per share results should be impacted by less than 1% versus the prior rents we were getting from the original tenant so a very modest.
Kevin Habicht: Impact on bottom line results when the dust settles.
Kevin Habicht: Okay with that switching gears today, we initiated our 2025 core <unk> guidance at a range of $3 33 to $3 38 per share in 2025, <unk> guidance with a range of $3 39 to $3 44 per share.
Kevin Habicht: On page eight of the press release gives you some details on the key assumptions underlying that guidance and that includes $500 million to $600 million of ACA.
Kevin Habicht: Acquisitions $80 million to $120 million of dispositions G&A expense of 47% to $48 million and property expenses net of reimbursements of $15 million to $16 million.
Kevin Habicht: Which is higher than usual due to the Bangkok.
Kevin Habicht: Frictional vacancy.
Kevin Habicht: Hopefully, we will have the opportunity to drift <unk> guidance higher as the year progresses as we have done in the past.
Kevin Habicht: Moving to the balance sheet, we ended the year with no amounts outstanding on our $1 2 billion Bank line. So we're in very good leverage and liquidity position as we roll into 2025. Our next debt maturity is November 2025, and our weighted average debt maturity stands at $12 one.
Kevin Habicht: Years at year end.
Kevin Habicht: Maintaining our light capital market footprint, we funded 61% of our $565 million of 2024 acquisitions with free cash flow of $196 million plus $149 million of disposition proceeds.
Kevin Habicht: Net debt to gross book assets was 45%.
Kevin Habicht: At year end, and that's down about 150 basis points from the year before net debt to EBITDA was five five times at December 31.
Kevin Habicht: Interest coverage and fixed charge coverage was four two times for 2024 and as a reminder, none of our properties are encumbered by mortgages.
Kevin Habicht: So we remain focused on working to appropriately allocate capital, which to us means ensuring we're getting what we believe are sufficient returns on equity while controlling risk through property underwriting and maintaining a sound balance sheet.
Kevin Habicht: Valuing equity adequately whether that equity is produced by free cash flow disposition proceeds or new equity issuance.
Kevin Habicht: At the heart of growing per share results over the long term and it helps us not to confuse activity with achievements.
Steve: Steve Thanks for your kind words earlier in closing I will say, it's very bitter sweet for me to be on my last quarterly earnings call I think I have been on well over 100 of them.
Steve: <unk> is in very good shape and its approach to navigating investment opportunities and capital markets as well ingrained in this institution.
So I leave you and the capable very capable hands with Steve and then in the rest of the team here at <unk>.
Speaker Change: Thanks to so many of you on this call who I've known and worked with for many years and who've been gracious to tolerate mind many issues.
Speaker Change: These are long term relationships have made the journey for me much more enjoyable unsatisfying.
Speaker Change: I've said a number of times this past month, the boundary lines of my life, a bomb and Pleasant places and that has included my time in relationships in REIT World. It's been a great ride and I can be nothing, but thankful to the investor and capital markets community and especially my colleagues here at Triple It.
Speaker Change: I will cherish the memories and welcome the opportunity to stay in touch with that Holly we will open it up to any questions.
Speaker Change: Certainly at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Speaker Change: Your first question for today is from Brad Heffern with RBC.
Brad Heffern: Hey, good morning, everyone. Congratulations Kevin Hope you have a great retirement, knowing you I suspect you've been saving up for it.
Speaker Change: And welcome to Vinson as well.
Speaker Change: For the the <unk> guidance I'm, a little surprised that you were able to deliver this 2% growth just given the elevated lease termination from last year the impact of Bangkok and fresh is there's also this <unk> tax benefit is there some sort of offset to that but I'm not thinking of or just any color. You can give on the on the bridge that would sort of preserve that growth.
Yes.
Speaker Change: In particular, we are having I would say.
Speaker Change: Somewhat better than expected kind of re leasing outcomes are resolving our parishes in bad times, that's all happening more quickly.
Speaker Change: Particularly timing is of great value as you know in that process and so.
Speaker Change: That's been very helpful.
Speaker Change: But yes, there is no other big major items to speak of at lease termination fees are always.
Speaker Change: We don't give guidance and theyre always so difficult to give guidance on and so.
Speaker Change: Yes.
Speaker Change: That'll play out the way that plays out during the year, but but yes, nothing nothing else to that.
Speaker Change: Speak to note.
Speaker Change: Timing is really critical and we had we had a solid fourth quarter acquisitions solid second half of 2004 acquisition and that really.
Speaker Change: Accrues to the benefit primarily a 2025 and so all of those things kind of add up.
Speaker Change: To help push results along a little bit.
Speaker Change: Okay got it and then.
Speaker Change: Maybe you didn't gives us on purpose, but the $2 8 million for the released Freshes, how does that compare to the prior rent on those stores and then for the percentage of rent is that set at a level, where you would expect to regularly realize that right away or is that something that requires upside.
Speaker Change: Yes, yes. So a fair question, we have a $2 8 million in the I would call it roughly 50% of prior rent and we like I said, we were willing to take that kind of.
