Q1 2025 FrontView REIT Inc Earnings Call
Operator: Good morning, ladies and gentlemen, and welcome to the FrontView REITs in Q1 2025 Earnings At this time, all lines are in the end-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator.
Good morning, ladies and gentlemen, and welcome to the fraud view REIT, Inc. You want your thousands, but if ive earnings call. At this time all lines are in need and only mode.
Following the presentation, we will conduct a question and answer session.
Speaker Change: If at any time during this call you require immediate assistance. Please press star zero for the operator. This call is being recorded on Thursday may 15th of 2025, I would now like to turn the conference over to Randy Star Randy does go ahead.
Operator: This call is being recorded on Thursday, May 15th of 2025.
Operator: I would now like to turn the conference over to Randy Starr. Randy, please go ahead.
Randy Starr: Good morning, everyone, and welcome to our first quarter 2025 earnings call.
Speaker Change: Good morning, everyone and welcome to our first quarter 2025 earnings call I'm joined today by Steven Preston Chairman and co CEO before I turn it over to Steve. Please note that we will be making certain statements that may be considered forward looking statements under federal Securities law. The company's actual results may differ significantly.
Randy Starr: I'm joined today by Stephen Preston, Chairman and Co-CEO.
Randy Starr: Before I turn it over to Steve, please note that we will be making certain statements that may be considered forward-looking statements under federal securities law. The company's actual results may differ significantly from the matters discussed in these forward-looking statements, and we may not release revisions to these forward-looking statements in the future. Factors and risks that could also cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the FCC in yesterday's press release.
Speaker Change: Lee from the matters discussed in these forward looking statements. We may not release revisions to these forward looking statements in the future factors and risks that could also cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the FCC in Yesterdays press release, Steve.
Unknown Executive: Great.
Steve: Great. Thank you Randy good morning, everyone.
Stephen Preston: Thank you, Randy.
Stephen Preston: Good morning, everyone. Welcome to FrontView's Q1 2025 Earnings Call. As a reminder, FrontView is an internally managed net lease REIT that acquires, owns, and manages primarily properties with frontage on high-traffic roads that are highly visible to consumers. FrontView is an internally managed net lease REIT that acquires, owns, and manages Since entering the public markets in October of 2024, we've demonstrated our ability to source accretive acquisition. The first quarter of 2025 was no exception, and we acquired approximately 49.2 million of properties and an average cap rate of 7.9%, exceeding our pricing guidance by about 40 basis points and having a weighted average lease term of approximately 12 years.
Speaker Change: Welcome to front views Q1, 2025 earnings call as a reminder, front view isn't that internally managed net lease REIT that acquires.
Speaker Change: Advantages primarily properties with frontage on high traffic roads that are highly visible to consumers.
Speaker Change: Since entering the public markets in October of 2024, we've demonstrated our ability to source accretive acquisitions. The first quarter of 2025 was no exception and we acquired approximately $49 2 million of properties at.
Speaker Change: At an average cap rate of seven 9%.
Speaker Change: Exceeding our pricing guidance by about 40 basis points and having a weighted average lease term of approximately 12 years. The acquisitions are diversified across nine industries, 13th tenants and 13 states, including eight new tenants in two new states investment grade tenants accounted for approximately 29% of annualized base rent.
Stephen Preston: The acquisitions are diversified across 9 industries, 13 tenants, and 13 states, including 8 new tenants and 2 new states. Investment-grade tenants accounted for approximately 29% of the annualized base rent from these acquisitions. Subsequent to the close of the quarter, we have closed on one additional property for an additional $3.6 million at an initial cash capitalization rate of 8.1% and a lease term of seven years. We also have five properties under contract for an additional $15.7 million at a weighted average initial cash capitalization rate of 8% and a weighted average lease term of approximately 8 years.
Speaker Change: These acquisitions subsequent to the close of the quarter. We have closed on one additional property for an additional $3 6 million at an initial cash capitalization rate of eight 1% and a lease term of seven years. We also have five properties under contract for an additional $15 7 million at a weighted average.
Speaker Change: Initial cash capitalization rate of 8% and a weighted average lease term of approximately eight years. The properties under contract are diversified across five industries six tenants in four states with the investment grade tenants, representing approximately 20% of the ABR.
Stephen Preston: The properties under contract are diversified across five industries, six tenants, and four states, with the investment-grade tenants representing approximately 20% of the ABR. We have the ability to grow quickly and accretively with our existing team, provided that we have an appropriate cost of capital.
Speaker Change: We have the ability to grow quickly and accretively with our existing team provided that we have an appropriate cost of capital.
Stephen Preston: Since February, we have seen our share price decline. Given our current share price and cost of our capital, we have slowed the pace of our acquisition activity in order to prudently allocate capital. At this time, we are now planning to acquire between $125 million and $145 million of acquisitions during 2025.
Speaker Change: Since February we have seen our share price declined given our current share price and cost of our capital we have slowed the pace of our acquisition activity in order to prudently allocate capital at this time, we are now planning to acquire between $125 million and $145 million of acquisitions during 2025 through our pipeline of opportunities.
Stephen Preston: Though our pipeline of opportunities remains robust, and we believe we will be able to immediately recommence acquisition activity at our prior pace as our cost of capital improves. We still believe we will acquire above the 7.5% cap rate mark through Q2 and into early Q3. And although our current cost of capital is challenging, we believe we are acquiring frontage assets at historically elevated cap rates and accordingly believe it is in the best interest of the company to continue to acquire assets at these pricing levels, albeit at a slower pace.
Speaker Change: It remains robust and we believe we will be able to immediately recommence acquisition activity at our prior pace as our cost of capital improves.
Speaker Change: We still believe we will acquire above the seven 5% cap rate Mark through Q2 and into early Q3, and although our current cost of capital is challenging. We believe we are acquiring frontage assets at historically elevated cap rates and accordingly believe it is in the best interest of the company to continue to acquire assets at these.
Speaker Change: Pricing levels, albeit at a slower pace.
