Q1 2025 Getty Realty Corp Earnings Call

April 24, 2025

Good morning, and welcome to Getty Realty first quarter 'twenty 25 earnings call. This call is being recorded after the presentation, there will be an opportunity to ask questions.

Speaker Change: Practice, starting the call Joshua Dicker Executive Vice President General Counsel and Secretary of the company will read a safe Harbor statement and provide information about non-GAAP financial measures. Please go ahead Mr. Dicker.

Speaker Change: Thank you operator, I would like to thank you all for joining us for Getty Realty's first quarter earnings Conference call yesterday afternoon. The company released its financial and operating results for the quarter ended March 31, 2020 by the form 8-K and earnings release are available in the Investor Relations section of our website.

Speaker Change: <unk> Dot com certain statements made during this call are not based on historical information and May constitute forward looking statements. These statements reflect management's current expectations and beliefs and are subject to trends events and uncertainties that could cause actual results to differ materially from those described in the forward looking statements.

Speaker Change: Examples of forward looking statements include our 2020 guidance and May include statements made by management, including those regarding the Companys future operations future financial performance or investment plans and opportunities. We caution you that such statements reflect our best judgment based on factors currently known to us and that actual events or results could differ.

Speaker Change: Materially I refer you to the company's annual report on Form 10-K for the year ended December 31, 2024 for a more detailed discussion of the risks and other factors that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today you should not place undue reliance on forward looking statements.

Speaker Change: To reflect our view only as of today. The company undertakes no duty to update any forward looking statements that may be made during this call also please refer to our earnings release for a discussion of our use of non-GAAP financial measures, including our definition of adjusted funds from operations or <unk> and our reconciliation of those measures.

Speaker Change: As to net earnings with that let me turn the call over to Christopher constant our Chief Executive Officer.

Christopher Constant: Thank you Josh good morning, everyone and welcome to our earnings call for the first quarter of 2025.

Speaker Change: Joining us on the call today are Mark Olear, our Chief operating officer, and Brian Dickman, Our Chief Financial Officer.

Speaker Change: I will lead off today's call by summarizing our financial results and investment activities can provide commentary.

Speaker Change: We need to execute our strategy and thoughtful and disciplined manner. Despite the latest macro economic uncertainty.

Speaker Change: Mark will then discuss our portfolio and Brian will address our financial results and guidance.

Speaker Change: For the quarter Getty grew at an annualized base rent by 11, 2% over the prior year to approximately $199 million.

Speaker Change: We reported <unk> per share of 55 cents, an increase of three 5% compared to the prior year quarter one in Brazil.

Speaker Change: The growth in base rents in <unk> was driven by rental increases and our in place portfolio.

Speaker Change: Pact of our prior year's investment activity.

Speaker Change: Importantly, our caveats in automotive retail tenants.

Well, despite the challenging operating environments.

Speaker Change: Our tenants' businesses are largely recession resistant and provide non discretionary goods and services consumers, particularly mobile consumers prioritize convenience speed and service.

Speaker Change: Let me now take a moment to elaborate a bit more on how we track performance for our tests.

Speaker Change: The site level financials, we receive about 72% of our annualized base rent.

Speaker Change: Publicly available financial data for our list of tenants, we're able to actively monitor the performance of nearly 95% of our AVR.

Speaker Change: And what we're currently seeing just the same stability the same resilience that we've consistently seen from these businesses throughout prior market cycles.

Speaker Change: But then the convenient store sector rent coverage for our assets was consistent with prior quarters.

Speaker Change: And then the car wash sector rent coverage increased at varying levels for each of our car wash portfolios.

Speaker Change: Fact of the reports we received from our car wash has built a strong quarter overall.

Speaker Change: Profitability grew.

Speaker Change: This precise continue to ramp at or ahead of expected pace customer.

Speaker Change: Customer visits increased subscriptions remained a source of strength.

Speaker Change: With regard to just carwash or tenant that filed bankruptcy in February we've made material progress towards a resolution, which mark will discuss further in his remarks.

Speaker Change: As a reminder, zips represented 12 sites or one 8% of our ABR is our first tenant credit issues since 2011.

Speaker Change: Moving on to investment activity the pace of closed transactions to start 2025 was more modest than prior quarters, but in line with our expectations.

Speaker Change: Approximately 85% of the pipeline, we disclosed at year end was for development funding transactions.

Speaker Change: Which typically have a nine to 12 month spending horizon.

Speaker Change: Leasebacks that can be variable from quarter to quarter in terms of investment volumes.

Speaker Change: Well that said we are pleased that we were able to increase our committed investment pipeline to more than $110 million.

Speaker Change: This pipeline represents a solid distribution of opportunities across our four target sectors with approximately 50% of the pipeline being an auto service and the balance across convenience stores drive <unk> Xpress Telecom washes.

