Essential Properties Realty Trust, Inc.

2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. This conference call is being recorded, and a replay of the call will be available two hours after the completion of the call for the next two weeks. The dial-on details for the replay can be found in yesterday's press release. Additionally, there will be an audio webcast available on Essential Properties' website at www.essentialproperties.com, an archive of which will be available for 90 days. On the call this morning are Pete Mavoides, EPRT's President and Chief Executive Officer, Mark Patton, EPRT's Chief Financial Officer, and Rob Salisbury, EPRT's Senior Vice President and Head of Capital Markets. It is now my pleasure to turn the call over to Rob Southberry.

Thank you, Operator. Good morning, everyone, and thank you for joining us today for Essential Properties' fourth quarter 2023 earnings conference call. During this conference call, we will make certain statements that may be considered forward-looking statements under federal securities law. 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 those 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 yesterday's earnings press release. With that, I'll turn the call over to Pete.

Thank you, Rob, and thank you to everyone joining us today for your interest in essential properties. We finished 2023 with a strong $315 million of investments in the fourth quarter and just over a billion invested for the full year. This translated to AFFO per share growth of 8% in 2023, which we are proud of given the industry backdrop of heightened volatility in the capital markets and wider bid-ask spreads in the transaction markets, serving as a testament to the resiliency of our differentiated investment strategy and variable portfolio. As the fourth quarter results indicate, our portfolio continues to perform at a high level, with unit level rent coverage of 3.8 times, occupancy of 99.8, and same store rent growth of 1.5%. The overall health of our portfolio is a result of our disciplined underwriting process which focuses on growing operators in durable, service, and experience-based industries and owning granular and fungible properties that generate strong cash flow for these operators. By underwriting and focusing on all three risk factors associated with net lease real estate investing, corporate credit, unit-level performance and lease risk, and real estate basis, we're able to construct and own an exceptionally durable portfolio of properties. Regarding our strong and consistent year of investments, we remained active in support of our longstanding tenant relationships as they increasingly turned to us as a valued and reliably consistent capital provider to grow their businesses given the limited funding availability in the bank market and the continued dislocation in the credit markets. and the diminished level of competition from other net lease investors. With quarter end pro forma leverage of 4.0 times and liquidity of nearly $800 million, our balance sheet continues to be well capitalized for continued investment activity as we look to aggressively capitalize on these trends that are creating the opportunity to generate historically wide risk-adjusted returns. We are affirming our 2024 AFFO per share guidance of $1.71 to $1.75, which implies year-over-year growth of 5% at the midpoint. Turning to the portfolio, we ended the quarter with investments in 1,873 properties that were 99.8% leased to 374 tenants operating in 16 industries. Our weighted average lease term stood at 14 years at year end, which is consistent year over year, with only 4.7% of our ABR expiring through 2028. From a tenant health perspective, our weighted average unit level rent coverage ratio was 3.8 times this quarter, down slightly from last quarter, driven in large part by investment activity. Our same-store rent growth in the fourth quarter was 1.5%, an improvement from 1.2% in the third quarter, driven primarily by positive leasing results and asset management activities, including at a gym operator that we discussed in our last earnings call. During the fourth quarter, we invested $315 million through 43 separate transactions at a weighted average cash yield of 7.9%, representing a continued increase in pricing power for sale leasebacks, as we noted on the last earnings call. Our investment activity in the quarter was broad-based across most of our industries, with no notable departures from our well-defined investment strategies. The weighted average lease term of our investments this quarter was 17.6 years, and the weighted average annual risk escalation was 1.9%, generating an average gap yield of 9.1%. Our investments this quarter had a weighted average unit level rent coverage of 3.3 times, and the average investment per property was 3.0 million. Consistent with a key tenant of our investment strategy, 97% of our quarterly investments were originated through direct sale leaseback transactions, which are subject to our lease form with ongoing financial reporting requirements. 72% contained master lease provisions, and 96% were generated from existing relationships. Looking ahead to the first quarter of 2024, we have closed $40.9 million of investments to date and a cash yield of slightly above eight. And our pipeline remains robust as an increasing number of middle market companies are seeking salee spec capital as a financing alternative as other sources of capital have become unavailable or uneconomic. While we have capitalized on the dislocation in private credit markets generating heightened pricing power with favorable lease terms, we are cognizant of the potential for easing in the monetary policy over the course of 2024, which could alleviate financial conditions, bringing with it a lower cap rate environment. Should our pricing power diminish later this year, we would hope to benefit from a commensurate reduction in our cost of debt capital, such that our net investment spread is maintained. As a value-added capital provider, we're able to dynamically price our sale leaseback transactions, which over time has afforded us the ability to generate investment returns in excess of market pricing. That being said, our current pipeline today suggests that our investment cap rates should be stable in the near term. From a tenant concentration perspective, our largest tenant represents 3.8% of ABR at quarter end, and our top 10 tenants now account for only 18.1% of AVR. Tenant diversity is an important risk mitigation tool and a differentiator for us, and it is a direct benefit of our focus on unrated tenants and middle market operators, which offers an expansive opportunity set. In terms of dispositions, we sold nine properties this quarter for $30.6 million in net proceeds at a 6.6% weighted average cash yield with a weighted average unit level coverage ratio of 3.5 times. As we have mentioned in the past, owning fungible and liquid properties is an important aspect of our investment discipline as it allows us to proactively manage industry, tenant, and unit level risks within the portfolio. Going forward, We expect our disposition activity over the near term to remain relatively in line with our trailing eight-quarter average, driven by opportunistic asset sales and ongoing portfolio management activity. With that, I'd like to turn the call over to Mark Patton, our CFO.

