NNN REIT Inc (NNN) 2019 Q4 法說會逐字稿

Ladies and gentlemen, hello, and thank you all for joining this National Retail Properties Fourth Quarter 2019 Operating Results Conference Call.

(Operator Instructions) A friendly reminder, today's session is being recorded.

And with that, I am pleased to turn the floor over to Chief Executive Officer, Mr. Jay Whitehurst.

Welcome, Jay.

Thank you, Jim.

Good morning and welcome to the National Retail Properties' Fourth Quarter 2019 Earnings Release Call.

Joining me on this call is our Chief Financial Officer, Kevin Habicht.

After some opening remarks, I'll turn the call over to Kevin to discuss our financial results in more detail.

2019 was a year of significant milestones for National Retail Properties, our 35th year in business, our 25th year listed on the New York Stock Exchange and most importantly, our 30th year of consecutive annual dividend increases.

Very few public companies and only 2 other REITs have matched this impressive track record of increasing the dividend for 30 consecutive years.

Maintaining a safe and growing dividend is at the heart of our corporate culture, and there's nothing in which we take more pride than returning to the owners of the company a meaningful cash return on their investment each year.

With a dividend coverage ratio of 72% as of year-end, we remain well positioned to continue this string of dividend increases into the future.

Our steady execution continued to produce impressive outcomes, as our core FFO per share increased by 4.2% over 2018, and our total shareholder return was 14.8% for 2019.

As you've heard many times before, we run our business with a long-term focus on multiyear results.

True to that philosophy, National Retail Properties delivered total shareholder returns that exceeded the REIT averages and many major indices over the past 2-, 3-, 5-, 10-, 15-, 20- and 25-year periods, respectively.

Turning to our quarterly and annual results.

Our broadly diversified portfolio of over 3,100 single-tenant retail properties remains healthy with an occupancy rate of 99%, which exceeds our long-term average of 98%.

Our high lease renewal rate continued in 2019.

Approximately 85% of our expiring leases were renewed by the current tenants at approximately 104% of the expiring rent without material investment of lease incentives or tenant improvement dollars.

On the acquisition front, we concluded an active fourth quarter, investing $243 million in 79 new single-tenant retail properties at an initial cash cap rate of 6.8%.

For the year 2019, we invested $752.5 million in 210 single-tenant retail properties at an initial cash cap rate of 6.9% and with an average lease duration of almost 18 years.

At an average acquisition price of about $3.5 million per property, we continued our underwriting emphasis on low cost and low rent per property, which we believe are meaningful contributors to our high occupancy rate and steady income stream.

Over 80% of our dollars invested in 2019 were with our portfolio of relationship tenants.

We invested in properties leased to almost 3 dozen relationship tenants in 2019, including 11 relationship tenants with which we did no business in the prior year.

We also had an active fourth quarter of dispositions, selling 16 properties for over $31 million.

For the year 2019, we sold 59 properties, raising $126 million of capital to be recycled into new investments.

Our disposition cap rate in 2019 was 5.9%, which is significantly below our yield on new investments.

Accretive recycling of capital remains a strategic advantage for National Retail Properties.

As we look ahead to 2020, there are a few other strategic differences between National Retail Properties and many other REITs that I would like to highlight.

We've mentioned these differences previously, but they bear repeating.

First, per share results are what really matter.

You will never meet a management team more concerned with per share results and less concerned with growth for the sake of growth than the management team at National Retail Properties.

REIT headlines are often devoted to the volume of acquisitions in any given quarter or year.

To us, what matters is consistent multiyear growth in per share results while maintaining a conservative balance sheet, not headline growth in our asset base.

This approach to creating shareholder value allows us to be highly selective in our acquisitions and positions us to perpetuate our long-term track record of consistent core FFO per share growth with less execution risk and more focus on quality real estate.

Second, National Retail Properties' portfolio embodies the healthy, vibrant segment of retail and retail real estate.

Our tenants typically operate large, regional and national businesses that focus on customer services, customer experiences and e-commerce-resistant consumer necessities.