Stephen Preston: As of March 31, 2025, we had approximately $141 million of liquidity, comprised of availability under Align and our existing cash balance. We anticipate having sufficient borrowing capacity under our facility to fund our investment activity for the year, coupled with our ability to reinvest surplus cash flow and generate funds from the sale of We sold one operating Freddy's Steakburgers during Q1 at a sales price of $2.05 million at a cap rate of $6.9 billion.
Speaker Change: As of March 31, 2025, we had approximately $141 million of liquidity comprised of availability under our line and our existing cash balance we anticipate having sufficient borrowing capacity under our facility to fund our investment activity for the year, coupled with our ability to reinvest surplus cash flow and generate funds from the sale of prime.
Speaker Change: We sold one operating Freddie steak burgers during Q1 at a sales price of 2.05 million at a cap rate of six 9%.
Stephen Preston: We plan to increase the level of property sales during 2025 to between $20 million and $40 million as we see opportunities to sell off non-core assets and assets with shorter lease term durations, replacing them with longer term duration leases that fit our acquisition model. In addition, re-tenanting properties can give us the opportunity to create meaningful value for our shareholders. For example, as highlighted in our investor presentation, we proactively re-tenanted a Miller's Alehouse with a new Raising Cane's Absolute Triple Net ground lease at a substantially similar rent.
Speaker Change: We plan to increase the level of property sales during 2025 to between $20 million and $40 million as we see opportunities to sell off non core assets and assets with shorter lease term durations, replacing them with longer term duration leases that fit our acquisition model. In addition re tenant properties.
Speaker Change: Give us the opportunity to create meaningful value for our shareholders. For example, as highlighted in our Investor presentation, We proactively re tenanted Miller's ale house with the new racing games absolute Triple net ground lease at a substantially similar right.
Stephen Preston: We have recently listed the asset for sale at a 4.7% cap rate compared to our prior basis of approximately 7.2%.
Speaker Change: We have recently lifted the asset for sale at a four 7% cap rate compared to our prior basis of approximately seven 2%.
Stephen Preston: Notwithstanding our currently planned acquisition slowdown, we reaffirm our prior 2025 ASFO per share guidance within $1.20 to $1.26.
Speaker Change: Notwithstanding our currently and acquisition slowdown.
Speaker Change: Reaffirm our prior to 2025 <unk> per share guidance within $1 20 to $1 26, our per share results are sensitive to both the timing and amount of real estate investments property dispositions and capital markets activities that occur throughout the year drivers that could increase our <unk>.
Stephen Preston: Our per share results are sensitive to both the timing and amount of real estate. Property Dispositions and Capital Markets activities that occur throughout the year.
Stephen Preston: Drivers that could increase our AFFO per share include quickly ramping up our acquisition activity to prior levels, income from tenant replacements coming back online earlier than expected, and the accretive sale of certain properties throughout the year.
Per share include quickly ramping up our acquisition activity to prior levels income from tenant replacements coming back online earlier than expected and the accretive sale of certain properties throughout the year.
Stephen Preston: Switching gears to the team front, as previously reported, in late April, Tim Dieffenbacher transitioned to the private sector and left FrontView earlier this month. Tim has been nothing but a supporter of FrontView and we wish Tim all the best in his new role and thank him for his work and efforts throughout our IPO process.
Speaker Change: Switching gears to the team front as previously reported in late April Tim Diefenbach or have transitioned to the private sector and less front view earlier this month Tim.
Speaker Change: Tim has been nothing but a supporter of frontier and we wish him all the best in his new role and thank him for his work and efforts through our IPO process.
Stephen Preston: The board has appointed Randall Starr as CFO, and he will continue to serve as co-CEO. Randy is a key company executive with a strong financial background and is a natural fit for this role. Randy has financial analyst and investment banking experience and has been involved in our portfolio since its inception in 2007. Prior to that, Randy attended NYU's real estate finance graduate program while working for C.B. Richard Ellis and was more recently overseeing top roles as COO and Chief Development Officer, including liaisoning with their accounting and finance department. Both Randy and I have been very involved in CFO functions from the founding of our business, through the IPO, and throughout our duration as a public company.
Speaker Change: The board has appointed Randall Star as CFO and he will continue to serve as co CEO.
Speaker Change: Randy is a key company executive with a strong financial background and is a natural fit for this role Randy has financial analyst and investment banking experience and has been involved in our portfolio since its inception in 2016 prior to that Randy attended NY use real estate Finance graduate program, while working for CB, Richard Ellis and it was more recently overseeing.
Speaker Change: As C O O and Chief development officer, including Liaising with their accounting and finance departments, both Randy and I have been very involved in CFO functions from the founding of our business through the IPO and throughout our duration as a public company Randy is a natural fit for the position and I look forward to continuing to work closely with.
Stephen Preston: Randy is a natural fit for the position, and I look forward to continuing to work closely with Randy as we operate and grow the business. Although Randy will still stay involved in the acquisitions process, his involvement will move to more of an oversight role.
Speaker Change: Randy as we operate and grow the business, although Randy will still stay involved in the acquisition process is involvement will move to more of an oversight role.
Stephen Preston: Our dedicated, established acquisitions team, which has been responsible for almost 160 million of acquisitions since becoming a public company, is a well-oiled machine and more than capable, requiring no additional hires to execute on our projected acquisitions.
Speaker Change: Our dedicated established acquisitions team, which has been responsible for almost $160 million of acquisitions since becoming a public company is a well oiled machine and more than capable requiring no additional hires to execute on our projected acquisition volume.
Stephen Preston: The board has also appointed Sean Cucamaro to become our Chief Accounting Officer. Sean is exceptionally capable and seasoned with Big Four public accounting firm experience, almost 19 years in the space, and has been integrally involved in overseeing FrontView's accounting since 2000.
Speaker Change: The Board has also appointed Sean to Tomorrow to become our Chief Accounting Officer, Sean is exceptionally capable and seasoned with big four public accounting firm experience almost 19 years in the space and has been integrally involved in overseeing and frankly as accounting since 2018.
