Q2 2019 Earnings Call
Good day and welcome.
The Realty income second quarter 2019 operating results Conference call today's conference will be recorded.
And at this time I would now like turn todays call over to Mr., Andrew from senior Associate Realty income Sir. Please go ahead.
Thank you all for joining us today for Realty income second quarter 2014 operating results conference call.
Discussing our results will be Sumit, Roy President and Chief Executive Officer, and Paul Miller, Chief Financial Officer and Treasurer.
During this conference call, we will make certain statements that may be considered to be forward looking statements under federal Securities law.
The company's actual future results may differ significantly from the matters discussed in any forward looking statements.
We will disclose in greater detail the factors that may cause such differences in the company's Form 10-Q .
We will be observing a two question limit during the Q and a portion of the call in order to give everyone the opportunity to participate.
If you would like to ask additional questions you may reenter the queue.
I will now turn the call over to our CEO Sumit Roy.
Thanks, Andrew.
Welcome everyone.
A piece to compete another solid quarter and a very solid so the topic 29 tea.
During the quarter, we invested approximately 1.1 billion in high quality real estate and investment strategies, well above our historical average, which brings us to $1.6 billion invested during the first half of the year.
Off the 1.1 billion invested during the quarter.
$549 million or approximately 434 million British pounds.
It was invested in the United Kingdom through a sale leaseback transaction with Sainsbury.
We plan to continue to grow our international platform as we are well positioned to capitalize on the significant addressable market in the UK and mainland Europe .
Given a portable size scale and cost of capital advantages. We believe we have a unique ability to execute sizable portfolio transactions with best in class operators.
We look forward to further developing relationships with other industry leaders like Sainsburys as we expand our international platform.
To finance, our robust investment activity, we raised $1.9 billion of attractively priced capital during the quarter, including $1 billion of equity.
We entered the second topic 2019, very well positioned with virtually full availability on our 3 billion dollar line on a debt to EBITDA ratio of 5.4 times.
Our portfolio continues to be diversified by tenant industry geography, and to a certain extent property type, which contributes to the stability of our cash flow.
At quarter end, our properties were leased 265 commercial tenants in 49 different industries located in 49 States, Puerto Rico and the UK.
82.5% depart rental revenue is from our traditional retail properties the largest component outside of retail is industrial properties up nearly 12% of rental revenue.
Walgreens remains our largest tenant at 5.8% of rental revenue.
Convenient store remains our largest industry at 11.9% and rental revenue.
Within our overall retail portfolio approximately 95% up on rent comes from tenants with a service non discretionary and or low price point component to that business.
We believe these characteristics allow our tenants to compete more effectively with e-commerce and operate in a variety of economic environments.
These factors have been particularly relevant in today's retail climate, where the vast majority of the recent U.S. retail bankruptcies have been in industries that do not possess these characteristics.
We continue to feel good about the credit quality in the portfolio, it's approximately half of our annualized rental revenue generated from investment grade rated tenants.
The weighted average rent coverage ratio for our retail properties is 2.8 times on a four wall basis, while the median it's 2.6 times.
I'll watch list at 1.65 per cent of trend is relatively consistent with our levels of the last few years.
Occupancy based on the number of properties was 98.3% flat versus the prior quarter.
We continue to expect occupancy to be approximately 98% in 2019.
During the quarter, we released 86 properties recapturing, 100.4% of the expiring rent.
During the first half of 2019, we released 157 properties recapturing 100 in 2.2%.
Expiring rent.
Since our listing in 1994, we have released or sold over 3000 properties with leases expiring recapturing over 100% of rent on those properties that were released.
Our same store rental revenue increased 1.4% during the quarter.
And 1.5% for the first half and yeah I'll projected run rate for 29 team continues to be approximately 1%.
Approximately 86% of our leases have contractual rent increases.
Let me hand, it over to Paul to provide additional detail on our financial results.
Thanks Sumit.
I will provide highlights for a few items in our financial results for the quarter, starting with the income statement.
Our g. any expense as a percentage of revenue, excluding reimbursement was 5.3% for the quarter and 4.9% year to date.