Mark? Thanks, Pete, and good morning, everyone. As Pete noted, we had a great fourth quarter, which was punctuated by a strong level of $315 million of investments at a 7.9% cash cap rate. Among the headlines from the quarter was our AFFO per share, which reached 42 cents. That's an increase of 8% versus Q4 of 2022. On a nominal basis, our AFFO totaled $67 million for the quarter. That's up $11.1 million over the same period in 2022, an increase of nearly 20%. This AFFO performance was in line with our expectations when we updated our guidance last quarter. For the full year ended December 31st, 2023, our AFFO per share totaled $1.65 per share, which is an increase of 8% over 2022. On a nominal basis, our full year 2023 AFFO increased by 21% over 2022, totaling $253.4 million. Total G&A was $7.3 million in Q4 of 2023 versus $6.5 million for the same period in 2022, with the majority of the increase relating to an increase in compensation expense. Our recurring cash G&A as a percentage of total revenue was 5.2% for the quarter and 5.9% for the full year of 2023, which compares favorably to the 5.8% and 7% respectively for the quarter and full year of 2022. We continue to expect that on an annual basis, our cash G&A as a percentage of total revenue will decline in 2024 as our platform generates operating leverage over a scaling asset base. Turning to our balance sheet, I'll highlight the following. With our $315 million of investments in Q4 of 2023, our income-producing gross assets reach $4.9 billion at year-end. From a capital markets perspective, in the fourth quarter, we completed the sale of approximately $47.9 million of stock, all on a forward basis on our ATM program. Additionally, during the quarter, we settled $190.6 million of the forward equity we raised in September. At year end, our balance of unsettled forward equity totaled $130.6 million. Our pro forma net debt to annualized adjusted EBITRE, adjusted for unsettled forward equity, was 4.0 times at year end. We are committed to maintaining a conservative balance sheet with best-in-class leverage and liquidity. At year end, our total liquidity stood at nearly $800 million. Our conservative leverage, robust balance sheet, and significant liquidity positions the company well to fund our growth plans for 2024 based on the pipeline we see today. Finally, the strong performance to end the year in 2023 our conservatively capitalized balance sheet, and the investment pipeline we're seeing all support our previously issued 2024 AFFO per share guidance range of $1.71 to $1.75, which implies a 5% growth rate at the midpoint. It's also important to note that with the ATM equity issues achieved this quarter, we do not require additional external equity capital to achieve our 2024 guidance. With that, I'll turn the call back over to Pete.

Thanks, Mark. In summary, we are quite pleased with our fourth quarter and full year results and remain excited about the prospects for the business. Operator, please open the call for questions.