Stephen Preston: On the portfolio management front, we previously reported 12 properties in which the tenants were either bankrupt or not paying rent. These 12 properties represented approximately 4% of year-end 2024 ABR, and the tenants were predominantly in the casual dining restaurant space.
Speaker Change: On the portfolio management front, we previously reported 12 properties in which the tenants rather bankrupt or not paying rent.
Speaker Change: These 12 properties represented approximately 4% of year end 224, ABR and the tenants were predominantly in the casual dining restaurant space.
Stephen Preston: as we will be describing in a few moments. We have demonstrated that the assets we acquire with Frontage are desirable to a variety of different users and that our top-notch, experienced management team is capable of re-tenanting, repurposing, or otherwise selling off assets to maximize value in a time-efficient manner. Of the 12 assets... We have sold one asset. We are under firm contract to sell a second asset. We are under conditional contract to sell two additional assets. We have leased one asset. We are under active lease negotiations on two assets with both under signed LOIs. Two of our hooters are currently open and rent-paying, though we are also negotiating with other major tenants interested to lease the properties, demonstrating the strong real estate fundamentals of these properties.
Speaker Change: We will be describing in a few moments.
Speaker Change: We have demonstrated with the assets, we acquire with frontage are desirable to a variety of different users and then our top notch experienced management team is capable of <unk>, Canada, repurposing or otherwise selling off assets to maximize value at a time efficient manner.
Speaker Change: 12 assets.
Speaker Change: We have sold one asset we are under firm contract to sell our second asset we are under conditional contract to sell two additional assets. We have leased one asset we are under active lease negotiations on two assets with both under signed Loi's two of our Hooters are currently open and rent paying.
Speaker Change: We are also negotiating with other major tenants interested to lease the properties demonstrating the strong real estate fundamentals of these properties and our Joanna is currently ramping and we are actively marketing to be proactive.
Stephen Preston: And our Joanne's is currently rent-paying, but we are actively marketing to be proactive. We now have parallel lease and sale activity on the 11th asset and expect to be in receipt of LOI shortly. And we are actively marketing the one remaining asset and anticipate having activity shortly.
Speaker Change: We now have parallel lease and sale activity on the 11th asset and expect to be in receipt of LOI shortly and.
Speaker Change: We are actively marketing the one remaining asset and anticipate having activity shortly.
Stephen Preston: We are proud of our team and our team's ability to quickly, efficiently, and proactively repurpose these efforts. Based upon our efforts to date and subject to customary due diligence and closing conditions, we expect the equivalent return of between approximately 3% and 4% of the approximately 4% year-end ABR previously noted with respect to these 12 properties. Given the projected timing of the aforementioned sales and rent commencements of new leases, equivalent rental replacement income is expected to come back online in Q4-25 or in early 2016. At that time, we expect bad debt expenses should run at more normal levels in the 1-2% range.
Speaker Change: We are proud of our team and our team's ability to quickly efficiently and proactively repurpose. These assets based upon our efforts to date and subject to customary due diligence and closing conditions. We expect the equivalent return of between approximately 3% and 4% of the approximately 4% year and AVR previously noted.
Speaker Change: With respect to these 12 properties.
Speaker Change: Given the projected timing of the aforementioned sales and rent commencements and new leases equivalent rental replacement income is expected to come back online in Q4, 'twenty five or an early 'twenty six at that time, we expect bad debt expenses should run at more normal levels in the 1% to 2% range and based upon prior historical outcomes, we believe.
Stephen Preston: And based upon prior historical outcomes, we believe we should see similar recovery rates.
Speaker Change: We should see similar recovery rates.
Stephen Preston: With respect to our watch list, we were hit with a perfect storm earlier this year. As those tenants roll off the watch list, we do not see any major additions at this time.
Speaker Change: With respect to our watch list, we were hit with a perfect storm earlier this year as those tenants roll off the watch list, we do not see any major additions at this time.
Stephen Preston: Burger King has been in the news recently as a large franchisee for Burger King filed for bankruptcy. However, we do not have any properties leased to this operator. We own three freestanding Burger King restaurants and two gas convenience stations with operating Burger Kings as part. All at low rents and all of our Burger King restaurants are open, operating, and current on rent. Additionally, although Applebee's has reported recent store closings, our three Applebee's are open, operating, and current on rent. We have very good clarity into 2025 renewals. At this time, we expect three tenants not to renew this year.
Speaker Change: Burger King has been in the news recently as a large franchisee for Burger King filed for bankruptcy. However, we do not have any properties leased to this operator, we own three freestanding Burger King restaurants in two gas convenience stations with operating Burger Kings as part all at low rents in all of our Burger King restaurants are open operating and current on reps. Additionally.
Speaker Change: Although applebee's has reported recent store closings are three applebees are open operating and current on rent.
Speaker Change: We have very good clarity into 2025 renewals at this time, we expect three tenants not to renew this year one of which is a walgreens that we've previously mentioned that now has leasing and purchase interest. The other two are leases for small properties that have not yet expired. We are already negotiating a contract to sell one of the assets and are in active.
Stephen Preston: One of which is a Walgreens that we previously mentioned that now has leasing and purchase interest. The other two are leases for small properties that have not yet expired. We are already negotiating a contract to sell one of the assets and are in active negotiations to lease the other asset. So we do not expect any meaningful downtime for these two assets.
Speaker Change: <unk> to the other assets. So we do not expect any meaningful downtime for these two assets.
Stephen Preston: Moving now to the portfolio highlights. Our portfolio continues to perform well. As of March 31st, 2025, our portfolio consisted of 323 freestanding properties with an average remaining lease of over 70. We are heavily diversified across 37 states and 117 metro areas. We are pleased to keep a very diversified portfolio with limited exposure to any one tenant. At quarter end, our largest tenant exposure was about 3.1% of AVR. While our occupancy rate at the end of Q1 2025 ticked down slightly to over 96%, it is expected to return to more normalized levels once the replacements have taken occupation.