Both of which were below comparable year ago periods.
Consistent with prior years January tends to be slightly higher in the first half of the year due to the timing of stock vesting and costs associated with our annual meeting and proxy.
We continue to have the lowest you any ratio in the net lease REIT sector and expect our DNA margin to remain below 5%.
In 2019.
Our non reimbursable property expenses as a percentage of revenue, excluding reimbursements was 1.4% for the quarter and 1.3% year to date.
Which is better than our full year expectation and they wanted to have to 1.75% range.
Adjusted funds from operations or AFFO or the actual cash we have available for distribution as dividends was 82 cents per share for the quarter.
Which represents a 2.5% increase.
Briefly turning to the balance sheet and we've continued to maintain our conservative capital structure.
And we remain one of only a few reach with at least two day ratings.
As soon as mentioned during the second quarter, we raised approximately $1.9 billion at favorably priced long term capital to fund our acquisition activity.
In May we issued 315 million of Sterling denominated 15 year senior unsecured notes via a private placement at a yield of 2.73%.
Proceeds from the offering allowed us to partially finance the acquisition of the Sainsburys portfolio in the UK.
We were pleased with the pricing and high quality order book, So first ever private offering and we very much appreciate the support of the investors who participated.
The Sterling denominated offering allowed us to finance, the sainsbury transaction with a natural currency hedge while taking advantage of low interest rates abroad.
In June we issued $500 million of 10 year senior unsecured notes at a yield of 3.33%.
The offering allowed us to term out borrowings on our revolving credit facility and the bonds fit nicely into our debt maturity schedule as we have no other maturities in 2029.
During the second quarter, we issued approximately a billion dollars of common equity through a combination of overnight ATM offerings and thus we finished the quarter with a debt to EBITDA ratio of 5.4 times and virtually full availability of our $3 billion revolver.
Our fixed charge coverage remains healthy at 4.4 times and the weighted average maturity of our bonds is approximately 8.8 years, which closely tracks are weighted average remaining lease term.
Our overall debt maturity schedule remains in excellent shape with only $18 million of debt coming due the remainder of this year.
And our maturity schedule is well laddered thereafter, with just over $300 million of debt maturing in both 2020 and 2021.
So in summary, our balance sheets in great shape, we continue to have low leverage strong coverage metrics and excellent liquidity and now let me turn the call back over to Susan.
Thanks, Paul.
During the second quarter of 2019, we invested approximately 1.1 billion 102 properties located in 28 states and the United Kingdom at an average initial cash cap rate of 6.1% and with a weighted average lease term of 14.8 years.
On a total revenue basis, approximately 12% of total acquisitions are from investment grade tenants, 99% of the revenues are generated from retail.
These assets are leased to 23 different tenants in 15 industries.
Some of the more significant industries represented our UK grocery stores theaters and automotive services.
We closed 20 discrete transactions in the second quarter.
And approximately 86% of second quarter investment volume, let's say leaseback transactions.
Of the 1.1 billion invested during the quarter $546 million was invested domestically 90 properties at an average initial cash cap rate of 6.9%.
With with weighted average lease term of 14.9 years.
International investments during the quarter were $549 million or approximately 434 million pounds in 12 properties at an average initial cash cap rate of 5.3%.
And with a weighted average lease term of 14.8 years.
All 12 international properties leased to Sainsbury, you talked grocer in the UK.
June year to date 2019, we invested 1.6 billion U.S. dollars in 199 properties located in 34 states and the United Kingdom at an average initial cash cap rate of 6.3% and with a weighted average lease term of 15.6 years.
On a revenue basis, 80% of total acquisitions are from investment grade tenants.
99% of revenues are generated from retail and 1% from industrial.
Off the 45 independent transactions closed year to date.
Four transactions were about 50 million U.S.
Approximately 74% to five year to date investment volume, let's say leaseback transactions.
Off the $1.6 billion invested year to date nearly $1.1 billion was invested domestically in 187 properties at an average initial cash cap rate of 6.8% and with a weighted average lease term of 15.9 years.
Transaction flow continues to remain healthy as we sourced approximately $19.1 billion into second quarter.
