Spirit Realty Capital Inc (SRC) 2021 Q4 法說會逐字稿

Greetings, and welcome to Spirit Realty Capital Fourth Quarter 2021 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Pierre Revol, SVP of Corporate Finance and Investor Relations. Thank you. And over to you, sir.

Thank you, operator, and thank you, everyone, for joining us for Spirit's Fourth Quarter 2021 Earnings Call. Presenting on today's call will be President and Chief Executive Officer, Jackson Hsieh; and Chief Financial Officer, Michael Hughes. Ken Heimlich, Chief Investment Officer, will be available for Q&A.

Before we get started, I would like to remind everyone that this presentation contains forward-looking statements. Although we believe these forward-looking statements are based upon reasonable assumptions, they are subject to known and unknown risks and uncertainties that can cause actual results to differ materially from those currently anticipated due to a number of factors.

I'd refer you to the safe harbor statements in our most recent filings with the SEC for a detailed discussion of the risk factors relating to these forward-looking statements. This presentation also contains certain non-GAAP measures. Reconciliation of non-GAAP financial measures to most directly comparable GAAP measures are included in the exhibits furnished to the SEC under Form 8-K, which include our earnings release, supplemental information and investor presentation. These materials are also available on the Investor Relations page of our website.

For our prepared remarks, I'm now pleased to introduce Mr. Jackson Hsieh. Jackson?

Thank you, Pierre, and good morning, everyone. Over the last few earnings calls, I talked about the quality of our portfolio, the strength of our balance sheet and our ability to source transactions.

Given what we've achieved in these 3 areas, I believe Spirit is well positioned for success in 2022 and beyond. In the last 4 years, we've executed on our strategy to create a highly diversified portfolio with large, sophisticated operators while significantly growing our industrial exposure.

During this period, we sold or spun off $3.8 billion of assets, retained $4.1 billion of the original portfolio that fit our strategy and acquired $3.8 billion of new assets. This effort has resulted in a high quality, stable portfolio with low volatility. At quarter end, our lost rent was virtually 0, and we had only 4 vacant properties.

In addition, the strength of our diverse portfolio has been proven out during the COVID pandemic, which caused minimal disruption in our rental income. In fact, the majority of our tenants are performing better today with improved profitability and credit profiles. To help illustrate the transformation of our portfolio and its resulting impact on performance, we've included several pages in our current investor deck that provide additional disclosure which I hope you will review and find informative.

Our balance sheet has also continued to strengthen, allowing us to transition away from ABS and convertible debt, secure a BBB rating from all 3 major rating agencies and become a serial investment grade bond issuer.

Today, our portfolio is almost completely unsecured and our debt maturities are well laddered and long dated. In addition, our low dividend payout ratio allows us to propel earnings growth by reinvesting more free cash flow, while enabling us to grow the dividend consistently and sustainably over time.

Finally, with the completion of our recent follow-on equity offering, we remain extremely well capitalized to execute on our growing acquisition pipeline. Regarding acquisition sourcing, the goals we laid out for our acquisition platform have all been achieved. And we are doing exactly what we said we would do. We have the team and processes in place to source and close transactions, which will allow us to drive strong, consistent earnings growth.

We built out integrated acquisitions and asset management teams, expanding their reach and allowing for concerted sourcing efforts and a focus on relationship development with our existing tenant base, owners and new partners.

In addition, our extensive underwriting capabilities focused on evaluating industry relevance, tenant [current] strength and key real estate attributes allows us to allocate capital across a wider opportunity set, which we believe delivers superior diversification and better risk-adjusted returns.

Our fourth quarter investment activity is emblematic of what our platform can deliver as we deployed $487.9 million in capital acquiring 92 properties across 28 transactions with a mix of 60% retail and 40% industrial. Most notably, 75% of these transactions were sourced through existing relationships, which is well above the target we laid out at our Investor Day in 2019. We're also off to a strong start in 2022 with $179 million of acquisitions completed year-to-date through 13 transactions.