Speaker Change: Pain, if you will on the on the annual base rent.
Speaker Change: <unk>.
Speaker Change: To get the benefit of what we think will produce notable.
Speaker Change: Potential percentage rent.
Speaker Change: On those stores, we had the prior storage sales.
Speaker Change: And this was away again for us to speed up the process. We just got these 33 stores back in the fourth quarter and we haven't released in the fourth quarter. So it's very quick again with no ti and so that we saw material value in that in that part of the equation and so because we had prior store sales were.
Speaker Change: Optimistic that we'll be able to achieve something north of our normal 70% rent recovery.
Speaker Change: Sure.
Speaker Change: On re leasing vacant spaces, and we'll see how much better we can do than that but we think there is upside there.
Speaker Change: Okay. Thank you.
Speaker Change: Yes.
Speaker Change: Your next question is from Spencer Glen care with Green Street.
Speaker Change: Yeah.
Spencer Glen: I'm just curious on the transaction front, what you guys have been seeing in terms of <unk> activity and then <unk>.
Spencer Glen: Just as it relates to the mix of portfolio deals versus one offs and anything.
Spencer Glen: Anything that youre doing outside of relationship deals.
Spencer Glen: Yes, I mean outside the relationship deals.
Spencer Glen: There hasnt been much large scale portfolios for our market.
Spencer Glen: It's been a little bit slow that's why we've been mining 80% of our deal flow in the fourth quarter was our relationships.
Speaker Change: Which one of the transactions was pretty notable which did not get marketed.
Spencer Glen: As a direct deal first quarter.
Spencer Glen: Is looking pretty good right now, but what I would call it doubles kind of that 20% to $30 million deal range. We're not seeing the 150 $200 million deal now there is one potential large portfolio coming out kind of in the family Entertainment space that were aware of but.
A little early to say the pricing on that right now.
Speaker Change: Okay, and then Kevin Yes, congratulations all we will Miss you and one just last one for you has anything changed since last quarter just in terms of the amount of credit losses being underwritten for 25.
Spencer Glen: Yeah, not not materially so.
Spencer Glen: And our guidance and I might have something to add this into the.
Brad Heffern: Comment on the last question from Brad.
Brad Heffern: Was for this year, we've assumed 60 basis points of rent loss historically, we have been more in the closer to 100 category. We typically don't experience that level. So we think we've got enough baked in for <unk>.
Brad Heffern: Credit loss for this year, we don't really have any other tenants in the immediate horizon that it feels like we have real exposure to in terms of credit losses, a and b that 60 basis points, obviously, Doug.
Brad Heffern: The pain from bad comp in fresh is above and beyond that 60 basis points. So let's put it that way is focused on one region. So.
Brad Heffern: So yes, we think we're in good shape on that front and like I say or not.
Brad Heffern: Investors to any other.
Brad Heffern: Notable concerns at the moment for tenant credit.
Great. Thank you.
Speaker Change: Your next question for today is from Michael Goldsmith with UBS.
Michael Goldsmith: Good morning, Thanks, a lot from it for it thanks, a lot, particularly my questions and congratulations Kevin on the call a wonderful career and.
Speaker Change: Is it going away president.
Speaker Change: Ask you to walk us through kind of what you baked into your guidance for fishes embedded costs related to the timing of releasing and recovery rate for 2025.
Speaker Change: Yes.
Speaker Change: And my my usual way I'll be sufficiently elusive because it's a work in process and progress I should say and.
Speaker Change: So.
Speaker Change: It's unfolding as we speak.
Speaker Change: The only thing I can say is we remain historically over the years, releasing something a nine or 12 months.
Speaker Change: Kind of normal or typical.
Its going along more quickly than that on both Babcock and fishes as evidenced in the fourth quarter and that continues into the first quarter.
Speaker Change: I don't have a lot of details.
Speaker Change: Give you on that releasing effort like I say, it's very it's very current.
Speaker Change: No.
Speaker Change: We.
Speaker Change: It is.
Speaker Change: It's just tough for us.
Speaker Change: Hard stake in the ground on that as we speak but only to say, it's going better than normal in terms of timing as well as economic outcomes.
Speaker Change: So just just to clarify the great lakes, So we should assume that youre baking in.
Speaker Change: You are baking in something better than historical of the nine to 12 months and a 70% recovery rate.
Speaker Change: Yes.
Speaker Change: The rest is kind of I guess kind of yes.
Speaker Change: Yes.
Speaker Change: Anything else beyond that.
Speaker Change: Yes.
Speaker Change: In a state of flux until we get some of these pinned down but we've got.
Speaker Change: A number of deals in the Hopper, working and where we will see how that all shakes out but there is.
Speaker Change: The process.
Speaker Change: And they're in our guidance.
Speaker Change: Has the opportunity to to drift.
Speaker Change: Drift higher hopefully throughout the year.
Speaker Change: If we can improve upon thing.
Speaker Change: Got it and then on the 60 basis points.
Speaker Change: Yes.
Speaker Change: Credit.
Speaker Change: For 2025 lower than what you've seen historically.
Speaker Change: Or what you typically do.