Investment grade opportunities represented 29% of the volume sourced for the second quarter.
Well, it's the opportunity source during the second quarter, and 34% with portfolios and 66% or approximately 12.6 billion one off assets.
Often $19.1 billion sourced during the quarter $15.9 billion with domestic opportunities and $3.2 billion what international opportunities.
Year to date 2019, we have sourced approximately $30.8 billion in potential transactions.
All these opportunities.
41% of the volume source will portfolios and 59% or approximately $18 billion were one off assets.
Off the $1.1 billion in total acquisitions closed in the second quarter.
13% of the volumes were one off transactions.
As to pricing cap rates in the U.S., we essentially unchanged from the second quarter.
Investment grade properties are trading from around 5% to high 6% cap rate range and non investment grade properties trading from high 5% to 8% cap rate range.
Regarding cap rates in the United Kingdom for the types of assets we are targeting.
Investment grade or implied investment grade properties are trading from the low four to mid 5% cap rate range.
Non investment grade properties are trading from 5% to low 7% coverage range.
Our investment spreads relative to our weighted average cost of capital were healthy during the quarter.
Averaging approximately 290 basis points for domestic investments and 209 basis points for international investments, both of which were well above our historical average spreads.
We define investment spreads as initial cash yield less a nominal first year weighted average cost of capital.
[noise], our investment pipeline remains robust and be there maybe we publicly traded net lease company that has the size scale and cost of capital to pursue large corporate sale leaseback transactions on a negotiated basis.
Based on our robust investment pipeline, we continue to expect 2019 acquisition guidance of 2 billion to $2.5 billion.
Our disposition program remains active during the quarter, we sold 18 properties for net proceeds of $28.6 million at a net cash cap rate of 7.9% and realized an unlevered <unk> of 7.9%.
This brings us to 36 properties sold year to date for $50 million at a net cash cap rate of 8.6%.
And realized an unlevered Iraq of 6.8%.
We continue to improve the quality of our portfolio through the sale of non strategic assets recycling to see it proceeds into properties that better fit our investment parameters.
We anticipate between 75 million and 100 million of dispositions in 2019.
In June we increased the dividend for the 102nd time in our company's history.
I'll comment on your lies dividend represents an approximately 3% increase over the years will period and equates to a payout ratio of 82.2% based on the midpoint of 29 T.S. AFFO guidance.
We have increased our dividend every year since the companys listing to 1994 growing the dividend at a compound average annual rate of 4.6%.
We are proud to be one of only five recently S&P high yield dividend aristocrats index.
To wrap it up we completed another strong quarter.
Our portfolio continues to perform well our investment pipeline remained strong and we are well positioned to pursue new opportunities for growth both domestically and internationally.
At this time I'd like to open it up for questions.
Operator.
Thank you at this time I open the floor for questions you would like to ask a question.
Starkey followed by the one key on your Touchtone phone now.
[noise], please try to limit your questions.
At a time, if you would like to ask additional questions you may reenter the queue.
Again that is star one to ask a question.
Looks like our first question will come from Nick Yulico with Scotiabank.
Hey, Good afternoon. This is Karen Mcginnis on for Nick asked to me based on some prior commentary seemed like acquisition and acquisition guidance range was possibly on table for this year. How are you thinking about the acquisition range today has the environment, that's an environment become more competitive with lower interest rates and yeah any any color would be appreciated there.
Sure.
As of today, we have obviously reaffirmed our acquisition guidance.
If you look at the sourcing we've done year to date. It is at historic levels, especially if you just focus on the domestic side, we've done 27 billion U.S. dollars off a domestic sourcing and it's it's a through the end of June which on a run rate basis is going to be far beyond the high 30 million that we have sourced historically.
Yes, the market is competitive but the cost of capital allows us to continue to win our share of deals and we feel very comfortable.
About the pipeline that we have to date and about the guidance range that we have shared with you.
Okay. Thanks, and then just following up on some other guidance items. Paul as you noted in your opening comments property expenses had been lower than the full year range on the opposite side same store rent growth. The names higher should we take that to mean that there's going to be some slowdown in the back half the year, how should we interpret a first half results versus full year guidance.