And with the strongest forward pipeline in my history at Spirit, we believe our acquisition capability had hit its stride, and we're seeing the benefits of the relationships we've built with our counterparts. Our teams are in sync and growing, and we are leveraging the many technology tools and processes we have developed.

Finally, I want to highlight that the noise is behind us. Instead of completing structural changes or dealing with the impact of COVID, we're entering a truly clean year, with a solid portfolio, strong balance sheet and best-in-class team in place. This will be the first year for our team to showcase what this platform can do, and I expect great things to come.

With that, I will turn the call over to Mike. Mike?

Thanks, Jack, and good morning. We had another great quarter. AFFO per share increased to $0.85 compared to $0.84 last quarter. Many of our operational performance metrics improved. Occupancy ticked up 0.1% to 99.8%. Forward same-store sales increased from 1.8% to 2.4%. Loss rent decreased from 0.1% to effectively 0 and portfolio WALT increased to 10.4 years.

We also further diversified our portfolio, adding 9 new tenants and reducing our top 10 and top 20 tenant concentrations by 1% and 2%, respectively. Our annualized base rent increased by $30 million to $588 million driven by acquisitions and rental increases and is just shy of the $596 million we reported in Q1 2018, right before the spin-off of SMTA.

For the year, we reported AFFO per share of $3.31. As we have previously mentioned, our 2021 results include $7 million of out-of-period amounts related to the COVID-19 pandemic. Excluding these amounts, our 2021 adjusted AFFO per share is $3.25.

Our deferred and receivable balance declined by $1.5 million to $15.3 million. We collected 100% of the deferred rents contractually owed for the quarter. Starting in January, we have no remaining tenants under a deferral arrangement. Our theater portfolio also continues to perform well, and we recognized $700,000 in rent from our 2 new theater tenants, Emagine and LOOK Cinemas, up from $260,000 in the third quarter.

Turning to the balance sheet. At quarter end, we had unsold forward contracts for 56,000 shares of common stock. In January, through a follow-on offering, we entered into additional forward contracts to issue 9.4 million shares of common stock. With expected proceeds of $433.4 million on settlement of all 4 contracts, we are well capitalized to fund a significant portion of our 2022 acquisition pipeline.

At quarter end, our leverage was 5.1x and our fixed charge coverage ratio was 5.7x. With the upgrade we received from Moody's in October, we are now rated BBB across all 3 major rating agencies. We are reaffirming our 2022 guidance previously provided on January 10, with an AFFO per share range of $3.52 to $3.58, capital deployment of $1.3 billion to $1.5 billion and dispositions of approximately $100 million.

The AFFO per share midpoint of $3.55 implies a growth rate of 9.2% over our normalized 2021 AFFO per share of $3.25. Given the underlying strength of our portfolio and balance sheet and the visibility we have into our pipeline, we are optimistic about what we can achieve in 2022 and beyond.

With that, I will turn the call back over to the operator to open up for questions.

(Operator Instructions) The first question comes from the line of Ki Bin Kim with Truist Securities.

So you mentioned a very strong forward pipeline for acquisitions. I was wondering if you could just give some more color on the -- on some of the larger deals within that pipeline, what kind of assets they are in the pricing?

It's Jackson. Well, I'll just comment just quickly on the transactions we've closed to date, the 13 this quarter. It's pretty much split 50-50 in terms of percentage between industrial, retail. And I would say that we generally have sort of targeted balance for the rest of the -- for the pipeline pretty evenly split between industrial and retail.

We still are finding some interesting opportunities within the light manufacturing part of that sector, the industrial space. And I really think it's a function keeping of, our fully built out team. We have 4 VPs in our acquisition team. We have 5 officers that run different asset management verticals that are also originating transactions.

So when you look at the totality of the different people at Spirit that are focused on new business, it's a much higher number than, say, at Investor Day. So I think you're seeing the benefit of all of that collectively coming together, plus improved relationships with our tenant base. So I would say like the shape looks great in terms of cap rate. Let's say the -- our business that we've closed to date is around a 6.5% cap right now of about $179 million. And we're looking at that as a target for this year.