Speaker Change: Approximately two thirds of the pipeline as development funding transaction and the balance is predominantly sale leasebacks.

Speaker Change: Importantly, our pipeline remains fully funded and we have capital to fund additional transactions hasn't moved for 2025.

Speaker Change: The economic and political uncertainty that has dominated the news for the last several weeks has broadly speaking created significant volatility in the transaction and capital markets.

Speaker Change: Translated into headwinds for closing deals in our target retail sectors.

Speaker Change: Regardless of market conditions, our job remains to source opportunities that fit our investment thesis.

Speaker Change: The underwriting criteria and which can be financed accretively.

Speaker Change: Our acquisitions team continues to do an excellent job of identifying transactions with a mix of large and established tenants and emerging high growth test we're building strong platforms across the U S.

Speaker Change: Importantly, we remain committed to our disciplined approach to acquisitions, which prioritizes owning real estate in high density or growing metro areas with <unk>.

Speaker Change: Excellent access and visibility and retail markets.

Speaker Change: And which is linked to credit worthy operators under long term triple net leases.

Speaker Change: We are confident that our relationship based sale leaseback strategy will generate continued opportunities for gains to acquire assets in our targeted convenience in automotive retail sectors as we move through 2025.

Mark Olear: With that I'll, let mark discuss our portfolio and investment activities.

Mark Olear: Thank you, Chris and at quarter end, our leased portfolio included 1115 net leased properties and one after redevelopment site.

Mark Olear: Excluding the active redevelopment occupancy was 99, 7% and our weighted average lease term was 10 years.

Mark Olear: Our portfolio spans 42 states plus Washington D. C 61 of our annualized base rent coming from the top 50 Msas.

Mark Olear: And 76% coming from the top 100 Msas.

Mark Olear: Our rents continue to be well covered with a trailing 12 month tenant rent coverage ratio of two five times.

Mark Olear: Turning to our investment activities for the quarter, we invested $10 9 million across six properties at an initial cash yield of seven 8%.

Mark Olear: The weighted average lease term on acquired assets for the quarter was 14 years.

Mark Olear: Highlights of this quarter's investments include the acquisition of three drive through quick service restaurant properties, and the Memphis, Tennessee, MSA for $4 4 million.

Mark Olear: One expressed held Carwash property located in New York for 4 million and.

Mark Olear: And the acquisition of the land associated with the development funding project for a new to industry collision Center in Kansas City MSA for one five months.

Mark Olear: We also advanced incremental development funding in the amount of $1 1 million for the construction of two new to industry Auto service centers. These assets are either already owned by the company and are under construction or will be acquired via sale leaseback transaction at the end of the project's respected construction.

Mark Olear: <unk>.

Mark Olear: Substantive subsequent to quarter end, we invested an additional $6 4 million, bringing our year to date total investments to $17 3 million at a 7.7 initial cash yield.

Mark Olear: As Chris mentioned, we currently have more than $110 million of investments under contract, which we expect to fund over the next nine to 12 months at an average initial yield in the high 7% area.

Mark Olear: Beyond our disclosed pipeline, we continue to source actionable opportunities, which are priced at accretive spreads and which we believe will benefit our portfolio as we look to scale and further diversify our business.

Mark Olear: Moving to our redevelopment platform.

Mark Olear: We funded 500000 towards a revenue enhancing capex project for one of our legacy gas and repair properties in the first quarter.

Mark Olear: As part of our agreement with our tenant at the property, we received incremental rent for our investment and extended the base term of the five property unitary lease.

Mark Olear: At quarter end, we had four signed leases for new to industry oil change locations of which one is under construction and we have additional projects in various stages in our pipeline.

Mark Olear: Continuing with our asset management efforts during the quarter. We sold two properties for 500000, we also made considerable progress towards repositioning the 12 assets that were previously leased Dcs carwash.

Mark Olear: It is our current expectation that this will remain our tenant at six of the properties and that we will release five of the sites to two regional car wash operators and we will dispose of the one remaining property.

Mark Olear: While we work while we are in various stages of documentation and we expect to be substantially compete complete with repositioning of these assets by the end of the second quarter.

Mark Olear: Subject to all of the total typical qualifiers regarding pending transactions.

Mark Olear: Upon execution, we expect to recover approximately 70% of the AVR previously generated by Zips, and our downtime would be limited to less than one quarter to the assets being leased to the new tenants.

Brian Dickman: That I will turn the call over to Brian.

Brian Dickman: Thanks, Mark good morning, everyone.

Brian Dickman: For the first quarter of 2025, we generated <unk> per share of <unk> 59 cents or three 5% increase over Q1 2024.

Brian Dickman: <unk> net income for the quarter were <unk> 56, and 25 cents per share respectively.