No I think both of those are running favorably.
And or we would probably lean towards both of those doing.
Doing well the remainder of the year.
But not such that we thought it was prudent to make a specific change in that guidance at this time.
But I certainly wouldn't I wouldn't think of a downturn in either of those areas.
To normalize back at where our guidance is we've been pleased with the same store rent growth. This year, partly related to just the timing of some contractual rent bumps this year.
But in addition, with property expenses running lower we suspect both of those trends will continue through the remainder of the year.
Great. Thanks, so much.
Thank you our next question from Christy Mcelroy with Citi.
Good morning, this is Katy Mcconnell on its Christy.
Can you provide some color on the types of international deals that you're looking at are underwriting today and how are you thinking about the rest of the year just as far as next between plc potentially on the U.S. first Brad.
[noise] the vast majority of the deals that we are going to be doing a will be a U.S. focused you know and that's up to the previous budesonide onto the question with regards to why we feel so optimistic about you know the the deal flow here in the U.S.. It's it's a it has been at historical levels.
Well with respect to the UK, we continue to see transactions and the volume that we have seen has exceeded our original underwriting.
Not in a position today to tell you precisely the transactions we are going to be you know getting over the finish line, but suffice it to say that it wouldn't be out of the realm of possibility to do a few more transactions in the UK.
You know our goal when we first did the sainsbury sale lease back was to establish a footprint in the UK to make sure that we have thought processes in place and having closed this transaction closed the books in the second quarter.
Oh, the financials, we feel very good about where we stand today and the three north of $3 billion that we source in the UK like I said was above expectations. So.
You know.
The high end of our range is right around $2.5 billion, that's $900 million Delta from where we are today I would say the vast majority will still be a U.S. focused but some of it would certainly be from the UK.
Okay, great. Thanks.
Thank you our next question will be from it.
Mt Todd.
From Morgan Stanley .
Hi, This is Kevin on for Vikram, just a quick question for me.
The original underwriting of the Sainsbury transaction I believe it was $1.30 was always being represented.
A British pound I knew announcing about $1.22 I know the vast majority of 85% of hedged but in terms of the remaining 15% is there anything there that we should be thinking about.
No because if you recall the way we structured the transaction the entire principal balance was 100% hedged and 85% of the cash flows that we are generating I'm on an annual basis is also hedged.
And keep in mind that you know off the financing only 30% of the financing was equity based.
We financed 70% of the transaction using domestic the GBP denominated debt. So we feel very comfortable that you know the volatility that you see in the currency market.
Has next to not to zero, but very very limited impact on our cash flow statement and a the 15% that remains on hedged we are going to continue to keep it in the UK and you know you heard my previous answer.
We have seen plenty of deal flow to be able to invest or reinvest those proceeds so.
You know the volatility is going to have very little impact and zero cash flow impact.
Okay. So is it safe to assume then that the remaining 15% it's not hedged basically just.
Not repatriated and it remains in the UK and then you're not going to your strategy going forward you think.
Absolutely that is absolutely going to be a strategy going forward.
Okay, and then just one last for me I noticed there was a slight uptick in impairments and he was impairment charge for about $13 million can you give us any color around what that was about.
Sure Yeah, Hi, the.
You'll see a few more impairments when you think about how much larger a company has gotten size of company size of the asset base et cetera. So you'll you'll you'll have a little bit larger number there, but it's also related to what I would describe as more aggressive asset management approach on our part to.
Work through assets.
Uh huh.
Much more quickly to the extent that we don't see a releasable opportunity or a.
On opportunity for redevelopment that we will.
You know sell something a little quicker. Maybe then we wouldn't have passed and redeploy that capital. So it's kind of along those lines. Obviously, it's a non cash impact to the company.
And just one statistic to kind of give it some materiality context.
And since 2012, it's only represented about.
0.1% of our gross book value.
So it's really not a significant issue for us.
Okay. That's it for me Thanks, a lot.
Thank you. Our next question will be from Rob Stevenson with Janney capital.