And does that target of 6.5%, does that -- maybe you can bracket that with what you're seeing in the macro environment and rising rates if that 6.5% -- if there's been any repricing trends that you noticed?

Well, I’d say, one of the things that we consciously wanted to do was to have a higher number of transactions as a target per quarter. We think that, first of all, we think that there is a portfolio of premium right now in terms of cap rate from what we've seen with kind of larger, what we call defined as portfolio opportunities. There has been more competition. I don't know if it's better financing that's driving some of this on the acquisition side, but we have seen a portfolio premium out there, anything up to 50 bps on the cap rate.

So we've had more success doing one-off transactions, more repeat business with existing tenants. And so that is going to be a core part of our strategy going forward. We talked about it last quarter. And look, the 13 transactions closed in terms -- into the first quarter, we're already exceeding what we did prior to last quarter in terms of average transaction comp per quarter.

We are still evaluating portfolios. And my guess is we'll end up doing something hopefully this year in terms of portfolio activity. But right now, we're -- we think that we can drive better risk-adjusted returns on higher frequency transaction activity through our acquisition effort.

And how about that second part of the question, meaning if -- given the rising rate environment, how are you thinking or how are other investors thinking about pricing in this tough environment?

Well, it's interesting on the raising rate environment. On the one hand, we're seeing -- what we're seeing in our portfolio is sort of unprecedented credit improvement, i.e., their top line business is better, they’re having better control of their margins and bottom line profitability. And so I think what we're starting to see is more interest on our tenant base wanting to expand, expand facilities, expand unit growth. That's perfect for what we do want to do, right, because we want to be on the other end of that transaction, financing, providing capital for those people.

What we haven't seen yet is increasing cap rates. I know that rates are rising and presumably in time, maybe that will start to translate. But so far with this kind of raising rate environment in the private market, we haven't seen a net increase in cap rate. If anything, a slight decrease across depending on what industry sector you're looking at.

The next question comes from the line of Joshua Dennerlein with Bank of America.

Saw that Life Time Fitness did like a sale leaseback. Just curious if you guys had any color on that transaction or if you look at it, there might be more deal flow coming from them?

Well, Josh, like we won’t -- we don't like to comment on existing transactions that we're working on. But what I can tell you is we like Life Time. We'd like to do more. Relative to their press release, I think we talked about an LOI being signed. So generally, people that -- announced that LOIs are typically nonbinding. But that being said, I'll say that we are very interested in doing more Life Time business, and we expect to do more this year with them.

Okay. That's good color. And then sorry, sorry if I missed it, but did you say what you've done year-to-date on the acquisition side?

Yes, Josh, we -- in my prepared comments, we talked about $179 million closed through the first quarter and that comprises 13 separate transactions. And obviously, I mentioned that our forward pipeline is as strong as I've seen it since I've been at Spirit. i.e., it's very large. And obviously, we're funded to execute that. I'm glad we're able to access the equity markets to kind of button up everything, so we've got the capital to execute our pipeline right now.

The next question comes from the line of Greg McGinniss with Scotiabank.

So given the sustained high inflation, do you have any ability to negotiate for higher escalators or more cap CPI leases in this environment? What I'm trying to determine is whether the high inflation today may create an opportunity for greater long-term growth.

Look, I think that -- I think the answer is, I'd say, categorically, yes, as it relates to our existing tenants. I can tell you that the level of conversation has continued to increase as our tenants have been getting stronger, post COVID. There's obviously been a lot of stimulus, a lot of top line growth.

Any time a tenant wants to do something new, we look at that as an -- excuse me, we look at that as an opportunity where if we have an existing master lease to provide capital and hopefully attractive to them and attractive to us. Sometimes that conversation includes extending the existing lease maturity of our current master lease. Sometimes it includes different economic terms, sometimes it includes as we create a new master lease.