We had very little exposure to apparel or other retail concepts that are struggling with e-commerce and getting negative headlines.

The primary lines of trade that make up our tenant mix are expanding and adding stores, and our major tenants are playing offense in their respective businesses.

Moreover, our focus is on acquiring good real estate locations at reasonable rents.

By concentrating our underwriting on these factors, we create an enduring margin of safety that better withstands any turmoil in the general economy or in any tenants' individual business.

During the depth of the recession in 2008 and 2009, our occupancy rate never dipped below 96.4%.

And for the last 7 years, our occupancy rate has hovered around 98% to 99%.

Third, and probably most important, our exceptional people make all the difference.

In all aspects of our business, we're running a marathon, not a sprint.

And that philosophy is reflected in our dedicated and talented associates.

The long tenure of our team is a key strategic benefit.

Our senior executives average 19 years with the company.

More than 50% of our associates have been with us for at least 10 years, and over 70% of our associates have been with the company for 5 years or more.

This is a stark contrast to many other REITs and a competitive advantage when it comes to institutional memory and commitment to our business model.

I'm awed and humbled every day by the talent and commitment of our associates.

Along this line, I also want to note the continued evolution of our Board of Directors.

In the last few years, we have refreshed our Board with new, high-powered, talented directors, bringing broader diversity of background, experience, tenure and gender than ever before.

Our Board of Directors is well positioned to provide effective and valuable oversight as we look ahead to the new decade.

Let me comment briefly on one last key differentiator, which investors should consider: consistency.

As we've said before, the best word to describe National Retail Properties is consistent: Consistent investment focus on single-tenant retail properties; consistency of people and culture; consistently raising the dividend for 30 consecutive years; consistent, conservative balance sheet philosophy that maintains flexibility and dry powder; and consistently generating mid-single digits per share growth on a multiyear basis.

Our consistent business plan, focus and execution has positioned National Retail Properties to weather inevitable market turmoil and to take advantage of opportunities that may arise.

Let me now turn the call over to Kevin for more color on our quarterly and annual numbers.

Thanks, Jay.

And as usual, I'll start with the cautionary statement that we will make certain statements that may be considered to be forward-looking statements under federal securities laws, and the company's actual future results may differ significantly from the matters discussed in these forward-looking statements.

And we may not release revisions to these forward-looking statements to reflect changes after the statements were made.

Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in this morning's press release.

With that, headlines from this morning's press release report.

Quarterly core FFO results of $0.70 per share for the fourth quarter of 2019.

Full year 2019 core FFO results were $2.76 per share, which is 4.2% higher than prior year results and is consistent with our projections and guidance.

We continue to grow per share results while maintaining a strong and liquid balance sheet.

As Jay mentioned, and we're required to say every 15 minutes, we increased our annual dividend for 30 consecutive years in 2019, and our AFFO dividend payout ratio for the year was 72.2%, which was down a modest 20 basis points from 2018.

Occupancy was strong at 99% at December 31.

G&A expense was 5.8% of revenues for the fourth quarter and 5.6% for the year 2019.

For purposes of modeling future results, the annual base rent for all leases in place as of December 31, 2019, was $674.3 million.

So the one way to model rent for 2020 is to use this amount as your annual run rate as of January 1, 2020, and then add or subtract rent for assumed acquisitions or dispositions.

This alleviates needing to try to estimate the timing of Q4 acquisitions and dispositions for purposes of projecting 2020.

You all are obviously aware that the capital markets environments for both debt and equity have been favorable.

We continued to take advantage of that in 2019 and raised $525 million of common equity via our DRIP as well as an equity offering in September and our ATM.

Additionally, we sold $126 million of properties in 2019.

So this $126 million of disposition proceeds, plus $525 million of new common equity, plus $129 million of retained operating cash flow, that's after all dividend payments, totaled $780 million of equity-like capital raised in 2019, which notably exceeds the $752 million of total 2019 acquisition activity.

As we've pointed out in the past and consistent with our past couple of decades of practice, we expect to behave in a relatively leverage-neutral manner over time.

We remain in very good leverage and liquidity position, which will allow us to maintain an active acquisition effort into 2020.