Good afternoon, guys, given the robust pricing on several industrial deals over the last few months and the amount of capital chasing those deals have you guys thought about selling either part or all of the industrial portfolio and redeploying that capital into higher yielding retail assets, given where your yields are on domestic retail.
You know, Rob we decided to go down this path of diversifying across asset types. In 2010 has held us in very good stead.
Despite some of the you know higher cap rates you have on the retail side.
I can tell you that some of the opportunities that we've been able to uncover on the industrial side has created tremendous value for the company.
And in fact.
You know a lot of speech you see coming through what our asset management team is its time keeping doing so you know our long term.
We believe that the long term value creation.
He is not necessarily going to be driven by trying to time markets and maximize I ours. We believe we can maximize I ours, playing the long game.
And as long as we hold and light industrial assets with the right tenants in the right markets. We will create a similar if not superior value for the company. So.
Yes, we could we could sell he you know our our entire industrial portfolio at incredibly aggressive.
Cap rates, but that is not really our business strategy.
Okay, and then looking to Europe , meaning how much of what you're looking at today and tomorrow are going to wind up being office industrial versus a traditional retail and are you guys gonna need just to pick up headcount over there and pick up DNA to accomplish what you want to get too.
So now onto the lost it's just.
My focus has been to bring down our DNA from the run rate that you have seen in the company over the last couple of years, which has been right around 5% and our goal for 29 team is to make sure that it is below 5%. So regardless of what we do in terms of being able to rightsize. The the team in the UK to help manage you can end the rest of Europe .
That is not going to change that objective for the company will not change.
You're absolutely right that we are in the process of building out the team in the UK I think I've already spoken about having one of our acquisition team members of senior acquisition team member moved to the UK to basically see the the office there and do it we're in the process of supplementing.
That team with one additional person that's going to be the scope initially and the rest of the servicing such as on the accounting side et cetera, we felt like an outsource model at least today is far better and more cost effectively strategy, then to sort of bring that in house.
But the goal is there's going to be an inflection point and that is going to be dictated by the assets that we continue to buy in the portfolio that we build.
And when it makes sense, we will bring those functions in house, but the goal is not to do that they day one it's to do it all the time and let the portfolio dictate when that's going to occur.
Okay and then the the question about the mix in terms of Europe in terms of retail versus office industrial are you targeting office industrial over there now.
Yeah, sorry, it's old age forgetting pots of questions.
No. We've always said that we are predominantly retail oriented company and we loved industrial product long term leases with tenants that we want to do business with those are primarily going to be the two asset types that we were going to continue to pursue.
I'm not going to say no office, but office, we have stated very clearly and unequivocally that here in the U.S. investing in office has not being a core strategy of phones and in fact, all the time our portfolio of office assets has determined and so I don't believe that that will change just because the geography has changed.
Okay. Thanks, guys.
Thank you. Our next question will come from Brian Hawthorne with RBC capital markets.
Hi, how does the volatile currency fluctuations impact your ability to make acquisitions is there a certain level that that starts either slow or help you guys out.
Well.
The trend that its going it certainly helps US right you know the pound continues to depreciate vis-a-vis the dollar.
And you know the the value creation opportunities just continues to accrue to US. The question is you know, what's the long game, but but today as long as your view on the 10 risk of Brexit is not draconian.
And some of that gets mitigated by where you invest E nondiscretionary operators.
Then I think you know and this is all our house view that it is a very preferred issuance environment for us to continue to invest and create tremendous value for our shareholders.
So you know the current environment actually.
Is is unfortunately.
It's tough to say that but from an economic perspective, it's it's the right environment for us to be investing in because we do have unprecedented spreads.
And that we can we can settle for realize four right investments.
Okay, great. Thanks.
Thank you our next question from John My site.
Landenburg Thalmann.
Good afternoon, and thanks, good morning still in San Diego.
Just about good afternoon.
Just about.
Yeah, we're all of the $3.2 billion of international transactions sourced in the quarter in the UK or any of the transactions in Western Europe .
Yeah predominantly the UK. It was one transaction we saw in Spain.
But but the vast majority of that 3.2 billion was once you can.