Speaker Change: Moving now to the portfolio highlights our portfolio continues to perform well as of March 31, 2025. Our portfolio consisted of 323 freestanding properties with an average remaining lease term of over seven years, we're heavily diversified across 37 states and 170.
Speaker Change: Metro areas.
Speaker Change: We are pleased to keep a very diversified portfolio with limited exposure to any one tenant at quarter end, our largest tenant exposure. It was about three 1% of ABR, while our occupancy rate at the end of Q1 2025 ticked down slightly to over 96% is expected to return to more normalized levels.
Speaker Change: Once the replacement have taken occupancy.
Stephen Preston: rented collections on contractual rent were strong at approximately 99.5 percent. Our tenants are predominantly service in nature, and we do not have a large exposure to general retailers that could be impacted more so from prolonged or higher tariffs. We continue to monitor our tenants in this regard.
Speaker Change: Rental collections on contractual rent were strong at approximately 99, 5% for the period.
Speaker Change: Our tenants are predominantly service in nature, and we do not have a large exposure to general retailers that could be impacted more so for a prolonged or higher tariffs. We continue to monitor our tenants in this regard.
Stephen Preston: On a go-forward basis, beginning with the release of our first quarter financials, we will be expanding the detailed disclosure of our tenancies from top 20 to top 40 in our investor presentation.
Speaker Change: On a go forward basis, beginning with the release of our first quarter financials, we will be expanding the detailed disclosure of our tenancies from top 20 to top 40, and our investor presentation.
Randy Starr: Thank you, and let me turn it over to Randy for more details on the quarterly numbers and guidance. Thanks, Steve.
Speaker Change: Let me turn it over to Randy for more details on the quarterly numbers and guidance.
Randy Star: Thanks, Steve ill begin by discussing our financial results for the first quarter, followed by an overview of our capital markets activities and our guidance for 2025.
Randy Starr: I'll begin by discussing our financial results for the first quarter, followed by an overview of our capital markets activities and our guidance for 2025. I am very pleased to report that for the first quarter, we reported AFFO for a share of 30 cents, reflecting certain operating efficiencies and strong rent collections for leased properties of 99.5%. Our G&A and property leakage figures came in better than expected when compared with our modeling, reflecting our team's ability to efficiently and effectively operate and manage our business. We continue to be pleased with our acquisition volumes at above market cap rates, thanks to our ability to capitalize on our niche market, and we expect these acquisitions to contribute significantly to cash flow growth as our cost of capital.
Randy Star: I am very pleased to report that for the first quarter, we reported <unk> per share of <unk> 30.
Randy Star: Flexing certain operating efficiencies and strong rent collections for lease properties of 99, 5%, our G&A and property leakage figures came in better than expected when compared with our modeling, reflecting our team's ability to efficiently and effectively operate and manage our business. We continue to be pleased with our acquisition volumes at above market cap.
Randy Star: Thanks to our ability to capitalize on our niche market and we expect these acquisitions to contribute significantly to cash flow growth is our cost of capital improves.
Randy Starr: Our debt-to-annualized Adjusted EBITDA RE ratio finished the quarter at 5.7 times, underscoring our prudent approach to leverage and our robust balance.
Randy Star: Our debt to annualized adjusted EBITDA ratio finished the quarter at five seven times underscoring our prudent approach to leverage and a robust balance sheet long term, we'd like to keep this ratio between five and six times that we do expect in the near term to exceed six times staying well below seven times as we continue to draw down on.
Randy Starr: Long term, we'd like to keep this ratio between five and six times, but we do expect in the near term to exceed six times, staying well below seven times, as we continue to draw down on our line to acquire property throughout the year at our revised We do not have any debt maturities in the near term, and in terms of capital markets activities, during the first quarter we recently locked in our $200 million term loan for three years at a SOFR rate of 3.66%, representing an all-in borrowing rate of 4.96%, approximately 65 basis points lower than our current revolver borrowing rate.
Randy Star: One to acquire properties throughout the year at a revised cadence we do not have any debt maturities in the near term in terms of capital markets activities. During the first quarter. We recently locked in our $200 million term loan for three years at a sofa rate of 366% representing an all in borrowing rate of 496% approximately six.
Randy Star: Five basis points lower than our current revolver borrowings given the makeup of our capital structure, our earnings for a bit more sensitive to short term. So for swings until we achieve greater scale, which was the rationale for prudently locking in a large portion of our previously floating rate debt.
Randy Starr: Given the makeup of our capital structure, our earnings were a bit more sensitive to short-term SOFR swings until we achieved greater scale, which was the rationale for prudently locking in a large portion of our previously floating rate.
Randy Starr: Looking ahead to the remainder of 2025, we are reaffirming AFFO per share guidance within the range of $1.20 to $1.26. Key assumptions for fiscal year 2025 underlying this guidance include Net real estate acquisitions totaling between $125 million and $145 million. Property dispositions ranging from $20 million to $40 million. non-reimbursed property and operating expenses projected between $2 million and $2.6 million. maintaining a previously disclosed bad debt expense of between 2% and 3% of cash NOI. This figure includes the 7 of the 12 previously disclosed tenants that are allocated to 2025. Total cash, general, and administrative expenses estimated between $8.9 million and $9.3 million.
Randy Star: Looking ahead to the remainder of 2025, we are reaffirming <unk> per share guidance within the range of $1 20 to $1 26 key assumptions for fiscal year 2025 underlying this guidance include <unk>.
Randy Star: Net real estate acquisitions totaling between $125 million and $145 million.
Randy Star: Property dispositions, ranging from $20 million to $40 million.
Randy Star: Non reimbursed property and operating expenses projected between $2 million to $2 6 million.
Randy Star: Maintaining our previously disclosed bad debt expense of between 2% and 3% of cash NOI. This figure includes the seven of the 12 previously disclosed tenants that are allocated to 2025.
Randy Star: Total cash general and administrative expenses estimated between $8 9 million and $9 3 million.