This morning, we also -- we maintained our 2020 core FFO guidance of $2.83 to $2.87 per share and AFFO guidance of $2.90 to $2.94 per share, which implies 3% to 4% growth in per share results, and that's consistent with where we started our guidance for growth in 2019.

Assumptions for 2020 guidance can be found on Page 7 of the press release and include $550 million to $650 million of acquisitions in the mid-6% cap range; G&A expense of $42 million to $43 million, which is 5.9% of revenues; no real change in occupancy; property expenses, net of reimbursement, of $8 million to $9 million; and property dispositions of $80 million to $120 million.

We do not give guidance on capital markets plans.

While we clearly have made some assumptions in that regard, we never feel particularly bound to follow them.

We try to be opportunistic in getting capital when it's available and well-priced and when in doubt, get more sooner.

As I believe I mentioned on the call last quarter, we try to keep capital raising and capital deploying somewhat separated in our mind.

But you should expect our behavior to remain consistent with the past 25 years, meaning maintaining a conservative leverage profile with a multiyear view of managing the company and the balance sheet.

Our investment strategy in terms of property type, tenant type, balance sheet strategy have been very consistent for many years.

Looking at the balance sheet.

We ended 2019 with $134 million outstanding on our $900 million bank line.

Notably, our weighted average outstanding balance for 2019 was only $24 million and only averages $75 million for the past 6 years.

In October 2019, we redeemed $287.5 million of our 5.7% preferred stock.

We were able to redeem this preferred equity with common equity proceeds on an accretive basis, which does not happen often with a 5.7% coupon preferred.

Leverage metrics remain very strong.

Our next debt maturity is October 2022, and our weighted average debt maturity is now 8.3 years.

Our balance sheet remains in good position to fund future acquisitions and to weather potential economic and capital market turmoil.

Year -- quarter end and year-end leverage metrics.

Net debt to gross book assets was 35.3%.

As you know, we're not particularly -- found market cap-based leverage metrics particularly relevant -- more relevant.

Net debt-to-EBITDA was 4.9x at December 31.

Interest coverage was 5.0x, and fixed charge coverage was 4.0x for 2019.

Only 5 of our 3,118 properties are encumbered by mortgages totaling $12 million.

So 2019 was a down the middle year for us, and 2020 looks to be another year of solid growth in operating results.

But we trust -- but I should say, trust that as we move through 2020, we are also thinking about how to continue those results in 2021 and 2022.

With that, Jim, we will open it up to any questions.

(Operator Instructions) We'll hear first from the line of Christy McElroy at Citi.

Kevin, I appreciate your comments on leverage and understand you don't give guidance on capital market plans.

But just more philosophically, in regard to maintaining that conservative leverage level, is it a fair assumption that embedded in your 2020 assumptions, you would be -- you would maintain a consistent leverage level with what you averaged during 2019?

Yes.

I think that's generally fair.

I will say in both 2018 and 2019, we over-equitized a bit.

And I will say, too, I think at this point, I'll point out, while we raised a lot of equity-like capital in 2019, I view the preferred that we redeemed as equity.

And so in my mind, and I know not all investors think of preferred in the equity bucket, but in my mind, we reduced equity somewhat.

And so I view that -- I understand it's a deleveraging action, but I view it as eliminating some equity.

So some of that was -- some of the equity raise from 2019 was tempered by the fact we redeemed preferred equity.

But to answer your question, yes, you should assume we're going to be leverage-neutral for the year.

Yes.

Christy, this is Jay.

Just to add on to that, we're -- as you know, we're very committed to maintaining a significant volume of dry powder all the time.

But in the event the need to use some of that dry powder were to arise due to market conditions or some great opportunity, we're prepared to use it.

And then I guess just sort of in that context, as you think about your acquisition pipeline and what you might have in the deal pipeline currently and what you might have completed or have under contract year-to-date, I'm wondering how we should be thinking about timing in regard to your guidance?

And also, if you could maybe comment on cap rate trends that you're seeing?

Sure.

Well, I'll start with the last part first.