Speaker Change: Basically.
Speaker Change: Maybe you could just provide some context in terms of.
Speaker Change: What do you what's the long term average for that 60 basis points compares to and just to put some.
Speaker Change: Perspective, because you.
Speaker Change: Can you just went through two large events and now.
Speaker Change: You're reducing what you're baking in for the year. So I'm just trying to understand yes, yes, a fair question.
Speaker Change: Absent, which was highly unusual to tenants simultaneously.
Speaker Change: Going away.
Speaker Change: That was 200 basis points.
Speaker Change: So.
Speaker Change: Historically, our credit loss typically runs in the kind of the 30 to 50 basis points kind of range.
Speaker Change: And so there is some assumption on our part, but we got to the two of our biggest.
Speaker Change: Credit concerns out of the way in some respects and resolved out.
Speaker Change: Outside of that 60 basis points that we really don't need a 100 and our in our guidance and so were we.
Speaker Change: Frankly.
Speaker Change: Hope that there's there's maybe a degree of conservatism in the 60 basis points.
Speaker Change: Given our historical averages and like I say, having cleared out to over the weak weaker links if you will in our in our tenant credit.
Speaker Change: Congrats again.
Speaker Change: Bank.
Speaker Change: Your next question for today is from John Keller Koski with Wells Fargo.
Speaker Change: Good morning, and congrats again Kevin.
Speaker Change: If we could start just kind of go back to the transaction market here and just talk about how deal flow looks at this point versus maybe this time last year I know you talked about it sounds like elevated deal flow, but also elevated competition, maybe how do you think that that could manifest.
Speaker Change: Changes to your acquisition guidance near the lower high end or if theres room to maybe push you above the high end.
Speaker Change: And then when you talk about that elevated competition, who who is that what are the returns that they're looking for.
Speaker Change: Yes, no. It's a good question John.
Speaker Change: Yes, as far as our guide for the year historically, we've beaten our guide over many years just the visibility is only 90 days from the transaction market. So.
Speaker Change: We're conservative so easily start on the lower end.
Speaker Change: What I know is pricing in the first quarter.
Speaker Change: Confident we have a good start to that guide for the year. The market is elevated as far as deal flow compared to last year last.
Speaker Change: Last year, when we came into the year it was more of a capital markets issue.
Speaker Change: We didn't want to access the equity market. So we set our expectations for the year on the lower end to primarily use the free cash flow to fund acquisitions.
Speaker Change: As far as competition I've been doing this 20 plus years, Kevin has been doing a 30 plus years, it's always a competitive market. It's just the names have changed.
Speaker Change: Few of us that have been around that long.
Speaker Change: Now as far as Theres, some private money coming back into the market a little bit but their return expectations are little bit higher but more importantly, the amount of money they have to deploy into acquisitions is significantly higher than ours. So they are going to go after what we called the elephant deal flow.
Speaker Change: And a low deal flow of patients.
Speaker Change: They really don't play in our world and again, 80% of our deal flow came from relationships, which we have a pretty good moat.
Speaker Change: Around that to avoid competition playing in our field.
Speaker Change: But the overall I feel good sitting here today on the call as far as the activity what's in the pipeline what our team is evaluating.
Speaker Change: And no there is no deal as our competitors have done that we did not see.
Speaker Change: Until then I know our acquisition guys are doing the right thing.
Speaker Change: Great I appreciate the analogy and maybe if we could job too.
Speaker Change: Rent coverage levels I'd, rather not provide it but if you can kind of give any color on how those are trending within the portfolio, maybe particularly in the car wash and <unk> space.
Speaker Change: Where we've heard of some pressure anecdotally.
Speaker Change: Yes.
Speaker Change: Address the Carwash space, and then does a fabulous job meeting with management teams, we view ourselves indirectly.
Speaker Change: And the company. So we meet with all the management teams here their game plan I could argue that we institutionalize the carwash business doing sale leasebacks off back in 2005, when we initially started with Mister car wash start number two tenant.
Speaker Change: So we have a fair amount of experience and we have zero six and thats kind of the <unk>.
Speaker Change: Recent headlines in the car wash industry.
Speaker Change: Our car wash is just Mister car wash year over year rent coverage went up it's north of four.
Speaker Change: And the other car washes that we've been doing kind of in the two five to three five range and they are performing well, we're highly selective <unk> two car washes.
Speaker Change: We actually for the most part shut it down in the fourth quarter, but things kind of stabilize <unk>, we're kind of seeing sales flat for the most part they are still trying to absorb the labor issues, where their margins got compressed, but overall I'm comfortable with our <unk> exposure and Theres no tenants that work.
Speaker Change: Concerned with on the <unk> or Carwash side of things currently.
Speaker Change: Great. Thank you. Thank you.
Speaker Change: Your next question is from Sara <unk> with Bank of America.
Pal Granite: Hi, Good morning, this is Pal granite.
Pal Granite: Taking graduations to both Kevin and Vince in your next chapter in your life, but I also wanted to ask about the type of demand that youre seeing for both the bad assets.
Pal Granite: Are you receiving a lot of inbounds.