Brian Dickman: A more detailed description of our quarterly results can be found in our earnings release and corporate presentation contains additional information regarding our earnings and dividend per share growth over the last several years.

Brian Dickman: Annualized base rent or ABR as of March 31, 2025 was $199 million an increase of 11, 2% over the $179 million, we reported as of March 31 2024.

Brian Dickman: For the quarter total G&A as a percentage of total revenue was 13, 2% a 40 basis point improvement over the first quarter of 2024.

Brian Dickman: And G&A, excluding stock based compensation and nonrecurring retirement costs as a percentage of cash rental income and interest income was 10, 5% for the first quarter, a 10 basis point improvement over Q1 2024.

Brian Dickman: Management believes the second metric provides a better gauge of performance since it adjust for certain noncash and nonrecurring items over which we have limited control in both the numerator and denominator.

Brian Dickman: We continue to anticipate G&A dollar increases will moderate and G&A ratios will further improve as we scale the company.

Brian Dickman: Moving to the balance sheet and liquidity at quarter end net debt to EBITDA was five two times or 4.4 times taking into account unsettled forward equity.

Brian Dickman: We continue to target leverage of four and a half to five five times net debt to EBITDA and are well positioned to maintain those levels going forward.

Brian Dickman: Fixed charge coverage for the quarter was three five times.

Brian Dickman: During the first quarter as previously announced we funded $125 million of new unsecured notes proceeds of which were used to repay $50 million of notes that matured in February and to repay borrowings under our revolving credit facility.

Brian Dickman: Also as previously communicated and we refinanced our revolving credit facility in the first quarter.

Brian Dickman: The revolver was set to mature in October 2025, and as part of the transaction, we upsized the facility to $450 million and extended the term to January 2029, or January 2030, including extension options.

Brian Dickman: We use the increased capacity to repay our $150 million term loan, which was also due in October 2025, allowing us to address that maturity in the near term, while giving ourselves flexibility with respect to the ultimate refinancing of those borrowings.

Brian Dickman: We now have no debt maturities until June 2028.

Brian Dickman: As of March 31, 2025, the company's weighted average debt maturity was five four years and the weighted average cost of our debt was four 5%.

Brian Dickman: During the first quarter, we settled 400000 shares of common stock subject to forward sales agreements for net proceeds of approximately $11 million.

Brian Dickman: At quarter end, we had 5 million shares of common stock subject to outstanding forward sales agreements, which upon settlement are anticipated to raise gross proceeds of approximately $153 million.

Brian Dickman: We continue to be in a strong capital position with more than $450 million of total liquidity at quarter end, including unsettled forward equity capacity on our revolver and cash in 10 31 proceeds on our balance sheet.

Brian Dickman: With more than sufficient capital to fund our under contract pipeline as well as additional investment activity as we move through 2025.

Brian Dickman: A couple of additional notes on Zips, we've received all rent due through April of this year other than the period between February 1st and when Zips filed for chapter 11 on February 5th.

Brian Dickman: The 70% ABR recovery and less than one quarter downtime mentioned by Mark where both within the range of potential outcomes assumed in our 2025 earnings guidance there.

Brian Dickman: There are also no ti associated with those re leasing efforts.

Brian Dickman: With respect to guidance, we are reaffirming the vote per share range of $2.38 to $2 41 steps.

Brian Dickman: As a reminder, our outlook include includes completed transaction activity as of the date of our earnings release, but does not include assumptions for any prospective acquisitions dispositions or capital markets activities, including the settlement of outstanding forward sales agreements.

Brian Dickman: Primary factors impacting our 2025 guidance include the Finalization of the anticipated Zips resolution and variability with respect to uncollectible rent certain operating expenses and transaction related costs and the timing of anticipated demolition costs for redevelopment projects that run through property cost on our P&L.

With that I'll ask the operator to open the call for questions.

Brian Dickman: Yeah.

Brian Dickman: Thank you.

Brian Dickman: We'll now be conducting a question and answer session.

Brian Dickman: Like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

Brian Dickman: You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Speaker Change: One moment, please pull for questions.

Speaker Change: Thank you.

Speaker Change: Our first question comes from line of Daniel Byrne with Bank of America. Please proceed.

Speaker Change: Okay.

Speaker Change: Good morning.

Speaker Change: The $110 million investment pipeline can you describe the cadence of capital deployment in the next nine to 12 months.

Speaker Change: Yeah, Hey, Daniel this is Brian happy to.

Christopher Constant: As Chris mentioned in his prepared remarks about two thirds of that.

Christopher Constant: Pipeline is development funding those projects. We typically are estimated at nine to 12 months from when we.

Christopher Constant: Signed them up until completion, so it can be a little shorter some can go as long as 15 months.

Christopher Constant: Thats generally why we put that range out there.