Okay, and then could you maybe provide some color on the increased exposure to the theater industry in Regal in particular, and you know if it wasn't one individual transaction what was the rough size of the transaction in what kind of maybe was the impact that had.
On your reported domestic acquisition cap rate.
Well onto that last piece for us.
Buying large by and large you know theater transactions occur in the low to mid 7% cap rate range. So you can assume comfortably that this this particular a sale lease back that we did was it wasn't that range.
So so this was a sale leaseback that Cinemode ran and we were very comfortable with the 17 assets that we looked at.
We looked at their profitability per screen there their sales per screen, we looked at the demos and this was right down the fairway for us in terms of you know.
What are the qualities that we look for and in theater assets and so.
The size of this was you know roughly 270 280 $290 million and like I said. These are precisely the type of assets that are that we would have gone out and picked off on a one off basis.
But having it delivered to us assay portfolio bison and world.
Oh, it was something that we really like and we felt like it was priced appropriately and we were very happy with the transaction.
[laughter].
Very helpful. That's it for me thank you very much.
Thank you.
Thank you. Our next question will be from Todd Stender with Wells Fargo.
Thanks, and just to stay on the Regal any specifics on the the lease maybe that the term and then any annual escalators tucked in there.
Oh, Yeah, I believe these with 15 year leases or if he had annual escalators.
We don't want to you know make it a precedent talk to talk about specific transactions, but you can assume that you know the Kashmir coverages were north of maybe typically see these assets.
You know these with 15 year leases with annual growth.
And on pretty much all of the metrics that you would want to measure you know theaters. This was either at or superseding, all holding right and and so right down to favorability.
Okay pretty clean thanks, Sumit, a and then Paul you did the debut offering I guess the private placement.
On the UK at 15 years.
But you got the E reading here.
It is it to do the private placement is that is that what you do first is there an order of operations and then the next offering is the public bond you just have to you know grease the wheels, so to speak with investors over there with what would be teed up next.
Yeah, I mean, not necessarily so what we did was we wanted to create a natural currency hedge so we wanted to do.
Predominantly debt financing for that purpose and we looked at all the alternatives or whether that be a public bond offering and private placement offering a mortgage debt.
And the private placement offering was what's the one that was most favorable.
In terms of the depth of that market the size of what we could do the flexibility with the maturity.
And then of course, the pricing you know was excellent and what was fascinating was it was really the same investors that we know real real well U.S. life insurance companies that we have a terrific relationship with.
On the unsecured public bond side here in the U.S. and essentially we were talking to those same shops. So we were kind of an approved credit with them.
Right. They were again quite amenable to a maturity last that we wanted which was the 15 year. We wanted to do that to match more so the lease length of course and the depth of that market. We uncovered is quite significant.
Longer term could we consider public bond offering there.
Entering that market in that fashion, that's certainly feels like something we'd want to explore I think we'd want to probably go up a little bit larger asset base, there little bit more of a local brand and commitment to the market before making that decision, but in the meantime mothers plenty of death in a private placement side. The pricing is excellent and we were real pleased with how that went.
Great. Thank you.
Thank you. Our next question will come from Chris Lucas.
Capital one securities.
Yeah, Hi, good afternoon everybody.
Just a quick one Paul you noted that the same growth profile was impacted by I guess some timing on.
Rent bumps I guess, just thinking about this over the longer haul is the 1.5% rate.
You guys are <unk> seem to be running out. This year is this something that we can expect going forward or is this more of an anomaly within the sort of more traditional 1% bump rate.
Did you guys have generated historically.
Yes, <unk> Pauls I'm being kind and letting me answer that question Chris.
Forgive me you know what happened in the second quarter and this is very straightforward.
Quite a few of our leases don't have ongoing growth built into them or they have step growth, which could be every three years every five years.
And that's typically how some of the leases are structured.
And what we know to student in the second quarter was that off all.
If you were to compare it to the second quarter of 2018, it was 15% more leases.
That had this step growth, but just coincidentally happened to fall in in the second quarter, which is what resulted in that 1.5%.
And so now that they've had that one you know that that growth in the second quarter of 2019, you're not going to see that the following year and that's the reason why.