Pal Granite: <unk> seen industry vertical.
Pal Granite: We're seeing a ton of interest on the fresh is in a fair amount on the Bangkok as Kevin addressed in his remarks.
Pal Granite: We're doing really well at Bangkok, but it is a portfolio and the easier assets to sell or the good ones and they go first so our team has some work to do as we move through the process.
Pal Granite: As far as industries, yes, you're getting a lot of restaurant interest and it's not only casual dining theres <unk> again back to car washes, there's a fair amount of Carwash interest and auto service. So it's across a wide range because the reality is the other 506000 square foot boxes on an acre and a half.
Pal Granite: There's a lot of tenants that like that use I would be concerned if they were 20000 30000 foot boxes that makes it a little more challenging to re lease, but a small restaurant acre and a half well located hard corner. There is a lot of users for those.
Speaker Change: Okay. Thank you and I also wanted to comment on.
Speaker Change: 50 basis points I know we've been on.
Speaker Change: Working on it a little bit about the credit loss assumed in guidance I know you made some commentary about.
There is no near term tender.
Speaker Change: That are raising concern and that was also a factor in the reduction, but do you still maintain a watch list and is there a certain percentage of ABR that's associated with that.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Those are normally well I'm perpetually worried about a lot of tenants.
Speaker Change: I'm always but.
Speaker Change: None rise to the level that.
Speaker Change: Influence our thoughts around what credit loss might be for this year and so yes, we've talked about names over the years, we don't really talk as much about fridges in Bangkok anymore, but at home has been one that we've thought about and still watching very leveraged.
Speaker Change: Yes.
Speaker Change: AMC of course has been on the list, but to be quite candid.
Speaker Change: Our past the point.
Speaker Change: They seem to have found them and their business is getting better and so the fundamentals are better and be there.
Speaker Change: Their perpetual issuers of capital that.
Speaker Change: As landlords very happy and I have really no near term concerns about their ability to pay us rent in 2025, and so so so the ones that remain on the list.
Speaker Change: And there is a number of them.
Speaker Change: Generally are not larger exposures and b I don't feel like they're imminent kind of at risk.
Speaker Change: Paying rent, but we think the 60 basis points should comfortably handle.
Speaker Change: Whatever exposure we have.
Speaker Change: On that list.
Speaker Change: Thank you so much.
Speaker Change: Thank you.
Speaker Change: Your next question for today is from Smedes Rose with Citi.
Speaker Change: Oh, hi, thanks.
Smedes Rose: Just wanted to follow up you mentioned that you might see or there might be a larger portfolio of family entertainment assets come in is that something that you.
Smedes Rose: It's price dependent but is that an area that you would be interested in.
Smedes Rose: Increasing your exposure to if it were to come to market at a reasonable price, but is it reasonable to you.
Smedes Rose: Yeah Megan.
Megan: Sure everything fits in our underwriting philosophy price being important yes.
Megan: And if the economics makes sense, but more importantly, the real estate fundamentals makes sense, it's something we would look at.
Megan: And now the question is at the start of the year as you know smedes.
Megan: People are coming out with guidance and get overly aggressive on the acquisition, yes, if I had to do $1 5 billion it'd probably.
Megan: This answer a little more confident like yes, actually we would do it but with the guide China kind of that 500 600 million.
Megan: We get a little bit more conservative on the underwriting and our box gets a little bit tighter and I think that's kind of proven out with the battery pack and the freshness on our re leasing efforts.
Speaker Change: Right I just wanted to ask you kind of big picture to it sounds like you expect kind of a slight downward bias in cap rates over the course of the year.
Speaker Change: Given some of the things you've talked about I mean, so does this sort of imply I guess.
Speaker Change: The spreads are compressing a little bit better.
Speaker Change: Given elevated debt cost or how would you kind of thinking about.
Speaker Change: You're investing spreads at this point.
Speaker Change: As far as the cap rates.
Speaker Change: At the margin I am seeing them go down 10 to 15 basis points.
Speaker Change: That's just a result of having to win deals and our competition is going to drive them down.
Speaker Change: But as far as looking at spreads.
Kevin: Kevin do you want to answer it.
Speaker Change: Yes.
Speaker Change: Our typical.
Speaker Change: $60 40, roughly equity and debt.
Speaker Change: The way, we think that 10 long term 10 year debt today for us is around five 5%, so thats call it 40% of the equation.
Speaker Change: Then.
Speaker Change: The way, we think about equity when we're making these kind of capital allocation and investment decisions that we've historically, we burden our equity internally at about eight 5%. So that creates a weighted average cost of capital hurdle.
We don't need a spread above our hurdle.
Speaker Change: In the low sevens.
Speaker Change: So as long as we're kind of operating in that low to mid 7% range. We feel like we are.
Speaker Change: <unk> sufficient returns to shareholders and returns on equity.
Speaker Change: Allow.
Speaker Change: You consider making capital allocation of our investment.
Speaker Change: Okay I appreciate it and then just I wanted to ask you just one quick one we've just seen some negative headlines around denny's and I was just wondering is that sort of showing up on your screen at all its hard for us to know, which ones, you're willing and which ones they were talking about that.