Christopher Constant: So I think what you can anticipate is that the acquisition activity to sell leaseback activity is typically going to be within the next quarter and change and the balance at development funding will be over the rest of this year and into the early part of next year.

Speaker Change: Got it thank you and while we're on that just given the macro uncertainty could you just describe the development demand today.

Christopher Constant: Yeah, I mean I think.

Speaker Change: We're having a lot of conversations with our.

Speaker Change: Operators, who.

Speaker Change: We're looking at kind of accelerating their new store growth programs in 2025.

Speaker Change: At this point, it's probably too certain to make any any calls although no.

Speaker Change: People are evaluating all the various inputs to construction and.

Speaker Change: Certainly with your <unk>.

Speaker Change: Dresses, we think there'll be some more clarity around the situation.

Speaker Change: We'll be able to work with certain tenants to continue to source deals in that area.

Speaker Change: Yes.

Speaker Change: Got it thank you so much.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of excuse me with citizens JMP. Please proceed.

Speaker Change: Good morning, guys.

Speaker Change:

Speaker Change: Chris did I hear you.

Speaker Change: I referenced the fact that deals are taking a bit longer as.

Speaker Change: Is that consistent with what you were trying to come up.

Speaker Change: Discuss in your comments.

Speaker Change: Yeah.

Speaker Change: I think each transaction is a bit unique meant there.

Speaker Change: Certain transactions I'll go back to last quarter rent of certain transactions, where it never touched our committed pipeline right. Just a quick M&A closing when we were part of the capital structure.

Speaker Change: I think some of the prior question right around a little bit of uncertainty that's in the market today right. We're just having a lot more conversations with folks and there might be some of our counterparties that are just kind of evaluating next steps at this point in time, but I would just say each transaction given the direct nature and habits.

Speaker Change: One <unk>.

Speaker Change: Cadence spread in the zone.

Speaker Change: Time period, where you or initiated discussions all the way through closing.

Speaker Change: I missed your stroke, where it's Brian I would add just remember that our our sellers our counterparties right of real estate, there theyre not simply selling real estate from a return orientation right Theyre, making long term financing decisions right as they think about how to fund their growth and manage their capital structure. So it's a little bit of a I think decision different decision.

Speaker Change: Making process when you're when you're doing a sale leaseback versus just acquiring an asset that may be on the market for sale.

Speaker Change: That's helpful is is.

Speaker Change: Are you seeing more motivation.

Speaker Change: Out of the P E capital to get to place capital rather than lose it it just perspective or are they still.

Activity from them, so they're choppy.

Speaker Change: Yeah, I mean I.

Speaker Change: I'd say, there's definitely a lot of transactions on the market right now that we're we're having conversations with management teams owners that includes private equity.

Speaker Change: I think that there is no.

Speaker Change: Storage of potential opportunities out there right.

Speaker Change: The challenge right is obviously pricing.

Speaker Change: <unk>.

Speaker Change: The expectations for growth in 2025 by our operators so yeah.

Speaker Change: Yeah, I haven't noticed any sort of slowdown or increase I just think there. So a lot to work out at this point in time for us.

Speaker Change: That's great. Okay last one for me how should how should we think about the timing of.

Speaker Change: How the zips.

Speaker Change:

Speaker Change: Rent income.

Speaker Change: You know kind of hits the hits the income statement is that really more all day.

Speaker Change: Uh huh.

Speaker Change: QQ early three Q or is it three Q, how should we think about the cadence because obviously you've already received wrench for.

Speaker Change: April.

Speaker Change: Yes, Mitch I would caveat everything I'm about to say about back at these are in process negotiations. We wanted to provide an update to the market and give some clarity and some transparency, where we had it but all still subject to.

Speaker Change: Being pending discussions, but I think as you said we received rent through April.

Speaker Change: For the sites that would stay with Zips, we would assume just a continuation throughout the year with no interruption there.

Speaker Change: And then for the handful of sites that will be re leased to other operators is as Mark mentioned in his remarks, we expect.

Speaker Change: Those to be in place those tenants to be in place by the end of this quarter and then the one asset that will likely sell that that may go into the second half of the year, but it's a longer way of saying that if we're able to execute according to what we anticipated the outcome here. This should really be resolved by the end of the second quarter.

Speaker Change: And we'll move on with the rest of our business from there and.

Speaker Change: And his zips.

Speaker Change: Hum.

Speaker Change: Car washes that they are retaining is are the rents lower on those as well is that part of the whole 70% recapture is that the way to think about it.

Speaker Change: Yes, there there were adjustments when there is anticipated to be adjustments across you know all the 11 properties that will stay in the portfolio and they vary by order of magnitude depending on the performance of the underlying property.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next question comes in line of Paul <unk> with Keybanc capital markets. Please proceed.