We continue to believe that you know this year, yes is it possible that it is slightly north of 1%, yes, but our run rate within our portfolio. We have always said is right around 1% and that's that that continues to be the case.
Okay, great. Thank you so much and then I guess, while I have you.
On the portfolio pricing of the theaters I guess just more generally.
Your your cap rates first quarter from we're sort of better than last years, certainly the domestic cap rates this quarter were better than sort of last year's average.
Rates are down relative to last year, I guess I'm just wondering.
Sort of is it just purely just sort of the mix issue that you're dealing with this year versus last year or is there some value to a portfolio pricing that you're seeing that maybe was is being more.
Predominately this year versus last year, I'm, just trying to kind of get understanding between last year's results unless you are saying.
Very good question, Chris, but we don't see too much of a movement in the portfolio discount that we saw last year versus this year.
The reason why you see higher cap rates, it's predominantly a or a question around the mix of assets. The type of tenants the type of properties that we'd been buying as as we've talked about the theater assets you know they tend to be higher a higher cap rate assets. Some of the other assets that we've closed on they just tend to have you know higher yields on the high Sixs low sevens mid sevens in some cases I think that has predominantly driven.
Our our overall cap rate than you know seeing shifts in cap rate, having said that you know, we certainly see intra property like within certain subsectors in retail and the cap rates have moved and in some cases, they've gotten more aggressive as you would expect given the current environment and in some cases, they remain flat, but by and large you know the opening remarks that I made around cap rates.
Remaining.
Somewhat steady.
It's true for us despite the fact that you're seeing US you know amplify cap rates that are higher on what we have close but that's that's predominantly driven by the mix.
Great. Thank you appreciate that that's all I have a second though.
Thank you.
And once again that is star one to ask an audio question now.
Our next question will come from Caitlin Burrows with Goldman Sachs.
Hi, there maybe just following up on that last question you were talking about how the certain mix of assets has impacted your cap rate. So far this year on acquisitions I guess going forward do you expect to continue died out and potentially new next call. It or do you think you could go back to what you've done more historically.
It wouldn't be all this like higher cap rates, but you know it needs to fit our investment thesis.
And like I answered Christys question. It just so happened that everything aligned and the mix that we are looking for the opportunities that we saw that fit our contacts.
Our acquisition criteria. It just happened to trade at higher cap rates I'd love to be able to tell you that you know we continue to see that same mix and be able to continue to do to post.
You know high 6% cap rate and that will create more value, but some of it is driven by the opportunities available in the market and so I wouldn't I wouldn't necessarily count on that but I, we're not averse to continuing to do transactions just because it has a higher yield as long as it sits on investment philosophy.
Got it and then maybe just on that volume or deal flow side. I know you mentioned earlier that you were seeing historical rallies very high levels of domestic deal flow. So just wondering is there anything you can think of that's driving that in particular and do expect died on activity levels to continue.
I I do think you know even if we were to sort of normalize over the next six months this year could turn out to be.
One of the highest years, if not the highest year in terms of sourcing [laughter]. Some of US sourcing is of course going to get supplemented by what can you see in the UK as well, which which we haven't had in years past.
But no do I see a particular trend in the market.
No.
That I can point to that that you know sort of answers as to why have you seen this.
Unprecedented ER volume off of sourcing and it just happens to be the case I mean, we know that there are larger portfolios that have that have come to market. There are there are a lot of.
Ah Opco propco type situations that we find ourselves are discussing with potential operators on.
So it's it's for whatever reason, we find ourselves at a you know.
At a point when the cost of capital into scale to be able to act on it. So we are very excited about it but I cant really point to any.
You know any one variable that is causing this phenomena. It's just you know it is what you see and very excited about it.
Okay. Thanks.
Thank you. This concludes the question and answer portion of <unk>.
This conference call.
I would now like turn the call back to Sumit Roy for concluding remarks.
Thank you Carrie Ah. Thank you all for joining US today I hope everyone continues to enjoy the rest of the summer and we look forward to seeing everyone at the upcoming conferences.
Thank you.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
[noise].