On your watch list or.
Speaker Change: Yes, we own that some denny's.
Speaker Change: We'll say again, which is critical for US is the price per pound that we own those stores that and therefore the rents on those stores are very attractive and so.
Speaker Change: And some of them are operated by franchisees of Denny's and so.
Speaker Change: Sometimes it's hard to when you're looking at headlines.
Speaker Change: I appreciate kind of the.
Speaker Change: Whether that's particularly applicable to us or not.
Speaker Change: But yes, the chain Denny's has been struggling for a while don't get me wrong.
Speaker Change: We've been watching that for a while but we feel like our location and particularly the rents on our locations are at levels that were were.
Speaker Change: We're not too anxious about.
Speaker Change: Okay. Thank you very much yeah real quick speeds, our denny's for the most part were bought in 2006.
Speaker Change: Okay.
Speaker Change: Got it okay great.
Speaker Change: Your next question is from Ronald Camden with Morgan Stanley.
Ronald Camden: Hey, Congrats Kevin and then.
Ronald Camden: Just two quick ones, one obviously that just on the bad debt.
Ronald Camden: And you know I'm sure as you guys sort of thought about the guidance for this year you debated whether it was 100 basis points like historical are going with <unk>.
Speaker Change: I'm just wondering like what sort of got you comfortable to be able to put this number out.
Speaker Change: You know our CFO transition is happening it's still early in the year is it is it literally just because of the two bankruptcies went through or are you is it because January is going better just trying to give us a sense of what got you the comfort.
Speaker Change: Go out with a 60 basis points here versus a 100 basis points historical.
Speaker Change: Yes.
Speaker Change: Well historically, we've not ever really use the 100 basis points as more of a in kind of that 30 to 50 kind of range and so that's part of it but to your point, yes. Some of the Deadwood is cleared out already.
Speaker Change: In the near term most acute credit concerns are accounted for elsewhere. If you will outside of that 60 basis points and then lastly, then layered on top of that we just don't have any any particular tenants that were have.
Speaker Change: Immediate concerns about and so all of those things made us comfortable to do that.
Speaker Change: And so that.
Speaker Change: That's how we got there.
Speaker Change: Great and then my follow up question, which is a quick two parter. One is just I think you've talked about releasing the boxes are probably happening faster than you expected can you talk about sort of the mark to market on rents and the number one and then number two is just on the debt coming due this year what are the plans for that and where do you think you could issue.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: <unk>.
Speaker Change: I'll speak to the debt first just yet, but we think 10 year debt for us today is around five 5%.
Speaker Change: That debt maturity is not until November and so we have a good.
Speaker Change: A good bit of flexibility in and.
Speaker Change: Deciding where to.
Speaker Change: Actually execute a transaction to refinance that debt.
Speaker Change: Obviously, along the way, we could always hedged some of that or lock in some of that interest rate risk ahead of time, if we wanted so historically, we've not given.
Speaker Change: Guidance on capital markets activities.
Speaker Change: I don't have much more specific than that.
Speaker Change: As it relates to the re leasing spreads.
Speaker Change: On the fishes in Bangkok, two I mean, the initial round of that.
Speaker Change: If you look at the re leasing which.
Speaker Change: <unk> portion was closer than our typical 70% kind of number but if you layer in the disposition going bad costs.
Speaker Change: That was well above.
Speaker Change: And you reinvest the sale proceeds at kind of our mid seven kind of acquisition cap rate.
Speaker Change: You end up with rent well above 113% combined for the release and the disposition sold bed Cogs and so that's going very very well as I said, we don't expect that likely to hold up at those levels, but the early indications for the first 35% of our bad debt exposure.
Speaker Change: Is going very well.
Speaker Change: So we're encouraged about that on the on the freshness I think it'll be more of the same.
Speaker Change: And the first big batch we took.
Speaker Change: We're willing to take a little bit of pain on annual base rent and we will capture more potential rent from.
Speaker Change: Percentage rent upside there and so we think we will we can get back to equal to or better than our <unk>.
Speaker Change: <unk>, 70% kind of number.
Speaker Change: We know what the store sales were at that at those locations.
Speaker Change: Obviously, and we know that.
Speaker Change: Given the company went out of business Navy they werent run to the best that they could have been and so.
Speaker Change: So we're optimistic about that but.
Speaker Change: But we think timing will go faster than typical for us and we are we remain optimistic that at the end of the day, we can improve upon our 70% recovery.
Speaker Change: Great. Thanks, so much.
Speaker Change: Your next question for today is from rich Hightower at Barclays.
Hey, good morning, guys and again, congrats to Kevin on a great career, and Reits and congrats again on the incoming.
Speaker Change: Let's see.
Speaker Change: Obviously covered a lot of ground on the call. This morning, but I want to go back in.
Speaker Change: I must have missed this but on the re leasing of the bad Cox space in particular did you guys.
Speaker Change: Mentioned.
Speaker Change: Maybe the retailer tenant mix that is occupying that space or what that looks like and then I've got one follow up after that.