Randy Starr: Our AFFO guidance affirmation is driven by our inherent ability to source and acquire assets at above market cap rates, prudently recycle existing assets from our granular and diversified portfolio with new replacement properties, and effectively and efficiently managing our property leakage and G&A expenses. As Steve mentioned, our disciplined underwriting and sourcing of assets outside the competitive public lease landscape are key differentiators.
Speaker Change: <unk> guidance affirmation is driven by our inherent ability to source and acquire assets at above market cap rates prudently recycle existing assets from our granular and diversified portfolio with new replacement properties and effectively and efficiently managing our property leaders and G&A expenses as Steve mentioned, our disciplined underwriting and sourcing of assets outside.
Speaker Change: The competitive public REIT landscape are key Differentiators, we remain committed to returning capital to shareholders. Our board has declared a quarterly dividend of <unk> 21, five cents per share for the first quarter, but we believe appropriately balances shareholder returns with reinvestment into growing our portfolio.
Randy Starr: We remain committed to returning capital to shareholders.
Operator: Our board has declared a quarterly dividend of $0.215 per share for the first quarter that we believe appropriately balances shareholder returns with reinvestment into growing our Thank you for your attention, and with that, we'll turn it back to the operator for the Q&A portion of our call.
Speaker Change: Thank you for your attention and with that I will turn it back to the operator for the Q&A portion of our call today.
Speaker Change: Okay.
Operator: Thank you and now ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the start button, followed by the number 1 on your telephone keypad. You will hear a prompt that your hand has been raised. Should you wish to cancel your request, please press the star button followed by the number And if you are using a speakerphone, please lift the handset before pressing any button. One moment please for our first question.
Speaker Change: Thank you and now ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: So do you have a question. Please press the start button followed by the number one on your telephone keypad.
Speaker Change: Prompt that Youre head has been rates sure.
Speaker Change: Should you wish to cancel your request. Please press the star, but then followed by the number too.
Speaker Change: And if you're using a speaker phone VP of the handset before pressing any.
Speaker Change: One moment please for our first question.
John Kilichowski: Our first question comes from John Kilichowski from Wells Fargo. Please go ahead. Thank you. Good morning.
John: Our first question comes from John <unk> from Wells Fargo. Please go ahead.
Speaker Change: Yes.
John: Thank you and good morning.
Randy Starr: Uh, maybe if we could just start with the credit loss guide of 2 to 3 percent, um, you know, I appreciate the color you gave kind of the seven properties there, um, but I was just hoping for maybe a little bit more here because Hooters and Joann's are still paying rent. Could you tell us if that was expected in that guide or where that puts you, and then also maybe the three tenants that told you that aren't renewing, you know, what of that is included in this guide as well? Yeah, sure. So for our internal modeling purposes, we did assume that within that 2% to 3% that we had those seven vacant for the year.
John: Maybe if we could just start with the credit loss guide of 2% to 3% yes.
Speaker Change: I appreciate the color you gave kind of the seven properties there, but I was just hoping for maybe a little bit more here, because hooters and Jo Ann's are still paying rent could you tell us if that was expected in that guide or where that puts you and then also maybe the three tenants that told you that arent renewing what of that is included in this guide as well.
Speaker Change: Yeah sure so for our internal modeling purposes, we did assume that within that 2% to 3% that we had those seven vacant for the year.
Randy Starr: And that's how we have modeled. We have taken a small additional vacancy expense just for some sort of unknown that may populate that gets us to that 2% to 3% for the year. With respect to the three assets that we expect not to renew, they are small in nature. We have a Walgreens, as we mentioned, and then we have two smaller tenants combined. They represent less than 100 bps of ABR. Got it. Thank you.
Speaker Change: And that's how we have modeled.
Speaker Change: We have taken a small additional.
Speaker Change: Vacancy expense just for some sort of unknown that may populate that gets us to that 2% to 3% for the year with respect to the three assets that we expect not to renew.
Speaker Change: They are small in nature that we have a walgreens as we mentioned and then we have two smaller tenants combined they represent less than 100 bps of.
Speaker Change: ABR.
Randy Star: Got it. Thank you and then maybe Randy one for you.
John Kilichowski: And then maybe, Randy, one for you.
Randy Starr: Congrats on taking over the CFO seat now as well. Maybe strategically, I don't know if you differ from Tim at all here. And I know we're a long way now from, you know, thinking about issuing equity in 26, but at some point, hopefully that becomes a consideration again. How are you thinking about that? You know, where do you all need to be trading for that to kind of come back into consideration? Well, I think it's no secret that we're obviously very unhappy with our current share price. It certainly doesn't reflect the value of our portfolio.
Randy Star: Thats all taking over the CFO seat now as well maybe strategically I don't know if you differ from Tim at all here.
Speaker Change: We're a long way now from thinking about issuing equity in 2006, but at some point hopefully that becomes a consideration again, how are you thinking about that where do you all need to be trading for that kind of come back into consideration.
Speaker Change: Well I think it's no secret that we're obviously very unhappy with our current share price. It certainly doesn't reflect the value of our portfolio.
Randy Starr: That is one reason why we have, while we continue to see, it's a very constructive transaction environment out there right now. And so our acquisition team has a number of fantastic leads that we would be able to act on. But we have purposely scaled down, as you can see from our guidance, just to make sure that we have sufficient liquidity at the end of the year. With our acquisition cadence now, that would leave us in between $60 and $70 million of liquidity pre-projected at year end, which we think gives us some flexibility heading into next year and also gives us more time to have the stock rebound.
Speaker Change: That is one reason why we have while we continue to see it as a very constructive transaction environment out there right now and so we had all of our acquisitions team has a number of fantastic leaves that we would be able to.
Speaker Change: To act on but we have purposefully scaled down as you can see from our guidance just to make sure that we have sufficient liquidity at the end of the year with our acquisition cadence now that would leave us at between $60 million to $70 million of liquidity.
Speaker Change: At year end.
Speaker Change: Which we think gives us some flexibility heading into next year and also gives us more time to have the stock rebound.