Cap rates, the last 2 years probably, I've said cap rates are generally flat to maybe trending down a little bit.

And so let me just reiterate that comment again.

Cap rates are not going up by any means.

They may be drifting down a little bit.

We've been consistent in the 6.8%, 6.9% initial yield ballpark for the last couple of years.

And we think it may be -- it may trend down a little bit this year but generally stay pretty close to where they've been.

Pipeline looks good out there.

But the vast majority of our acquisitions are through our relationship tenants, and we continue to do off-market direct business with those relationship tenants.

That gives us great comfort about deal flow.

I think, Kevin, I'd say, our guidance is a little bit back-end loaded, I think.

Yes, which is fairly typical for us.

I think of it as kind of 40-60, if you will, first half-second half of 2019, probably in that ballpark again this year.

Yes.

We had a very active fourth quarter where some of the things that might have slipped into the beginning part of this year, we closed at the end of last year.

So an active fourth quarter sets you up nicely for the upcoming year.

Next, we'll hear from the line of Brian Hawthorne with RBC Capital.

Can you talk about the key relationship unit growth expectations for 2020?

And then all the units that you guys are buying, are these units that are available because they were new to the relationships so then they brought them to market?

Or are these kind of older properties that have been owned by your key -- owned by the key relationships for a while now?

Yes.

Yes.

Brian, our -- the business that we do with our relationship tenants runs the gamut of both of the types of transactions that you described.

In some instances, it's funding new construction or new buildings for them.

In some instances, it's doing sale-and-leaseback of existing, built landed building that is on the tenant's books.

In some instances, sometimes our relationship tenants are doing M&A activities.

They're acquiring another company and using the real estate of the target company to be part of their capital structure for that acquisition.

So when we have a relationship with these tenants, there's all kinds of different programs that we offer to them and different ways for us to do business with them.

We do -- in the last few years, it's been around 80% of our dollars invested have been with our relationship tenants.

This year, maybe -- I expect we'll be somewhere in that same kind of ballpark.

But it just depends on what else is for sale out there and that.

So we don't give guidance on the level of volume with our -- specifically with our relationship tenants.

But to follow up on the first question and yours, we remain very comfortable with the overall acquisition guidance that's out there.

Next, we'll hear from the line of Rob Stevenson over at Janney.

Jay, when looking at your leasing data at the back of the supplemental, anything abnormal about the mix of renewals with the same tenant versus vacancy re-lease to the new tenant mix in 2019 versus prior years and versus what it's likely to be in 2020?

I mean, your re-leasing totals, close to flat in 2019.

Is that something that we should be expecting in 2020 and rolling forward here?

Is there anything abnormal that happened in 2019 that would impact that one way or the other?

Yes.

No, Rob, that's a good question.

And I would say there's really nothing abnormal at all.

It felt very consistent and down the middle of the fairway to me.

The renewals with the same tenants was -- that was about 85% of the leases that came due, renewed with the same tenant at 104% of prior rent.

And so that's actually a little bit better than our long-term average.

Our long-term average is around 80% renewals at about 100% of prior rent.

So that was a little bit to the good side but generally consistent with history.

And then on re-leasing the 23 properties that we re-leased at just about 80% of prior rents, that was also probably on the high side of the bandwidth.

We -- what we've told folks all along is that generally, our re-leasing is -- of those few properties that don't get renewed, our re-leasing is around 70% of prior rent.

So we did a little bit better in 2019.

But again, I wouldn't take that as any kind of a particular trend.

I do want to stress on the re-leasing that we're very focused on re-leasing the properties as is and as opposed to putting in TI dollars and lease incentive dollars that might make the re-leasing stats look better, but we don't think that's a great investment of our capital.

We would rather re-lease properties as is and keep the rent as low as possible rather than put money in and crow about a higher re-leasing spread.

Okay.

And then how are you guys feeling these days about the auto parts business?

Number 9 line of trade for you guys.

Obviously, Advance Auto Parts has had some issues.

Some of the other guys have had issues on and off or whatever.