So I think if there is an opportunity to improve escalations or take advantage of inflationary trends relative to a CPI, we have that ability, especially with our existing tenants as they look to execute some of their growth needs. And like I said, it's -- some of them may include new units, some include more M&A activity. Some are looking at expanding new additions to some -- especially on the industrial side, to some of their existing facilities or manufacturing. So we're starting to see that conversation improvement. I think it will only get stronger as more -- as things continue to improve in the economy.

Okay. And maybe along the same lines, could you touch on the increase in the forward same-store sales to 2.4% this quarter from 1.8% last quarter. What impact does that have on results? Is that something that is flowing through to the guidance range? Is there an offset there? Or just -- and could it potentially keep going up with sustained inflation?

Yes, Mike -- I'll let Mike take that call -- take the question.

Yes. No, it's definitely ramped up. It's driven by a lot of factors. I mean CPI is part of that would be 16% of our leases our of CPI and lot of those do have caps that are kind of getting into the cap range. Now we've been doing a lot of industrial. Industrial does have higher rent escalators than retail. And so we've been enjoying some increases there.

Now you do have some leases that they have bumps every 5 years. And so when you have some of those leases hitting your kind of 12-month period, you got a 10% bump every 5, so those also add to that. And then we do have some tenants that we have renegotiated new leases to stay in.

We've got bumps there, like some of our new theater leases have some pretty big escalators over the next 24 months that are also hitting that number. So we're pleased where that number is going. I think as we continue to add more industrial in the portfolio, we will see that number continue to be strong. I think 2.4% is pretty strong. I don't know if that's going to be sustainable forever, but we'll certainly see it. Now, it’s definitely good for the next 12 months, though. We're happy with it.

And Mike, just a follow-up on the theaters real quick. You spoke about the rent increase from last quarter. Is that just -- is that due to percent rent deal? Or is that just some timing-related item?

No. I mean on our new theatre offers we put in re-tenant, they're ramping up to a higher base rent level as they stabilize. And we talked about that those would ultimately get to about $5.2 million of base rent over about 24-month period. And so those are continuing to kind of hit step-up levels over time to base rent.

So we don't put percentage rent into our forward same-store sales number, that only includes base rent. And so those -- as they hit those metrics, those gateposts over time, their base rents going to step up to a normalized base for over 24 months. And we're seeing that. And I mentioned that the rent did go up from last quarter. So you'll continue to see that growth from those offers over the next 24 months.

The next question comes from the line of Rob Stevenson with Janney.

Was there anything abnormal for that pull down the cap rate in the fourth quarter? I mean was it industrial assets? Were there ground leases or anything else abnormally low there? Is that just where the markets moved down to the sort of 6.25%, 7.25% range on your numbers?

Rob, it's Jackson. I tell you, when you look at cap rates for us in a quarter, you really -- if you could focus on the mix of what we're buying that really drives a lot of what the cap rate end result is.

So in the fourth quarter, had about -- we had 21% of our acquisition business in the car wash industry. As you know, the car washes are -- they tend to be low sub-6 cap rates. We had 40% of our acquisition business in the industrial area. Obviously, that's on the lower end of cap rate in terms of our range. And also there was some auto service in there. So I really think that when you look at those cap rates, it has a lot to do with the mix of what we're acquiring.

As I mentioned in my earlier comment, I think in one of the questions, that cap rate for the business that we've closed is already higher than that. And that's a function of, like I said, the mix. And so I wouldn't take too much out of just one particular quarter, whether the cap rate is low or high because we really look to try to target an overall cap rate target for the year. So at any given quarter depending on the mix of business that we're closing with our tenants, it's going to shift.

Okay. And then how are you guys thinking about the $100 million of disposition guidance in relation to the acquisition guidance. I mean you guys have very little vacant assets. So presumably, the vast majority of that $100 million of expected sales this year is going to be income-producing property. You guys did sub 4.5% on the 2021 leased dispositions. Is there any thought there, given how low that cost of capital is for you, to increasing that to $150 million, $200 million to fund the acquisition pipeline as you go forward?