Speaker Change: Yeah.

Speaker Change: Great. Thank you.

Speaker Change: Yeah, Chris regarding the tariffs have you seen any impact on your existing tenant base, especially given the nature of your autos centered portfolio.

Speaker Change: Yeah, that's a good question right.

Speaker Change: Any impact of tariffs by our tenants is.

Speaker Change: Truly a to be determined right now the positive thing for US is that our assets are tied to being.

Speaker Change: Clothing or other manufacturing.

Speaker Change: And depending on each one of our tenants in each one of the sectors like there's varying levels of.

Speaker Change: Input salt products sourced internationally.

Speaker Change: The indirect impact of course that people are having conversations about is on the consumer right and while our assets have traditionally performed well during periods of slower economic growth in.

Speaker Change: Take great comfort that our tenants provide essential goods and services to the consumer right. I think this is definitely a unique environment that we're in today.

Speaker Change: You know what I'd just say is.

Speaker Change: We're having a lot of discussions with our tenants in our portfolio on this topic.

Speaker Change: And what we're hearing back from them today is it's just really too soon to make any definitive statement on <unk>.

Speaker Change: What impact if any tariffs are going to have on their sourcing of product sales product on the consumer spending that they see in their stores. So.

Speaker Change: We're certainly spending a lot of time with them and I know that our tenants are thinking about this.

Speaker Change: But I don't want to make any definitive statements on the impact of the portfolio right now.

Speaker Change: Okay, Great that was helpful and then.

Speaker Change: Brian could you remind us where your cost of capital is today and what your investment spreads are looking like on your recent investments.

Brian Dickman: Yeah happy to.

Brian Dickman: Spot basis and this changes.

Brian Dickman: Daily, but by definition, but I would say, we're probably in that maybe low to mid sevens area, just given where treasuries are where spreads are and where the stock price has been but I think importantly, el capital that we have raised and is currently being deployed the debt that we that we funded in the first quarter.

Brian Dickman: Or the equity that we mentioned that's unsettled.

Brian Dickman: It's well inside of that spot cost of capital I would put that in kind of mid high sixes area. So call that 6668.

Brian Dickman: Kind of a range and you know given the pipeline in the high Sevens pushing a yeah that would tell you that that spread is kind of in the low 100, 110 140 basis points area.

Brian Dickman: Okay, Great and then just last one for me would be just you know given the volatility in the 10 year.

Brian Dickman: Is there what's your expectation on where the cap rates could trend in <unk> at least.

Brian Dickman: Yeah I mean.

Brian Dickman: It's a great question.

Brian Dickman: I think well.

Brian Dickman: Really not seeing any change.

Brian Dickman: And cap rates right now.

Brian Dickman: Comments on in the first quarter and in the first couple of weeks of Q2, just as a reminder, we thought that there was depth in the market in that mid to high seven range approaching eight.

Brian Dickman: With the market kind of getting a little thinner as you get much north of that 8% range.

Speaker Change: Yeah again I'll go back to al for some more comment on tariffs I think people are digesting the news from last couple of weeks.

Brian Dickman: And.

Brian Dickman: Our minds, it's a little too early to say that there has been a substantial movement in cap rates.

Brian Dickman: But time will tell and again, we're continuing to have those conversations with our counterparties on transactions, whether they're in our portfolio of perspective tenants.

Brian Dickman: Sure.

Brian Dickman: Echo that we're pleased that the pipeline increase that we're able to finance those deals accretively with the capital we've raised and feel good about being able to grow this year.

Brian Dickman: Okay, great. Thank you.

Speaker Change: Thank you. Our next question comes from the line of Wes Golladay with Baird. Please proceed.

Wes Golladay: Hey, Good morning, guys can you talk about the credit file of your new car, Washington, and did you get any new relationships.

Speaker Change: There were no new relationships this quarter Wes.

Wes Golladay:

Wes Golladay: You did.

Wes Golladay: Credit profile of our car wash sensors are just bigger.

Speaker Change: The new ones, yeah, with the people taken over the ZIP tour any of those new to the portfolio or the bigger better operators.

Speaker Change: No I think we feel good about for those sorry about some misunderstood your question.

Speaker Change: On the Zips assets, the two new tenants that we're negotiating with I think what we like about those tenants as they are in the markets where those properties are today. They know how to operate in those markets I would call it.

Speaker Change: Two different size companies, one is truly a regional operator, that's in that market.

Speaker Change: <unk>.

Speaker Change: It is growing and the other is a larger more established operator, who happens to be new to our portfolio, but but again in the market strong company.

Speaker Change: And we did a strategic partner for us long term.

Speaker Change: Okay, and then I guess getting rid of zips, you've cleaned up the left tail of the portfolio and the coverage perspective, I think you're just over one 1% for sub one five coverage is there anything concerning in that bucket are these your stabilized assets.