How do you guys think about that and your mix within the auto parts business rolling forward for the next few years?

Yes.

That -- the -- we're -- the tenants that we -- that make up that category for us are some of the strong national tenants.

So we feel very good about the overall companies that are our tenants there.

And the real estate that makes up those properties, there's a lot of smaller retail locations at very reasonable low rents.

And so, yes, over time, we think those real estate locations will, if necessary, find another user over time, that their -- we have good security in that real estate, we feel like.

Okay.

And then, Kevin, how are you feeling about preferred stock these days?

And where do you think you'd price today at a 1.55% treasury?

Yes.

My gut is, at the moment, we're not leaning in that direction.

The way we think about this and stacking up alternatives is thinking about 10-year debt, 30-year debt and then perpetual preferred and comparing and those absolute rates as well as the relative rates between those.

And today, I'd probably lean more in the debt category than the preferred equity category.

But it's not to say we won't do it.

Again, we have 1 existing preferred tranche outstanding, 5.2%, $345 million of 5.2% preferred.

I don't -- that feels like a good piece of capital for us.

But today, preferred would get price close to a 5% rate, maybe a touch lower.

And so it is attractive.

I don't think that's something we plan to pull the trigger on this year.

But as I said, we don't give guidance around that.

We try to be opportunistic.

And -- but at the moment, it doesn't feel like that's the route to go.

Spenser Allaway with Green Street Advisors.

.Would you mind providing some color on your tenant watch list?

And maybe just along the same lines, just curious how much of your disposition guidance do you guys expect to be strategic, just in terms of reducing exposure to either particular segments or tenants?

Yes.

I mean, I'll speak to the watch list.

It hasn't changed materially since we last talked a quarter ago.

It's -- we've got Logan's Roadhouse on there, Barnes & Nobles on there.

Ruby Tuesday is on there, Pier 1, PetSmart, Petco.

But the sum total of all those -- or I should say, each of those are under 1% exposures.

And in total, the composition and size of the watch list, as we define it, which is a bit of an art form, is not changed from where it was a quarter ago.

We currently have 2 tenants that are in bankruptcy, but the total of those 2 are less than 1% of our total annual base rent.

So we don't expect any real noise there.

Spenser, I'd add that that's our credit watch list.

Separately, we also analyzed the underlying real estate parcels for what's a good location, what are reasonable rents with these tenants that are on the credit watch list.

And the culling in our disposition process, where we sell some of our noncore properties, are typically the ones where the -- we might be worried about the tenant's credit or thinking about the tenant's credit, but we also look at the real estate and say, "This is going to be harder to replace this rent with a second tenant." A lot of -- the vast majority of the real estate owned by the tenants or leased to the tenants on our credit watch list are good locations that we're happy with and feel like we can do well enough if we have to get them back.

Todd Stender at Wells Fargo.

I may have missed this.

I didn't hear what you sold in the quarter.

Maybe you can characterize some of the -- by lease term, maybe rent coverage or tenant, any characteristics you can share?

Yes.

It's -- Todd, the -- broadly, I think for the dispositions for the quarter were maybe 2/3 vacant properties and 1/3 leased properties.

Any 1 particular quarter, I think I wouldn't put too much emphasis on because it's such a small subset of the whole thing.

Over the course of the year, our dispositions, I think, were around kind of 60% of the dollar volume was vacant properties and 40% was leased properties at the 5.9% cap rate.

Job one -- as it relates to vacant properties, job one here is to re-lease those vacancies.

And -- but what I -- what we realized over time was that we were carrying properties for a longer period of time than we probably should have before we said that we're not going to successfully re-lease these properties in a fashion that feels like a good risk-adjusted decision to us.

And so let's go ahead and sell them.

The duration of the vacant properties that we sold in 2019 was a little bit under a year.

It was like 9 -- average 9 months to a year.

So you are more likely to see us going forward deciding to sell vacant properties after trying to lease those for that kind of a time period as opposed to continuing to hold on to them and bear the carrying costs while we're trying to find other tenants.

And no CapEx has to go into those to sell them, is that correct?

Correct.

Correct.