I think, obviously, we've got equity capital per date with the recent raise that we did in January. But I would say like that disposition number is just a target number. It's probably going to happen later in the calendar year for us. And I'd say it's just a mix of opportunistic sales as well as sales that we think are good for risk mitigation for us. I mean I think we've got our funding to date put in place.

So I think very comfortable with that number, this $100 million placeholder right now. I think that it will be later in the year when we execute that on the disposition part. Some of the -- yes. Okay. Great.

The next question comes from the line of Haendel Juste with Mizuho.

Jackson, I guess, first question for you. So I think your 5-year anniversary as CEO is coming up here in May. And you outlined earlier in the call, all the initial goals that you set out and you've achieved here in regard to the portfolio, improving the quality, the SpinCo transaction? And more recently, your $600 million annual revenue target you're getting closer to that too. So I guess I'm curious as we kind of think about the next 5 years or even just more broadly how you're thinking about priorities for Spirit? Any particular goals or any guidelines that you're thinking about and maybe willing to share?

Thanks, Haendel. It's a great question. I mean as I think about the last 5 years, we've -- in my prepared comments, we talked about the assets that we sold, $3.8 billion and the $4.1 billion that we've acquired. But during that period of time, if you look at 2019 total returns -- total shareholder returns to date, I think it's sort of close to 56%. So maybe the second highest within the net lease group. And if you look at our relative multiple compared to our peers since 2019, it's continued to compress. I mean it's taken longer, quite honestly, for that multiple to compress relative to our peer group.

I think in 2019 the differential with our AFFO multiple was like 5.4x – 554 -- 540 basis points difference between our multiple in our peer group. That's continued to decline. In 2022 year-to-date we're finally sub 3x to like 290 basis points. What I'd like to see in the next 5 years is to really close that gap. And I really believe that we have performed. We've done everything with a lot of complexity around it in terms of having to deal with certain other assets and industries and done a great job. And so what I'd like to see is have us get appreciation for what the team is doing, how we're performing.

M&A is really set up well as I said in these comments for 2022 and beyond, this is a very, very sustainable platform that we've built, and we think we can perform in a competitive environment. And we think we've been able to prove that over the last few years. So I suspect that you'll see us be very, very consistent going forward in terms of execution on the acquisition front and asset management front. So that's what I'd like to see, really close that gap relative to our peer group AFFO multiple.

Got it. Understood. And I guess, curious -- any more thoughts on how you're going to do that, right? I think you mentioned consistency in execution and you certainly have done a fair amount of that. Any other particular items which you think are maybe either underappreciated or you think maybe you need to focus on to drive that multiple gap down?

Well, I mean, look, I just recall, it's been difficult for investors to sort of seeing like every year -- over the last 5 years, we've had some story, whether it's COVID or spin-off, Shopko, it's just been a lot. And in spite all of that, I mean, if you kind of look at some of those investor pages that we put out, some are very good, the team did a great job. But if you look on Page 14 like kind of what we've acquired since that time, that $4 billion, I mean it's a remarkable list of top 20 tenants. And I wish we could have done more industrial. Obviously, it was a significant part of what we did. But I would say that every quarter that we continue to punch out really good numbers of fee guidance or meet guidance is going to benefit this company.

It is very repeatable. It could take a lot of drama to do this now. And what that wasn't the case a few years ago. Few years ago, there's much more pressure on the organizations to accomplish corporate restructuring moves as well as acquire property and rebuild the team. All of that is done. And I think that, look, investors need to find big companies to invest in that can provide growth and economic opportunity and -- our total shareholder return has been very, very good historically, and I think it can only get better. So I think it's still a good entry point for investors as they call through and look at these pages, see what we've done.

No, that's great. Can I ask you about -- you mentioned you're evaluating portfolio you hope to do something. I guess maybe you could talk a bit more about that, maybe the type of opportunities and categories that would be of interest sizing. I wonder if they’ll be in the retail or light manufacturing sectors you're focusing on? Or would you be looking outside of those? And then any color on portfolios that are out there in the market? Are you seeing more -- and certainly the competitive forces as well?