Brian Dickman: Hey, Wes it's Brian.

Speaker Change: Really around that question will point to the one car wash portfolio and then we have a.

Speaker Change: A C store portfolio that just simply operates in that range and I'm talking 12, 15, plus years, that's just where they operate at a stable.

Speaker Change: Babelized basis, so no no concerns with that portfolio.

Speaker Change: Okay, and then maybe can you talk about your tenant Arco how are they doing on a coverage perspective for you.

Speaker Change: Yeah. So we have five leases with arco, they're our largest tenant.

Speaker Change: The public solves refer everybody to their public information.

Speaker Change: We continue to see consistent coverage there they are in the C store sector as I said in my comments.

Speaker Change: Yes, they are in the process of a strategic.

Speaker Change: Plan in their business, but from <unk> perspective, it doesn't change anything contractually, we look to arco, they expect to generate a similar <unk>.

Speaker Change: <unk> from their stores at the end of this transition.

Speaker Change: We still feel good about helping them as a tenant.

Speaker Change: They've been a partner of us for almost 20 years.

Speaker Change: I have a very long track record of performing under all their leases for us.

Speaker Change: And then last one for me a line of credit just under 160 million are you looking at terming that out sometime this year.

Speaker Change: Yeah. So the big piece there West is the 150 million that came over from the term loan and we have swaps on that fixing the interest rate at the 6.1% until October of 2026, and then of course. The maturity is now until January of 2029. So it was a general response.

Speaker Change: Yes, we would want to term that out you know as you know we typically prefer a long term fixed rate debt of 10 year notes.

Speaker Change: But given that that were fixed through October of next year, and we have maturity beyond that I'd say, we'd be more opportunistic than feel any real urgency to do that especially you know a point in time, given where both 10 year and spreads are so I would say and in due time, we will be opportunistic around terming that out but no.

Speaker Change: Nothing to anticipate in the near term.

Speaker Change: Okay. Thanks for the time.

Speaker Change: Thank you. Our next question comes from the line of Brad Heffern with RBC. Please proceed.

Brad Heffern: Hey, Thanks, good morning, everybody.

Brad Heffern: Zips can you give what the coverage was pre bankruptcy and then what it is pro forma for the leases that youll, presumably fine.

Speaker Change: Yeah, Hey, Brian it's Brian So pro forma what we have said is and you know we stratify the coverage. So they were in the one to one and a half range is a 12 property portfolio stay in the mid point, typically plus or minus of that range and then the new operator is just premature right.

Speaker Change: I want to make sure we get those signed up and give those operators a chance to run those facilities I think directionally. It would be fair to say, we would expect it to be improved.

Speaker Change: Both with the new operators, hopefully driving topline growth and then with the rent adjustments to set those sites up for longer term sustainability.

Speaker Change: Too early to get into what we would expect that to be.

Speaker Change: Okay got it and I mean, I think the market perception was that zips with you know largely a sort of balance sheet corporate problem and not necessarily a site level problem did you see an issue with those sites covering at that level.

Speaker Change: And if so like you did you just think you couldn't get out of them I'm, assuming you were getting quarterly financials I guess I'm just wondering why maybe you couldn't be more proactive about it or maybe there just wasn't a way to get out of them.

Speaker Change: Yeah.

Speaker Change: Think one of the things we mentioned on the Zips profiles that we went back and looked at them as carwash sites and feel good about it.

Speaker Change: 11 of the 12 that are staying in our portfolio being long term producing assets for us.

Speaker Change: Bye.

Speaker Change: Bringing new tenants into the portfolio or in those markets, we think that theyre going to be able to grow the top line there.

Speaker Change: Obviously with the rents being adjusted Brian that certainly gives them a little bit more cushion.

Speaker Change: But I wouldn't say that these were.

Speaker Change:

Speaker Change: Truly underperforming locations I do concur with what you are saying that I think the overall zips issue was a balance sheet issue.

Speaker Change: And Brian just one additional comment as it relates to coverage it was fairly stable at those levels. So it wasn't a situation where we saw a higher coverage higher performance better performance deteriorating over time. It was it was a portfolio that just was kind of operating at at that level.

Okay. Thank you.

Speaker Change: Thank you. Our next question comes from the line of Michael Goldsmith with UBS. Please proceed.

Speaker Change: Good morning, Thanks, a lot for taking my question a lot of discussion on Zips here I just wanted to clarify.

Speaker Change: What exactly did you bake into your guidance for the resolution and how has recognized also that the situations don't fluid, but how does this kind of pending resolution compare to what you had baked into your outlook for the year. Thanks.

Michael: Yes sure Michael.