Speaker Change: Yes, we did.
Speaker Change: I had mentioned the retailer mix.
Speaker Change: Actually a couple of them and the re leasing where home furniture tenants.
Kevin Habicht: And then the other re leasing aspect Kevin is making the assumption we sold those assets and then redeploy the sales proceeds at a seven six as far as the recapture rate.
Kevin Habicht: But yeah, it's coming from a variety on the Bangkok since a variety of uses we've seen interest from kind.
Kevin Habicht: Medical kind of space and so.
Kevin Habicht: <unk>.
Kevin Habicht: It's.
Kevin Habicht: It's appropriate it's a popery somehow.
Kevin Habicht: Some hardware.
Real mixture of uses for that box is 17000 square feet, our rent was $9 a square foot from Bangkok and so.
Kevin Habicht: It's.
Kevin Habicht: It's sufficiently fungible and.
Kevin Habicht: We think we can end up with a reasonable outcome there on the re leasing efforts.
Kevin Habicht: Okay, great I'm going to make sure to put popery in my notes here.
Kevin Habicht: It's a big seller.
Kevin Habicht: Yes.
Kevin Habicht: And then.
Kevin Habicht: And then just a quick follow up is I kind of grow through the top tenant list I mean I appreciate the fact that maybe no immediate.
Kevin Habicht: Yeah.
Kevin Habicht: Watch list worried as you guys have articulated on the call so far but if I think about.
Kevin Habicht: Mister Carwash, Dave and Busters camping World and I, just look at the equity.
Kevin Habicht: Values of all of those companies.
Kevin Habicht: Some of which are you know coming off of maybe a post COVID-19 hi.
Kevin Habicht: You know the Carwash business is kind of its own separate category, but is there anything differentiating about your locations in particular that makes you less worried than perhaps the average location in the portfolios generally for you know for those companies.
Kevin Habicht: Well I'll, let chip Mister car wash, we primarily did in 2005 2006 timeframe, a long time ago, and our cost basis in those assets and as I've mentioned earlier in the call is extremely low but the rent coverage on the property level is north of four at the Mister Carwash exposure.
Kevin Habicht: So very comfortable with those assets as Mister car wash is a true operator of car washes.
Kevin Habicht: Unlike there is a lot of entrance in the carwash or private equity money followed.
Kevin Habicht: So they were maximizing proceeds so they didn't have to put any equity in the deals.
Kevin Habicht: Camping World I would say over the years, we've done business with them for a long time.
Kevin Habicht: And we've called the portfolio with management.
Kevin Habicht: Substitution or dispositions.
Kevin Habicht: To ensure that we have the assets that they want to operate in the long run.
Kevin Habicht: And it's kind of same pool with Dave and Busters, we've been doing business with them for a long time.
Kevin Habicht: And that business has.
Kevin Habicht: Asset level through our cost basis, it's been holding up.
Kevin Habicht: Okay, great. Thank you.
Speaker Change: Your next question is from Rob Stevenson with Janney.
Rob Stevenson: Hey, good morning, guys.
Speaker Change: Kevin you talked about the revenue from Babcock and fishes, but can you talk a little bit about any material elevation of expenses that you guys are getting hit with.
Rob Stevenson: Today that might burn off over the course of 'twenty five.
Rob Stevenson: Yes Fair question, Yes, so, yes, youll notice in our 2025 guidance.
Rob Stevenson: Net property expense number of $15 million to $16 million is probably $4 million to $5 million higher than what I would think of as kind of normal for triple and in most years and so you can attribute pretty much all of that related to backpack and fishes. So as you as you roll into 'twenty.
Rob Stevenson: 26, yes that should that should fade away.
Rob Stevenson: Okay. That's helpful and then.
Speaker Change: Are you guys expected to put a you talked about re leasing the fishes without any capex do you expect it to put any material amount of money in the Comcast or anything else in the portfolio in 2025 from a leasing or from a development redevelopment standpoint.
We always consider it but you know our predisposition is we'll trade off lower rent for OTI is generally not a absolute rule it will it be some property or two or three that.
We make the decision that's the best economic decision to make.
Speaker Change: So we may put them in but it shouldnt be a large number in the scheme of triple in size and so.
Speaker Change: And so yes, I don't think we're going to waver too much from that but.
Speaker Change: There might be a little bit more repairs and maintenance a little bit some of that will flow through property expenses, rather than Ti capex, but.
Speaker Change: But yes, we're inclined to.
Speaker Change: I think theres, a whole lot of value in <unk>, but.
Speaker Change: Time to time, we will consider it and if it fits into the equation. If you will in terms of what we're going to get rent. What the alternatives are we may we may pull the trigger on some of that.
Speaker Change: We sit here right now.
Speaker Change: There is no deals in the pipeline that require any significant ti.
Speaker Change: Okay, and then Steve other than the 10th convenience stores any major concentrations in the fourth quarter acquisitions that you guys did.
Speaker Change: Yes.
Speaker Change: Ken quick.
Speaker Change: Was the primary one and just give you a little bit of color.