Yes. Well, I mean I'd say one of the things that I really like about what we do is we've got a wide opportunity set that we pursue. And I think our team and our technology tools allow us to really size up these different opportunities pretty -- very quickly without taking a lot of bandwidth or hours out of the organization. So at any given time, we can evaluate multiple portfolios very, very quickly and size up how that relates and what kind of impact that has kind of what I'll call an organic growth that happens just from our day-to-day blocking and tackling.

One of the nice things about being able to drive a lot of existing activity out of your existing tenant base, and we've got a much longer runway in terms of our visibility on our acquisition pipeline for the year. So at any given time, when we look at a portfolio, we can really evaluate if that's really accretive, not just from a property rating standpoint, but accretive to what we're doing relative to our pipeline, relative to our capital that we have in place. So that, I think, is a real advantage. We did not have that ability 3 years ago to do that the way we can do it today.

So I can tell you at any given time, we're looking at multiple portfolios right now on that basis. As it relates to specifics, like I said, we have a wide opportunity base that we're looking at. And if we feel like we're getting good risk-adjusted returns, we'll go for it. That's -- I'd say that there's a lot of stuff out there. There's big and small as you know. There's been some notable bigger portfolios that have recently closed and at very, very attractive cap rates. And I think a lot of that's related to financing and on the debt side for private buyers.

The next question comes from the line of Ronald Kamdem with Morgan Stanley.

Just going back to sort of the acquisitions question, I think you touched on maybe seeing opportunities in light industrial. I was just curious if you can comment on, one, just what you're seeing in terms of cap rates and cap rate compression? And number two, competition, are you seeing more sort of private equity come into the space or not?

I think it is competitive. It's not just private equity funds, but we've seen examples of family offices, for instance, being competitive in some of these smaller portfolio opportunities out there. And for us, what's really important is -- and Ken can share in a minute on this, is we have a very, very wide acquisition funnel that we're reviewing.

I don't want to give you the stats, but it's a large acquisition funnel that we review every week on multiple basis. I don't know, Ken, if you want to share any thoughts on just our pipeline and the funnel and everything else that we're looking at?

Yes. We're not seeing -- what I will tell you is there's not a shortage of opportunities to look at, especially when you talk about -- we have a pretty wide funnel, both on the, what you would call industrial and the retail side. We have -- every week, we have 2 pipelines where we're parsing through a lot of opportunities.

We spend -- some of that time we spend in our pipeline is simply calibration on what's going on out in the marketplace, what type of opportunities are available. But what I would tell you is the universe of opportunities has done nothing but grow for the last several years. It's not a static level of opportunities. So we spend a lot of time reviewing everything that's out there.

The next question comes from the line of Brad Heffern with RBC Capital Markets.

I think most things have been asked. I just have a couple of modeling questions. On the theater ABR for the new tenants is -- what's in the current ABR just that 700,000 times 4? And then as kind of they pay more rent over the next 24 months that will just gradually move up to that $5.2 million number?

Yes, that's right. I mean we expect that to get to about -- on the incremental, the new theater operators, we expect that to get a little over $2 million this year. About $2.5 million, I think, is where we're expecting to get to this year, relative to the $5.2 million kind of stabilized number. So that's what's built into our model.

Okay. Got it. And then any commentary on how we should assume the settlement of the forward equity? Is it just sort of ratable with the acquisitions for the year?

Yes. Yes. We tend to fund, I don't think about funding acquisitions, it's about 50% equity, 40% debt, about 10% free cash flow. So yes, ratably, we'll bring that down as we close acquisitions.

The next question comes from the line of John Massocca with Ladenburg Thalmann.

I know you've talked a bunch about targeted property types. But I was curious what kind of cap rate differential you're seeing on kind of manufacturing industrial assets versus for traditional retail properties, if any?