Speaker Change: Okay.
Speaker Change: We also have.
Randy Starr: We're also very mindful of our debt to EBITDA ratios here, and those will be staying in the sixes projected this year. But we do have a $200 million accordion feature on our line, so we do have ample access to liquidity.
Speaker Change: Obviously, we're also very mindful of our debt.
Speaker Change: Debt to EBITDA ratios here and those will be staying in the sixes projected this year, but we do have $200 million accordion feature on our lines. So we do have ample access to liquidity.
Speaker Change: Okay I appreciate the thoughts thank you.
John Kilichowski: I appreciate the response. Thank you.
Speaker Change: Sure.
Daniel Guglielmo: Thank you so much for the question John, and now we're going to move on to Daniel Guglielmo from Capital One Securities. Please go ahead. Hi, everyone. Thank you for taking my questions. I appreciate the work you all have been doing around the offline properties. As you've gone through those negotiations, have you seen any tangible benefits from the properties having direct frontage? Are there pricing benefits, more interest, quicker closing times? Anything you have around that would be great. Yeah, for sure. And that's a great question. Thank you for that. Yeah, no, I think that it speaks to the makeup and composition of our portfolio and assets that do contain that frontage.
Dania Guglielmo: Thank you so much further question, John and now we're going to move on the Dania Guglielmo from capital One Securities. Please go ahead.
Dania Guglielmo: Hi, everyone and thank you for taking my questions.
Dania Guglielmo: I appreciate the work <unk> been doing around the offline properties have you as you've gone through those negotiations have you seen any tangible benefits from the properties, having direct from age or their pricing benefits more interest quicker closing time anything you have around that would be great.
Dania Guglielmo: Yes for sure and Thats a great question. Thank you for that Yeah, No I think that speaks to the makeup and composition of our portfolio of assets that do contain that frontage. So given the short time that.
Stephen Preston: So given the short time that, you know, these were hit, the fact that we have made such progress such quickly, or so quickly, I think, you know, we'd love to say that it's the management team, and we put a pat on our back. And certainly, that is some component of it. But the assets to that response, and that quick response. And again, the asset size that we have, you know, with the larger footprint, makes these buildings and land tracts interesting to a lot of other opportunities and options, which allows us to, you know, facilitate a quicker cleanup of any assets that come back.
Dania Guglielmo: These were hit the fact that we have made such progress such quickly.
Dania Guglielmo: So quickly I think we'd love to see that.
Dania Guglielmo: It's the management team.
Dania Guglielmo: Pat on our back and certainly that has some component of it but the assets themselves on a real estate standpoint that we so very carefully choose is very integral to that response to that quick response.
Dania Guglielmo: Again, the asset size that we have with a larger footprint makes these buildings and land track interesting to a lot of other opportunities and options, which allows us to.
Dania Guglielmo: Let's say a quicker cleanup of any assets that come back. So yes, I absolutely believe that these assets compared to a large box that sits back without frontage is certainly a huge benefit and it allows us to tailor an approach that is a lot quicker to clean up.
Stephen Preston: So yes, I absolutely believe that, you know, these assets compared to a large box that sits back without frontage is certainly a huge benefit. And it allows us to tailor an approach that is a lot quicker to clean up.
Daniel Guglielmo: Great. Yeah, I appreciate that.
Dania Guglielmo: Great.
Great.
Stephen Preston: And then in the commentary, you mentioned the increased disposition guidance. Are there certain characteristics of the properties in the portfolio that you feel are kind of ripe for recycling? You mentioned the shorter lease terms, but is there anything else that's been enticing buyers to transact at a lower cap rate? Yeah, no, again, a good question. And so we look at that, and we come through the portfolio, and certainly the shorter term duration assets are ones that, you know, are good to sell off into the space. And then, you know, if we can accretively turn that into an asset that happens to have a longer lease term, then that's beneficial to us.
And then in that.
Speaker Change: Commentary you mentioned increased the increased disposition guidance are there certain characteristics of the property in the portfolio that you feel are kind of rate for recycling you mentioned the shorter lease terms, but is there anything else thats been encasing buyers to transact at a lower cap rate.
Speaker Change: Yeah, I know again, it's a good question and so we look at that and we come through the portfolio and certainly the shorter term duration assets are ones that.
Speaker Change: Our good too to sell off into the space and then if we can accretively turn that into an asset that happens to have a longer lease term then that's beneficial to us.
Stephen Preston: You know, at the same time, you know, there are, you know, other assets that Sorry, I just I just lost my that have, sorry about that. that have some certain rent that could be harder to backfill at the time of a renewal. So we're looking at that aspect of it as well that allows us to take an asset and offload it and then replace that later with a better cap rate asset and an asset with a rent that is more replaceable. And we also, Dan, we'll look at the sector as well. We've been very cognizant of the type of sectors that we've been acquiring in for the past, you know, since the IPO.
Speaker Change: At the at the same time there are other.
Speaker Change: Are there assets that.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Alright, I'll start with <unk>.
Speaker Change: Last night.
Speaker Change: Okay.
Speaker Change: Sorry about that.
Speaker Change: That have some certain rent that it could be harder to backfill at the time of a renewal. So we're looking at that aspect of it as well that allows us to take an asset and offloaded.
Speaker Change: Replace that later with better cap rate asset and an asset with that with the rent that is more replaceable.
Speaker Change: And we also Dan we will look at the sector as well we've been very cognizant of the type of sectors that we've been acquiring in the past.
Speaker Change: Since the IPO, we've really been targeting medical dental veterinary services automotive services convenient stores <unk> fitness finance in it they're well located a few dollar tree stores as well. So we have the opportunity to recycle, let's say a sector, whether its casual dining or one that we're really not focusing on now with a newer asset with a longer lease term, we see that as quite favorable.