Speaker Change: That relationship goes back as far as the first deal we closed with 2019, and we did a little bit in 2019 2020 or 2020.
Speaker Change: And then two years later, we did.
Speaker Change: M&A.
Speaker Change: Opportunity in Florida, which we finance that and then we did a fairly substantial sale leaseback in the fourth quarter with them. So it's just a relationship that we've maintained for a long time.
Speaker Change: And then the other one was superstar carwash that roll into our top 20.
Speaker Change: That was just some.
Speaker Change: <unk> build to suit.
Speaker Change: We had in the pipeline over the year and completed in the fourth quarter.
Speaker Change: And then Kevin is my going away present for you one last one here.
Speaker Change: You talked about the Lumpiness of term fees anything known in 2025, thus far either received or known of any materiality.
Speaker Change: Yes, I mean, not that we are giving any kind of guidance on it so.
Speaker Change: Which we don't we've historically not historically so the answers.
Speaker Change: Yes, putting out any guidance on that front, but.
Speaker Change: Historically for us, we generate about $3 million a year historically lease termination fee income so I expect there to be well.
Speaker Change: It's a bit of a wildcard.
Speaker Change: The amount and the timing.
Speaker Change: For that over the course of the year, which is why we don't give guidance.
Speaker Change: Okay. Thanks, guys have a good day thanks.
Rob Stevenson: Thanks, Rob.
Speaker Change: Your next question is from Alex <unk> with Baird.
Rob Stevenson: Hi.
Rob Stevenson: Gratz, Kevin was a pleasure to work with you and also congrats and excited to work with you tend to go off the last question on the termination income is there anything assumed in guidance on that front.
Rob Stevenson: Yes, we always we always have a general assumption in there for lease term like I say, it's normal for us is $3 million a year.
Rob Stevenson: We've made some assumptions for that in guidance, but like I say, we don't we don't publish that because.
Rob Stevenson: To be candid, we never know precisely where that is going to end up ourselves and so we're reluctant to kind of go out in public and private.
Rob Stevenson: Stake in the ground on that number.
Rob Stevenson: Sure.
Rob Stevenson: And then does the non reimbursed expense guidance assume additional leasing of the recently vacated assets.
Rob Stevenson: Yes, yes.
Rob Stevenson: Some in there, but the expenses will hit if you are talking about the non reimbursed property expenses of the guidance of 15% to $16 million that.
Rob Stevenson: <unk>.
Rob Stevenson: That should be fairly steady throughout the year I mean, I think it's probably a little bit more front half loaded and a little less second half loaded.
Rob Stevenson: From memory.
Rob Stevenson: But just as we get things lease up than some of those property expenses become the tenants' obligations, though.
Rob Stevenson: Yes.
Rob Stevenson: It's all loaded into our thoughts around getting these properties resolved sold or released.
Rob Stevenson: Got it thank you.
Yeah.
Rob Stevenson: Your next question is from Linda Tsai with Jefferies.
Linda Tsai: Hi, Thanks for taking my question.
Linda Tsai: Relations, Kevin you have a lot of stands and will be missed and congrats to them too.
Linda Tsai: The increase in G&A guidance, you highlighted a one time benefit from last year, but youre also going to cost control do you think theres some room on that G&A guidance to come in lower and then Kevin is there a charge for your retirement embedded in that range.
Linda Tsai: Yes, so the way we've handled.
Linda Tsai: <unk> retirements, we have a separate line item for that.
Linda Tsai: Whatever cost involved with Kevin is will be in that line item. So to answer your questions not in G&A.
Linda Tsai: I guess, the one thing to keep in mind on G&A.
Linda Tsai: 2020, Four's actual number came in at.
Linda Tsai: Where are we.
Linda Tsai: $44 $3 million.
Linda Tsai: And so to normalize that you really need to add if you will at one seven that would take it up to $46 million and so compared to $46 million to our next year Guide 2025 guide of 47 to 48.
Linda Tsai: The way I would kind of think about it. So there is a kind of a general inflationary increase in that number.
Linda Tsai: But again as a percent of revenues moving materially.
Linda Tsai: Thanks, and then just one other one any thoughts on how dollar stores are thinking about their store expansion plans. These days.
Steve: Now Steve.
Steve: Steve We don't do much with the Dol.
Steve: Stores and it has nothing to do with the business model. It was just always primarily the real estate, but you know over the years they've been one of the big <unk>.
Steve: Expansion groups.
Steve: For the net lease business, but yeah, we don't regularly call on the dollar store.
Steve: Corporate <unk> developers.
Steve: Don't have much in play for you there.
Steve: Thanks.
Speaker Change: Your next question for today is from John Masako with B Riley.
John Masako: Thank you for taking my questions and Kevin. Thank you for taking of all of our questions over the many many years.
John Masako: Just kind of looking for a little color maybe on the outlook for 2025 lease explorations anything notable that stands out and I guess, you're kind of expecting the typical recovery rate on.
Speaker Change: Brent it's inspiring.
Speaker Change: Yes, I think it could play out typically I think we're a little bit heavy in convenience stores in terms of lease expirations. This year.