You will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The question tone will indicate that your line is in the question queue. Star 2, if you would like to remove your question from the queue. Using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Please while we poll for questions. Question comes from Connor Siversky with Wells Fargo. Please question.

Good morning out there, and thank you for the time. A quick question on the liquidity profile, understanding that a chunk of that $800 million in liquidity is really predicated on the revolver. I'm curious, with the robust pipeline you mentioned, how comfortable would you be letting leverage run towards the end of this year? And then what is the desired funding mix for each incremental acquisition between free cash flow capacity on the forward and the revolver?

Mark, why don't you tackle that one?

You got it. All right, a couple of things. In terms of just kind of funding mix, generally speaking, we had been largely probably 60-40 in terms of equity and debt, but now with almost $100 million of free cash flow, that's probably more like 60 equity, 30 debt, and 10 is kind of your free cash flow. So That's kind of how we think about looking at liquidity. In terms of running leverage up, I guess what I would say is we've said pretty consistently that if we were to choose a range that we thought was reasonable in terms of leverage, it would be four and a half to five and a half times. So if you think about that and we're sitting at four times now, we've got a fair amount of runway to go before we ever even kind of step into that range.

Next question, operator.

Our next question is from... Hold on, hold on, operator.

Connor, are we good? Yeah, no, I'm good. I think the line cut out for a second, but I'll leave it there for now. Thank you.

Your line did just cut out at the very end there.

Sorry, I'm just kidding. All right, next question, please, operator.

Okay, our next question comes from Josh Dennerling with Bank of America. Please proceed with your question.

Hi, good morning. This is Farrell Grantham on behalf of Josh. My first question I wanted to ask, if you can go into a little bit more detail on the unit level rent coverage and the slight downtick or how that was attributed to recent acquisitions.

Yeah, I mean, listen, we provide, you know, pretty granular detail or supplemental on the unit level rent coverage. Clearly, the headline number, you know, decreasing from You know, down 20 basis points, some of that is attributable to, you know, the acquisitions in the fourth quarter as well as the acquisitions in the third quarter, both of which were at 3.3 times. And there's always some ebbs and flows with different operators and different reporting periods and the like. But, you know, overall, you know, the portfolio is in a great spot, and we're not seeing any concerns that, you know, give us pause.

Great, and I guess on the flip side of that, the increase in your same-store rent growth, is this being driven off of either different lease terms, higher escalators, or what type of driver that's going into that?

Yeah, I mean, that's just going to be the rent escalations built into our contracts. Generally, they range from anywhere between one and a quarter on up to two. On average, it's one-seven, I believe. There's different compounding periods. And, you know, clearly at 1.5, that represents a pretty solid flow through of those escalations for us. And, you know, that's going to kind of ebb and flow as we've disclosed.

Okay, great.

Thank you so much.

Thank you.

Our next question comes from Smidious Rose. Please proceed with your question.

Hi, thank you. I just wanted to ask you a little bit. You talked about some of the more traditional sources of capital either not available or just becoming too expensive. Are you seeing other kind of competitors come to the market, or do you have sort of a relative advantage at this point as you look for new acquisition opportunities in this environment?

Yeah, thanks, Mies. And I think, you know, that's a great question. I appreciate you asking it. You know, we have a relative advantage to alternative sources of capital currently, like, you know, the bank market and the high-yield market and leveraged loans and private credit. A lot of those traditional sources of capital have been priced inside of, say, at least back capital. In the current environment, we're able to compete pretty competitively with those sources. And then secondarily, the traditional sale leaseback market participants are somewhat limited, particularly from the private buyers who are more reliant on debt financing and accessing the ABS market. A lot of those guys are a little more conservative in the current environment. So both from an alternative capital perspective and from a competitor perspective, we're finding nice opportunity to put capital to work.

Okay. And then just, you know, you mentioned you have a lot of room to draw on the, you have the revolver, but if you were going to just issue, you know, kind of 10 year unsecured debt today, can you just give us a sense of where you think it would price?

Yeah, I think the best mark would be our current bonds, which are out there trading, and they're kind of in the mid-sixes. I would think that, you know, hopefully a new issuance out the yield curve could price inside of that, so call it low to mid-six.