Stephen Preston: We've really been targeting medical, dental, veterinary services, automotive services, convenience stores, QSR, fitness, finance, and if they're well-located, a few dollar tree stores as well. So if we have the opportunity to recycle, let's say, a sector, whether it's casual dining or one that we're really not focusing on now, with a newer asset with a longer lease term, we see that as quite favorable for the portfolio. And there's also cap rate arbitrage as well that has a role into that. As we mentioned on our remarks, we have assets that would trade in the marketplace at significantly lower cap rates than at cap rates that we're acquiring at.
Speaker Change: For the portfolio and there is also a cap rate arbitrage as well as the roll into that as we mentioned on our remarks, we have assets.
Speaker Change: Would trade in the marketplace that significantly lower cap rates than at cap rates that were acquiring.
Speaker Change: Yes.
Daniel Guglielmo: Great, thank you, I appreciate it.
Speaker Change: Great I appreciate it.
Stephen Preston: In terms of how we try to do this, just to give you a little bit more information on it, when we're selling properties, we hire brokers who we know have phenomenal Rolodex's of buyers all over the country and these are these are brokers who we typically don't like to buy from Because they get very good cap rates We like to buy from the brokers who are smaller and also direct with through our relationships So we we they're very strategic on who we hire to sell our property Great. Thank you. Appreciate the call. Yep, you bet.
Speaker Change: In terms of how we try to do this just to give you a little bit more information on it when we're selling properties, we hire brokers, who we know have phenomenal.
Speaker Change: Rolodex is a buyers all over the country.
Speaker Change: These are these are brokers. So we typically don't like to buy from because they get very good cap rate, we like to buy from the brokers who are smaller and also directly through our relationships. So we are very for strategic until we hire a sell our properties.
Speaker Change: Great. Thank you I appreciate the color.
Speaker Change: You bet.
Anthony Paolone: Thank you so much for the question, Daniel. And now we're going to move to Anthony Paolone from J.P. Morgan. Please go ahead. Yeah, so we've got Sean here as well that can jump in. But within that 62, we believe that the seven are not part of that. So we would just have any additional incremental vacancy that we would be taking off the top of that. So that rental revenue is not built into the 62 and then being taken off of.
Speaker Change: Thank you so much further question Danielle and now we're going to move to Anthony <unk> from Jpmorgan. Please go ahead.
Anthony: Yes, thanks, and good morning.
Anthony: The first question is if I look in your supplemental you ended the quarter with $62 million.
Anthony: <unk> annual base rent can.
Speaker Change: Can you just maybe bridge the 12 properties like what's in that 60 to what's what's not just so we understand kind of your guidance, what's more of a sort of guide or reserve for lack of a better term versus like what youre showing here thats actually contractually still in place.
Speaker Change: Yeah. So so we've got Shaun here as well they can jump in but within that 62, we believe that the seven are not part of that so we would just have any additional incremental vacancy that we will be taking off the top of that so that rental revenue is not built into the 62 of them being taken off.
Randy Starr: We're at a net number on the Okay, so we should think about if, with those seven properties, you were a tenant. Yeah, you shouldn't take off another 2% and change off of the 62 to reflect the seven properties. Right, so conversely, like late 25, early 26, you're going to add to the 62 in theory if those get backfilled. Correct. Okay, got it. And then, you know, you mentioned kind of normalized bad debts of, wow, I think one to one and a half percent over time. How should we think about that just on a in terms of steady state, you have contractual bumps of call at about a point and a half.
Speaker Change: <unk>.
Speaker Change: At a net number on the 62.
Speaker Change: Okay. So so we should think about with those seven properties on our return.
Speaker Change: Yeah, you Shouldnt take off another two 2% and change out of the 60 to reflect.
Speaker Change: The seven properties.
Speaker Change: Right. So Conversely, like late 'twenty five early 'twenty, six youre going to add to the 62 in theory those get back filled.
Speaker Change: Correct.
Speaker Change: Okay got it.
Speaker Change: And then.
You mentioned kind of normalized bad debt.
Speaker Change: I think one to one 5% over time how.
Speaker Change: How should we think about that just in terms of steady state you have contractual bumps of call. It about a point and a half so.
Randy Starr: So You know, what do you think the steady state recovery of that one to one and a half bad debt number is net against sort of the organic growth rate, like, so that, like, how should we think about just steady state net NOI growth, if you will? Yeah, for sure. So yeah, that's right. So typically, the leases, you know, have either annual rental escalations, or they bump typically every five years. And you're usually bumping about 10% every five years, seven and a half to 10%. Or you're sort of one to 2% annually. And that gets you into that, you know, 131415 sort of average, it's based on the 10%, it's not an exact science each year.
Speaker Change: What do you think the steady state recovery of that one to one and a half bad debt number is net against sort of that.
Speaker Change: The organic growth rate break so that like how should we think about just steady state net.
Speaker Change: Why growth if you will.
Speaker Change: Yeah for sure. So yes, that's right so typically the leases.
Speaker Change: Have either annual rental escalations are they bump typically every five years and you're usually bumping about 10% every five years or seven 5% to 10%.
Speaker Change: Or you are sort of 1% to 2% annually and that gets you into that.
Speaker Change: 131, five sort of average it's based on the 10% it's not an exact science each year. So you have that inherent to the portfolio.
Randy Starr: So you have that inherent to the portfolio. And then, you know, with respect to, you know, the the other bad debt of the portfolio, it We recover about 75%. Yeah, yeah, yeah, we recover about, yeah, we kind of keep the recovery about the same, about the, you know, 75 to 100% based upon our historical recovery rate. Okay, got it.
Speaker Change: And then with respect to the.
Speaker Change: The other bad debt.
Speaker Change: The portfolio is.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: We recover about 75%, yes, yes, yes, we recover about yes, I would kind of keep the recovery about the same but the 75% to 100% based upon our historical recovery rates.
Speaker Change: Okay got it.
Anthony Paolone: And then just last one, I mean, you know, obviously, you're doing you're taking actions here to get your cost of capital back.
Speaker Change: Then just last one I mean.
Speaker Change: Obviously, youre doing youre, taking actions here to.
Speaker Change: You have to get your cost of capital back.