Speaker Change: They are pretty solid performers so we're not expecting.
Speaker Change: Adverse outcome relative to historical norms. So.
Speaker Change: Nothing of note in my mind.
Speaker Change: Okay, and then maybe bigger picture given transaction volumes have typically been focused on relationship tenants how much of the investment outlook beyond maybe the LOI in PSA portion of the pipeline is contingent on those tenant partners.
Speaker Change: And kind of active in the M&A space and I guess, the M&A space being kind of robust more broadly.
Speaker Change: Outside of kind of let's go back pre 2020, I would say a lot of our relationship business was driven by the M&A market side of things.
Speaker Change: And then kind of post COVID-19.
When the M&A market was slowing down, but yet are large sophisticated tenants still self that need to grow. So they did a lot of kind of developments and ourselves. So we're kind of leaning in and if you recall a couple of years ago where are.
Speaker Change: Build to suit our split funded deal ramped up to $300 million, where historically it was kind of a $100 million.
Speaker Change: But what I have seen in 2025.
Speaker Change: The M&A market is picking up a little bit in the auto services and convenience store.
Speaker Change: That part of our guide does include a little bit of M&A, but it's definitely not dependent on the M&A side of things and new relationships.
Speaker Change: Okay, and then you touched on a little bit but in terms of the released frictions assets are former frictions assets.
Speaker Change: Is there any reason the percentage rent would be a 2026 event versus 2025 or should we kind of think about that as something that potentially impacts <unk>.
Speaker Change: 25 earnings leasing to get started.
Speaker Change: Beyond the fact that the rent on those that first batch doesn't start till may one. So there is that in the first half call it zero or close to zero.
Speaker Change: And so but yes, starting in the second half of this year that you should get some ramp up in percentage rents related to that.
Speaker Change: Factory stores and.
Speaker Change: Obviously for full year next year.
New restaurant operators.
Speaker Change: Get things up and running.
Speaker Change: Okay.
Kevin Habicht: That's it for me and Kevin want to Echo my peers and wishing you the best going forward.
Got it thanks very much it's been fun, we'll miss him at breakfast exactly.
Kevin Habicht: [laughter].
Kevin Habicht: You know what I was going to order oatmeal.
Kevin Habicht: For $30.
Speaker Change: As a reminder, if you would like to ask a question. Please press star one.
Speaker Change: Your final question for today is from Tayo Okusanya with Deutsche Bank.
Speaker Change: Oh no.
Speaker Change: Also a member of the Kevin Fan club you will be missed.
Speaker Change: Luck in retirement.
Speaker Change: <unk> also a member of the Vince and clubs. So then welcome welcome aboard and then Mike.
Speaker Change: My question is around acquisitions again, the $500 million to $600 million outlook for the year.
Speaker Change: And also the disposition outlook just kind of curious from an acquisition perspective retail categories that maybe you are looking to get a little bit more invested in very close on the sales side categories are you looking to lighten up on and also.
Speaker Change: If the world of tariffs kind of impact any of that in terms of industries, you're suddenly become more attractive or less attractive.
Speaker Change: Yes.
Speaker Change: Our philosophy, we look at the real estate more than the category.
Who's operating the site isn't as important as long as the real estate fundamentals are in line with market.
Speaker Change: Because at the end of the day, if that tenant goes away.
Speaker Change: We get market rent back.
Speaker Change: But because we are so relationship focused.
Speaker Change: I see 2025 being very similar to our current portfolio, where we will dig up our convenience stores and auto service sectors.
Speaker Change: We're starting to see a little bit more activity in the <unk> side of things, which I really like the <unk> because that acre and a half.
Speaker Change: 3000 square foot box is very fungible.
The real estate side, so im looking more for <unk> and auto services.
Speaker Change: Percolating up in 2025 as far as dispositions.
Speaker Change: That's more.
Speaker Change: Even if it's a good industry.
Speaker Change: These retailers are still always pick performing assets over at 15 to 20 year lease.
Speaker Change: Market's changed consumer behavior changes.
Speaker Change: So we worked really hard with the retailer and that's where the relationship value is and I think thats why 85% of our leases renew.
Speaker Change: At the end of terms as we look to kind of prune the portfolio each year, a little bit that $100 million range and start reading out the underperforming assets, where the retailer assists us in determining which ones to sell so it's not a particular category.
Speaker Change: I would say last year medical.
Speaker Change: Urgent care was a targeted.
Speaker Change: Sector, we disposed of and.
Speaker Change: And we kind of took advantage of the COVID-19 bumped on their sales and solve those into the 1031 market, but this year. There is not a particular sector I'm looking to get out of this more individual assets that aren't performing up to the levels of the tenant.
Speaker Change: Right.
Speaker Change: Thank you very much.
Speaker Change: We have reached the end of our question and answer session and I will now turn the call over to Steve Horn CEO for closing remarks.
Steve Horn: Hey, guys I appreciate you taking the time today, thanks for joining us and we'll see you guys in person in the upcoming conference season, Kevin One last goodbye. Thank you. Thank you alright. Thank you.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.