Michael: So what we had said on our February call as we looked at a range of outcomes on both downtime and rent adjustments, we didn't get into specifics and we still rather not just given the live nature of the situation, but yeah. It's again assume a range of rental adjustments, some more draconian than others and range of downtime.

Michael: Yeah on the same and I said as I said in my remarks, the anticipated resolution that we outline is within that range of outcomes, which is why we left the guidance unchanged I think that when we're coming back here in July hopefully this is fully resolved and then we can get a little bit more fine with with our guide.

Michael: <unk> and.

Michael: Restating that if it is necessary we were hesitant to do that at this time given again, just where we are the active negotiation, so little bit of a longer way of saying, but.

Michael: But what what's been proposed or what we've articulated here is is is well within what we had laid out again as those range of outcomes and I would just end with if you take a little bit of a step back right. We think a pretty favorable outcome right. If you can uh huh.

Speaker Change: <unk> downtime of less than a quarter on half of the portfolio with the other half continuing through a rent recovery in that 70% area. No T is new tenants that are active in the market.

Speaker Change: Just as a general kind of a holistic picture.

Speaker Change: We're pleased with where this is headed and you don't really looking forward to two focusing on other parts of the business.

Speaker Change: Got it.

Speaker Change: I believe earlier asked about the impact of tariffs on the underlying tenants, but maybe you could talk a little bit about the impact of tariffs on the redevelopment and Hal.

Speaker Change: Central inflationary classmate may impact that segment.

Speaker Change: External growth maybe more generally.

Speaker Change: Yeah, but I I think if you.

Speaker Change: Referring to our redevelopment program and just new.

Speaker Change: New construction in general many of your expectation is across the board from our tenants that construction or any sort of capex, that's going into any of our properties. The cost of all the inputs will go up.

Speaker Change: Timing may also be impacted certainly that impacts.

Speaker Change: Returns as we like to invest in those locations but.

Speaker Change: Just the way, we've structured our development funding program and or restructure our Redevelopments I think.

Speaker Change: We're going into those with sort of the proper protections whether it be a cap on how much will advance or.

Speaker Change: Steps in cap rates, if there are delays along the way in development funding projects such that protect us from.

Speaker Change: Committing to an investment that.

Speaker Change: They wouldn't lead to the same level of accretion.

Speaker Change: We thought it would going into it.

Mark Olear: Yeah. This is mark I would also add that.

Mark Olear: On getty's side of the transaction the scope of work that we're exposed to the cost of that work is fairly well defined and contained.

Mark Olear: So things that might be affected by market conditions, you know steel glass cement and things like that typically are not on our side of the transaction, but that said.

Mark Olear: Our deals contained a when we underwrite the deals and.

Mark Olear: Looking at the return on investment we feel is appropriate contingency in those budgets for cost creep over time, because the development deals or even a longer horizon than some of the development funding deals because of the permit process. So.

Mark Olear: We're looking at anywhere from 12 to sometimes 24 to 30 months and we build an appropriate contingencies for cross screen and then we stay current through our professionals in our development process with the incoming tenant on the evolution of their budgets in there.

Mark Olear: Their approvals.

Mark Olear: Approvals in design, so we've got a good pretty good view to that.

Mark Olear: I appreciate that and if I can just squeeze one more in what's your appetite for Q S or that was the dominant kind of tape that you acquired during the quarter and you brought up your percentage of ABR.

Mark Olear: From 1% to 2%.

Mark Olear: Yeah.

Mark Olear: What's your thought on this segment going forward is there a level of exposure that you're targeting over the.

Mark Olear: Yeah.

Mark Olear: Mediocre them, let's say.

Mark Olear: Yeah, no defined opposite off 1% to 2% so still a very small part of our portfolio.

Mark Olear: We don't have a defined basket for that sector, what I would point out though is you know.

Speaker Change: Again, we're sorry.

Speaker Change: 18 ish months into looking at the sector starting to develop relationships in the sector.

Speaker Change: We're pleased that we're starting to make inroads and we're starting to have that direct type of transaction in that sector in the conversations to generate more opportunities and generate.

Speaker Change: Potential investments forgetting to bring onto our balance sheet that increase our exposure there brands new tenants. Another diversification. So I think it's a natural evolution of how we get into our sector and how we can grow our exposure there.

Speaker Change: Got it and car, Washington did a novel service and <unk> being the newest sector. So.

Speaker Change: I think this.

Speaker Change: Progress that we're making is a good thing.

Speaker Change: And still represents a pretty small percent of our portfolio.

Speaker Change: Thank you very much good luck in the second quarter.

Speaker Change: Okay.

Speaker Change: Thank you. Our next question comes from the line of Michael Gorman with B P. I G. Please proceed.