I think that if you're comparing different -- retail is a big -- it's a big universe, right? So if we're talking about car washes, especially with some of the public car wash operators, those are very aggressive cap rates, as you know, same with QSRs. And I would say probably cap rates maybe inside of some of the industrial opportunities that we're looking at. For us, when we're looking at our industrial business, it really starts first, obviously, with real estate industry credit. It's a whole confluence of discussions with our teams to try to think about where is -- where we can be competitive with a particular operator, especially on the light manufacturing industrial side. So I would say that cap rate wise, overall, the industrial space would be slightly lower on average to our overall the way we look at industrial.

It's hard to put a cap rate differential to it, like is it because you've got very different cap rates within each of these different verticals. Car washes are lower than, say, health and fitness. Home decor is going to be a little wider, warehouse clubs will be probably even lower than decor. So it really depends on the mix of things. And that's where we spend a lot of time trying to balance that mix of different industry -- different sub industries within these larger 2, 3 groups that we're looking at trying to balance that and trying to generate that positive spread to our weighted average cost of capital.

Okay. And then moving on to the in-place portfolio, what is your kind of remainder of the year and long-term outlook for credit loss? Obviously, 4 basis points is a really strong number. And it sounds like the color from tenants is positive. But what is kind of maybe being roughly assumed in guidance and even beyond 2022?

Mike, do you want to get it?

Yes. I mean it's sub-1%. And we're obviously not modeling perfection. My biggest fear today is that when you've hit 0, there's no place to go but down. So we do have an assumption, it's a little less than 1%. We used to model 1%. So it's sub-1%. But it's all kind of unidentified is the placeholder for what you don't know. And if we do better than that, then obviously that would drive our numbers higher.

Are you still there?

It seems like we have lost the line from the participant. Yes. So we will move on to the next question now.

(Operator Instructions) The next question comes from the line of Linda Tsai with Jefferies.

Just going back to some earlier comments, when you say there's a 50 basis points portfolio premium in the market these days, how big does the deal size have to be for you to see that?

Well, that's kind of just like a very hot [list] overall average. But I would say things that are worth with $100 million to 3 -- $2 billion, I'd say that, that range. It’s interesting like $2 billion opportunities could get really attractive financing in the marketplace. And obviously, that's -- there's a confluence of private equity firms as well as public companies that can pursue something in that sort of scale.

When you get them to the $100 million range, when you bring all kinds of other different type of parties to the table. There's family offices, there's private equity firms. There's companies like ourselves that can be very competitive there. So we're seeing that premium across the board. It's -- and look, it ranges 35 to 50 basis points at any given time. But it is competitive in these portfolios. So we're certainly seeing that today.

And then you discussed having improved relationships with tenants. How do you define that? And what's driven this change?

Well, first, it's been something that we really focused on since I got with this company. And you can see it in some of those charts that we put out where that acquisition related to where we have existing relationships. I think we put that in the investor deck out there. It's something that's really important for us. I can tell you that as part of our year-end process, especially with our asset management team. It's something really important to Ken where we really focus on trying to have repeat business because I think that's where ultimately we’ll have a competitive advantage.

Sure anybody can buy an asset and get financing. But we can be on that really intimate conversation with an existing tenant, where they need something from you or they need money, they need a change to the lease, they needed change for the property complexion to what they own, it just gives you an advantage and a seat at the table. And we think that will over time drive better returns that way as well as just trying to find new tenants and new opportunities.

So I can tell you, it's getting better. It's a really important part of what we're doing. I'm spending my own personal time with the teams on trying to talk about how to improve our new business effort as it relates to existing tenant base. Look, that's not the only area of growth for us, but it's important.

Ladies and gentlemen, we have reached the end of question-and-answer session. And I would like to turn the call back to Jackson Hsieh for closing remarks. Over to you, sir.

Thank you very much. Look, I appreciate everyone taking the interest in hearing our story. I think the results speak for themselves. I'll just leave you with a couple of comments that our team, our portfolio and our balance sheet are just poised to really have an excellent 2022 and beyond. So look forward to more quarters like this, and appreciate your interest. Thank you.

Thank you. This concludes today's conference. Thank you. You may disconnect your lines at this time. Thank you for your participation.