All right. Thank you. Appreciate it. Thank you.

Our next question comes from Eric Borden with BMO Capital Markets. Please proceed with your question.

Hey, good morning out there. Just understand that the majority of the acquisitions completed in the fourth quarter was heavily driven by existing relationships, but looking ahead and given the limited access to the bank markets for some of your potential tenants, are you seeing an uptick in new potential partners in the pipeline?

You know, that's a great question. I generally... you know, tell people we like to see 80, 20 or 75, 25% mix where we're 75% existing relationships, 25% new relationships, because it's important for us to continually source new relationships because, you know, eventually some relationships outgrow us. You know, clearly in the fourth quarter at 96, it's more skewed towards existing relationships. You know, in the current environment, you know, we try to, maintain our most profitable relationships and service, you know, the relationships that generate the best risk-adjusted returns and, you know, take care of, you know, the good clients and the reliable clients, and that's kind of what we're doing. You know, I think in a more normalized environment, we would add back down to that 75-25 or 80-20, but, you know, clearly... partnering with long-term relationships is bringing value to us and we're bringing value to them. And, you know, it's a dynamic market that, you know, we're happy to have those relationships.

Okay, that's helpful. And then maybe on the disposition front, you know, just given the potential for lower yields in the back half of the year, you know, is there potential for that quantum of, total dispositions to rise above your four-quarter trailing average, just given the benefits there?

Yeah, I think the expectation should be it's going to be more towards our eight-quarter average. Clearly, the current market for dispositions is a bit challenged. We have a very granular and fungible portfolio, but the lack of financing out there is making it a little more difficult to sell assets than in a normalized environment. And, you know, we will focus on kind of managing individual tenant and industry exposures and getting out of, you know, any risky assets that we see, but I would expect it to be closer to the eight quarter average. And really, we don't see the need to, we don't see the need to you know, lean into dispositions to generate the creative capital given where we are from a balance sheet perspective.

That sounds great. I'll leave it there. Thanks, guys. Great. Thank you very much.

Next question comes from Nate Crossett with BNP Paribas Asset Management. Please proceed with your question.

Nate, this is Nate Crossett. Nate, I got to tell you, you came through broken up.

I didn't catch that question.

I don't know if you're on a handset or not. He might come back in. Why don't we just... Next question then. Yeah, please.

Question comes from Greg McGinnis from Scotiabank. Please proceed with your question.

Hi, good morning. This is Elmer Chang on with Greg. Just on tenants, is there more conservatism on bad debt expense or credit losses baked into 2024 guidance versus the, say, 25 to 40 basis points you've experienced historically? given uncertainty with the consumer and then how much of that is tied to Experiential operators feeling demand pressures from consumers either returning to work or still still feeling the effects of inflation Listen we have

conservative rent loss assumption and credit loss assumptions built into our guidance as we, you know, always do. We take a very close look at our portfolio and, you know, look at individual exposures to include, you know, the credits, the unit level coverage and our rent basis to try to anticipate where we might take any rent loss. And, you know, there's a wide range of assumptions, you know, baked into guidance around that. As we've said in the past, generally when you see us raising guidance throughout the year, it tends to be, you know, partially driven by the fact that those credit losses aren't really coming to play. So the 40 to 50 basis points, you know, we don't give specific guidance on the numbers in there. But, you know, certainly the range of guidance, you know, has a range around that, I think it's fair to say. You know, we really don't. have specific concerns about the consumer and specifically as it relates to the service and experience based industries that we're in. Our experiential tenants are doing great and continue to, we continue to see, you know, good sales trends there and coverage improvements. And, you know, our credit loss assumptions are going to be much more specific to individual situations and investments. But yeah, you know, that's baked into guidance and, you know, we feel good about the guidance that we've reiterated today.

Okay, thank you. And then you mentioned those experiential consumers, not being concerned about them, but within the portfolio of early childhood and casual dining operators, how would you characterize their ability to pass through higher costs to consumers now that it seems inflation has been easing a bit and given you've talked about these types of businesses not being able to raise rates in the past several quarters?