Michael Gorman: Yeah. Thanks. Good morning, just one quick one for me on Unzips, Brian I appreciate the color that the outcome is well within the range for guidance I'm curious if we step back how does the outcome compare to how you think about these assets when you underwrite the new investments right. Chris you mentioned first credit events since I think 2011, obviously.

Michael Gorman: The car washes new business line since that time, so when you think about underwriting new car wash investments and the potential risk there how does the recovery from this credit event compare to how you think about recovery and an underwriting scenario and and has that led to any changes about how youre thinking about it for new investments going forward.

Michael Gorman: Yeah.

Christopher Constant: Yeah, I think that's me I was just Chris sorry, I'll I'll start and then I'll, let mark and Brian filling what I Miss here, but I think as we underwrite we're always looking at.

Christopher Constant: Alternative scenarios, whether it be recounting whether it would be is there a higher better use for an alternate use for a site it sort of starts with the markets. We invest in the positioning of the assets, where the top corner just off a corner.

Christopher Constant: The reasons that we focus all of that in our disclosure.

Christopher Constant:

Christopher Constant: As we think about retaining sites, which was done in the C store sector right.

Christopher Constant: Or borrowers sounds like who is the who is the highest and best use for that location.

Christopher Constant: In this particular scenario, given where that port platelet settled then I think the rent that we re colonies are appropriate.

Speaker Change: Tennessee ability to grow that top line in the business and to be.

Christopher Constant: <unk> set.

Christopher Constant: Set of properties in our portfolio.

Christopher Constant: I think each scenario is a little different right in terms of what the ultimate recovery is but given that the 11 of the 12 are going to remain car washes in our portfolio.

Christopher Constant: I think the new rents those that are sustainable.

Christopher Constant: Uh huh.

Christopher Constant: Also it may.

Christopher Constant: You want to look at possibly as a validation of the underwriting process, where they're gonna continuous operating car wash and so for the intended use that would be acquired for the they'll continue in that in that sector.

Christopher Constant: You can look at the profile of the incoming tenant the value that they did they viewed in those properties but.

Christopher Constant: I guess to answer your direct question it doesn't it doesn't give us any pause on how we.

Christopher Constant: We underwrite properties.

Christopher Constant: We havent deviated, we continue to stress test that on a recurring basis and refine refine our model our proprietary underwriting value model, but no. It didn't give us any any cause for concern and how do we look at future opportunities.

Christopher Constant: Yeah, Michael I'll, just add one more thing and kind of building up what Mark said is we're always evaluating and reevaluating, how we underwrite and certainly from 2019.

Christopher Constant: Through the last five six years that we've been in the sector.

Christopher Constant: Whether it's been as cost of new development of gone up or as new competition has come in into the market.

Christopher Constant: We're always as I said assessing reassessing our model, we do underwrite car washes to a higher coverage level today than we did five six years ago, but that wasn't as a result of zips I think that's the key takeaway right. We're always looking to refine.

Christopher Constant: And improve how we look at properties. So that has been happening even even before the zips are bad and then I think to Mark's point it arguably validates.

Christopher Constant: You know how we've approached this in.

Christopher Constant: You know that doesn't give us any pause in terms of of that approach going forward.

Christopher Constant: Yeah.

Okay, and then maybe just one follow up when you think about the sites that are staying in the portfolio, but not going to zips were those offered to zips at the reduced rent at the new tenants are taking them or was there a choice there to reduce exposure to zips and find new operators, even if zips would've.

Christopher Constant: Kept the sites at the lower rent.

I think it's a holistic negotiation I wouldn't necessarily think of it as a direct offer you don't forget that the starting point from their initial filing Zips had rejected seven of the 12 and had indicated that they would stay in five so that that was sort of a starting point.

Christopher Constant: And from that we got to a situation, where they were able to stay in or potentially as we're laying it out stay in six.

Christopher Constant: And then five got released and what would be sold so I wouldn't think of it as a you know what are the other end and kind of playing off each other the team went out and talked to several operators and brought in you know.

Christopher Constant: A variety of different offers for lease for.

Christopher Constant: For for acquisition and disposition from our perspective somewhat willing to put in capital others looking for capital. So there was I would say there was good interest in the sites and where we are looking to land and what we've articulated I was just a sort of good blended outcome good aggregate outcome across the 12 sites that.

Christopher Constant: And we thought that we identified the right either.

Christopher Constant: Counterparty in the case of the different leases or in the one case.

Christopher Constant: Sale for them for the 12 property portfolio.

Christopher Constant: Great. Thanks for the time guys.

Christopher Constant: Thank you there are no further questions at this time I'd like to pass the call back over to Christopher for any closing remarks.

Christopher Constant: Great. Thank you operator, and thanks to everybody for being on the call. This morning and for your interest in the company and we look forward to getting back on with everybody in July when we report our second quarter results.

Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Christopher Constant: Yeah.