Randy Starr: But I mean, if we sit here and think about fast forward, whether it's 12 months, 18 months, if you're still in a situation where you just don't have access to equity, you know, what is sort of plan B? I mean, how long do you guys foresee, you know, doing this before, you know, there has to be some other action beyond just waiting for, you know, the capital cost to come back through recycling and so forth? Yeah, no, I mean, listen, it's, it's a good question is top of mind for everybody, of course, right. So, you know, we want to make sure that we continue to execute, which I think we've been doing, we want to continue to make sure that we're making prudent decisions within the portfolio.
Speaker Change: I mean, if we sit here and think about fast forward. It whether it's 12 months 18 months.
Speaker Change: If you are still in a situation where you just.
Speaker Change: Don't have access to equity what is sort of plan B I mean, how long do you guys foresee.
Speaker Change: Doing this before.
Speaker Change: Has to be some other action beyond just waiting for.
Speaker Change: The capital cost to come back through recycling and so forth.
Speaker Change: Yes, no I mean listen.
Speaker Change: It's a good question is top of mind for everybody of course right. So we wanted to make sure that we can continue to execute which I think we've been doing we want to continue to make sure that we're making prudent decisions within the portfolio I think that we've demonstrated that we've got the resiliency of the portfolio certainly based upon the quick and successful re tenants.
Randy Starr: I think that we demonstrated that we've got the resiliency of the portfolio, you know, certainly based upon the quick and successful retenanting of the 12 assets we've mentioned. And then ultimately, you know, we want to make sure that we can recycle assets accredibly. So we do have that option.
Speaker Change: While the assets, we've mentioned and then ultimately we want to make sure that we can recycle assets accretively. So so we do have that option, if we get back and we get to a point, where we're sending a couple of quarters down the road and we're still sitting on a stock price that.
Anthony Paolone: If we get back, and we get to a point where we're sitting a couple of quarters down the road, and we're still sitting in a stock price that, you know, looks the way it does today, you have to you have to take a position that you start to look at M&A and other options for the company. But you know, all along the road, we're going to continue to make the best decisions and then make the best responses for the business. Okay, appreciate that. Thank you.
Speaker Change: It looks the way it does today you have to you have to take a position that you start to look at M&A and.
Speaker Change: Other options for the company, but all along the road, we're going to continue to make the best decisions and then make the best responses for the business.
Speaker Change: Okay I appreciate that thank you.
Anthony Paolone: Thank you for the question, Anthony.
Speaker Change: Thank you for the question Anthony and for our next question, we're going to move on to Jana Galan from Bank of America. Please go ahead.
Janna Gillen: And for our next question, we're going to move on to Janna Gillen from Bank of America. Please go ahead. Thank you and good morning. I'm curious how you're thinking about your investment spreads between recycling the portfolio and using new capital. And it sounds like you could buy in the mid to high sevens and then sell in the mid to high sixes. Is that the correct way to think about it? Yeah, I think it's going to look like when you kind of see a blended average of the assets that are going to come offline versus, you know, through sales, that you're going to see a blended, a blended average.
Speaker Change: Thank you and good morning.
Jana Galan: I'm curious, how you're thinking about your investment spreads between recycling the portfolio and using new capital. It sounds like you could buy and then mid to high Sevens and then so in the <unk>.
Speaker Change: Mid to high <unk> is that the correct way to think about it.
Speaker Change: Yes, I think it is going to look like when you kind of see a blended average of the assets that are going to come offline versus.
Speaker Change: Through sales of that Youre going to see a blended a blended average. So yes. We are we are seeing that that's accretive we have some as the case of the raising cane that we mentioned that will be below that $6. Five there other noncore assets that you think it will be slightly elevated.
Stephen Preston: So, yeah, we are, we are seeing that that's accretive. We have some, as the case of the Raising Cane that we mentioned, that will be below that 6.5. There are other, you know, non-core assets that you think they will be, you know, slightly elevated, you know, beyond the 6.5. But yeah, I'd like to see, you know, I think you can see about a hundred basis point or so spread on average between where we would exit and then where we would acquire. And in the meantime, increasing our wall. Great.
Speaker Change: The $6 five, but yes, I would like to see.
Speaker Change: I think you can see about 100 basis points or so spread on average between where we would exit and then where we would.
Speaker Change: Acquire.
Speaker Change: And in the meantime.
Speaker Change: Increasing our walls.
Speaker Change: Great.
Unknown Executive: And I apologize if I missed this in the sub, but do you disclose average or median tenant rent coverage? I see that you get financial reporting from a large portion of your portfolio. We do not. Yeah, we do not disclose at this time.
Speaker Change: I apologize if I missed this but do you disclose average or median tenant rent coverage I see thank you.
Speaker Change: Our financial reporting from a large portion of your portfolio.
Speaker Change: We can.
Speaker Change: We do not.
Speaker Change: Every quarter, we do not disclose at this time.
Janna Gillen: Thank you.
Speaker Change: Thank you.
Stephen Preston: Thank you so much for the question, Jana, and since there are no further questions at this time, please continue, Steve.
Speaker Change: Thank you so much further question Jonathan.
Speaker Change: There are no further question at this time.
Speaker Change: Thank you Steve.
Stephen Preston: Yes, thank you everybody. We appreciate the questions. We appreciate your time and we look forward to collectively building this company and we hope for improved share price as we go, but we're going to continue to make the right prudent decisions for this business.
Speaker Change: Yes.
Speaker Change: Everybody. We appreciate the questions. We appreciate your time and we look forward to collectively building. This company and we hope for improved share price as we go but we're going to continue to make the right prudent decisions for this business and there will be at NAREIT and anyone that would like to sit down and visit we're going to be there and welcome the <unk>.
Stephen Preston: And we'll be at NARIT and anyone that would like to sit down and visit, we're going to be there and welcome the opportunity. Thank you all.
Speaker Change: Opportunity.
Speaker Change: Thank you all.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you, everyone. Thanks, Pat.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Thank everyone.
Pat: Thanks Pat.
Speaker Change: Well.