They're sold as is.

Okay.

Does that drag down the cap rate?

I know year-to-date or for the full year '19, you had a cap rate in the 5s.

I think your cap rate in Q4 was low 6%.

Is that drag down...

No, the cap rate that we quote is just on the properties that are leased.

So it's not going into -- the vacants aren't going into the cap rate.

Got it.

Okay.

That's helpful.

Just switching gears, property tax increases have been elevated in Texas.

And then there's certainly the threat of a repeal of Prop 13 in California.

Are these outsized increases or at least the threat of increases, are they factoring into your underwriting at this point?

I know your leases are triple net, but maybe you're more observant of rent coverage and the ability of the tenant to pay should there be a bigger increase.

Yes.

We do think about that in our underwriting.

And we talk with our tenants about that as we're -- as they're looking at their occupancy cost for the states where taxes may go up.

I will say it hasn't caused us to not buy anything yet, but it's something else that you have to think about in your underwriting.

Next, we'll go to Ladenburg, and I do apologize, sir, if I mispronounce your last name, John Massocca at Ladenburg.

That was actually very good.

It's been put through way worse than that.

So just a question, a follow-up on -- you mentioned the 2 small tenants that were currently going through bankruptcy.

Are they current on their rent right now?

No.

No, not right now.

But they -- the process, the bankruptcy process is relatively fresh for both of them.

So one of them, we actually expect to get February rent shortly.

The court's just approved it just in the recent day here or so.

So -- but it's an amount on both of those that are not going to move our thoughts around numbers really at all.

So...

Okay.

And then as I think about kind of same-store rents that you reported for the year, is that number that we got for kind of the 2019 same-store rent, is that maybe typical of what we should expect on a go-forward basis?

Or was there something -- I know there was some vacancy kind of early in the year, some kind of tenant credit issues early in the year that may have pulled that number down.

Is that kind of 0.1% number maybe what we should expect on a kind of same-store, including vacancy, as we look out to 2020 and 2021?

I'd call it a little on the low side.

But I think I alluded to this on last quarter's call.

In my -- in general, we get about a 1.5% rent increase.

But I always assume that there's going to be 1% of the 1.5% is going to get consumed by some sort or level of tenant pain and problem.

And so in my mind, I think we should be closer to 0.5% than 0.1%.

And that's not a big difference.

But -- so -- and it might be a touch low for 2019.

But yes, it gets impacted by issues that kind of just rolling through the numbers, a Shopko or what have you, and those kinds of things drive that down over time.

Yes.

Yes.

John, I would say -- this is anecdotal, but I think if we look back over the last few years, I suspect that Kevin's right on that it's probably 0.5%, plus or minus 0.5%.

Okay.

Understood.

And then it looked like your exposure to convenience stores jumped a little bit quarter-over-quarter.

Is that going to be a big kind of acquisition avenue for you guys going forward?

And if so, is that potentially being driven by maybe some of the M&A activity in the space?

Or is that more with existing tenants that are just looking for sources of capital to maybe fund their existing business?

We do like the convenience store business a lot.

We think that's a very good business, and we like convenience store real estate.

Those are good, well-located, often signalized corners or parcels along high-traffic roads with good access and visibility and signage.

And our -- and they've really been very -- we've had very few problems with our convenience store real estate.

So you should expect us to continue to look at a lot of those deals and do the ones that make sense.

We did buy a small portfolio -- mid-sized portfolio of convenience stores in the fourth quarter to add to that.

And the source of our convenience store business will be, like you described, John, there will be some M&A activity out there in the world that may be a source of some business for us as well as just some smaller transactions with relationship tenants.

But we are -- we remain very interested in doing convenience store transactions with strong operators.

(Operator Instructions) We'll hear next from Collin Mings at Raymond James.

First one for me, just as it relates to making the sale decision on vacant properties a bit sooner than you have historically.

Are you adjusting your thinking at all as it relates to investing TIs and just other capital into assets?

Historically, as you've noted, I mean, you've seemed pretty reluctant to invest much capital into assets.

But just could you talk maybe -- does it make sense just as you look to avoid carrying vacancy to maybe be more active on investing capital on a selective basis?

Right.

No, Collin, it's a good question.

We do think about it all the time.

It's just that we often come to the conclusion that it makes more sense to go ahead and sell a property as is, but we do a full economic analysis.

Our asset management and leasing folks do a very good job of presenting all the alternatives when we decide what we want to -- whether we want to lease a property or sell it.

And redeveloping it or putting CapEx into the property is definitely on that menu of items that we look at.

Yes, for us, it's really just a net present value exercise.

And so -- but what we've seen many times in commercial real estate where tenant improvement dollars are added to projects, the economic returns on those are frequently dismal because those TI dollars have little use to the next tenant.

And so you just have to be thoughtful about that and realistic.

So we kind of demand that we get a return on the incremental capital we're putting in.

It's not just free money we're throwing in there.

It needs to carry itself.

And so that shows up in rent and would impact our decision whether to lease or sell.

Okay.

And then just one other question for me.

I just wanted to get an update on just how you're thinking about potential theater investments at this juncture, a little less than 5% of the portfolio, down maybe just a hair like year-over-year.

But just wanted to get your latest thoughts on the exposure and appetite on the theater front.

Yes.

We're comfortable with the portfolio that we've got.

We've looked at other portfolios, and we've passed on the other portfolios primarily due to cost per property.

They -- some of the portfolios felt pricey per asset to us.

We've got good relationships with AMC and Cinemark.

And so you may well see us do occasional theaters with our relationship tenants from time to time.

But it will be in situations where we feel like that the price per property is a good number, and the location is good as well as having a strong operator.

We'll hear next from Vikram Malhotra at Morgan Stanley.

Can you hear me?

Hello?

Can you hear me?

Yes.

We can.

Is it better?

Okay.

Sorry, I dialed in late, and if I missed this, I can follow off-line.

But you mentioned 2 specific bankruptcies I caught.

Could you say which tenants or sectors are those?

And then specifically, do you have any exposure to any of the Sonic franchises in SD Holdings that just filed?

Yes.

That is why, yes, we generally don't talk about specifics.

But yes, Sonic is one of them that is in the public domain.

The other one is a small -- very small private operator.

But yes, that's -- the Sonic, we own a number of those stores, and those are in 2 master leases.

And it's going through the process now.

It appears the franchisor, Sonic, is going to get involved in pushing that through bankruptcy, but time will tell.

And I will add to that.

Again, we don't comment about these things kind of while they're in process.

But that bankruptcy was not driven by the performance of our locations.

It was driven by other factors at the tenant.

Our stores continued to perform well.

But again, just as a reminder, the sum total of those 2 bankrupt tenants is less than 1% of our annual base rent.

Okay.

And I think you mentioned you've built some of that into your guidance.

You usually do every year.

Yes.

Yes.

We always -- like I said, we always assume we've got a level of pain in -- whether it shows up in occupancy or just lower rent.

And again, it shows up in the same-store rent number we just talked about.

We always assume there's probably 1% of pain in there.

I'm not saying we're going to have any notable pain from either of these 2. I mean, time will tell.

But many times, you -- a tenant gets into bankruptcy and you come out just fine.

And so we'll see how these play out.

Okay.

And then just last question.

Just wondering how you're thinking about funding sort of the deals going forward in terms of equity issuances versus sort of hitting the ATM and just sort of leverage overall.

You've let that drift down for several years now, including the payout.

Just sort of wondering how you're thinking about the mix and equity specifically?

Yes.

Again, probably not looking to change the mix notably at all.

As Jay mentioned, we have the cushion to do that if we so chose.

But at the moment, I think the best base case assumption to make is we're going to behave in a leverage-neutral manner and go from there.

And it's -- that's what it feels like today, given where debt and equity is priced.

We have no question standing by.

Mr. Whitehurst, I'd like to turn it back to yourself and to the leadership team for any additional or closing remarks.

Thanks, Jim.

And we thank you all for joining us this morning and look forward to seeing you at many of the upcoming conferences this spring.

Good day.