Yeah, listen, I think early childhood is going to be much different than casual dining. Our early childhood education providers have you know, have done a good job of passing through increases. It tends to be lumpy around semesters and new students, but we've seen, you know, increasing trends there. I think the casual dining sector, the price is a little more, A, competitive, B, less discretionary, and certainly those guys are going to have less ability to drive through inflationary pressures, and we are seeing some margin compression there. But ultimately, in all those industries, those end up being equity owner risk and not landlord risk, and we don't see any outsized losses flowing through the portfolio in general and then in specific in either one of those industries.

Okay, great. Thank you. Thank you.

Our next question comes from . Please proceed.

Hey, good morning.

I hope you can hear me. First question is on, you know, I guess there's a new tenant in your top tenant list here, Tidal Wave Auto Spa. So maybe can you spend a moment talking about them, the opportunity to do more with them, and your overall exposure to, you know, kind of the car industry wash, car care vertical, which I think is about 15% here. And that's it. Thanks.

Yeah, so Tidal Wave is a tent that we've been doing business with for a number of years, a number of deals over the years. And they've kind of eventually moved into our top 10. It's about a 200-plus unit chain. It's currently led by its founder and the company was founded back in 1999. So, you know, a well-run company. It's been in business for a long time and we're happy to have them in our top 10. Generally, you know, we're, as we've said in the past, very comfortable with car washes given the trends in the industry and the stability of the cash flows and the high margins and the solid rent coverage. And that's why you see it as one of our top industries. The exposure kind of came back a little bit in the last quarter, but we continue to see good opportunities to invest in that space and we like it. So we'll continue to do so.

And then maybe I think you made a comment on your pipeline saying that the cap rates in there suggest that cap rates should be stable near term. So can you spend a moment or two on talking about the pipeline, what's in there, any new categories?

and broadly your expectation for cap rates given the the choppiness in the in the capital market thanks yeah um you know as we said on the prepared remarks the pipe pipeline's full and and you know when you're running a business that's you know nearly 100 percent sale leaseback and nearly 100 you know follow-on business um you know your your new pipe your forward pipeline is going to look a whole lot like your portfolio and And that's, you know, what it looks like. So really nothing new. We're investing across all our industries and, you know, largely with existing relationships. You know, in terms of cap rates, as the commentary around the competitive landscape would suggest, they're remaining stable. And, you know, clearly, you know, I think around an eight. You know, as I said on the prepared remarks, we would expect, you know, once the market normalizes and competition, you know, comes back in a more normalized fashion, we would expect some downward pressure on cap rates. Clearly, if there's, you know, if interest rates trend down, we would expect some downward pressure on cap rates. But, you know, we're just not seeing that as we sit here in the first quarter. I appreciate that.

And maybe on the terms that you're getting, given the lack of alternatives that a lot of these tenants have, you've been able to get longer walls, better bumps. I'm curious if you're able to get any pushback from any of those folks, and could we see those terms get even better near term? Thanks.

Yeah, you know, listen, every transaction we negotiate is a negotiated transaction. You know, we've negotiated... deals with these people in the past. So, you know, there's a lease in place and the terms of the prior transaction tend to bias the new transaction. Our investment team has done a great job proving the overall terms. You know, I look back in the first quarter of 2022, our average rent escalation was 1.4 and, you know, last quarter it was 1.9 and the quarter before that it was 2.0. I would – and really for the whole year, 2019, 2019, I would not set the expectation that that's going higher. But, you know, we continue to negotiate the best terms that we can from these relationships. And, you know, we'll see what the market bears. I did make – I would point out on the – Prepared remarks, you know, our weighted average lease term at 14 years is the same as it was a year ago, which, you know, would speak to the benefit of the long-duration leases that we added this past year, which is a good spot to be.

Appreciate the call. Thanks, Handel.

Our next question comes from John Masoko with B. Riley Securities. Please proceed.

Good morning. Good morning, John. Good morning, John.

So maybe to stick with the pipeline, do you have kind of like a rough number or brackets around the gross size of that today? I know you kind of mentioned it's full, but just maybe number-wise, what you would be thinking?

You know, typically we point people to our eight-quarter average as a good indicator of what to expect. And, you know, I don't know what that exact number is, but, you know, somewhere between 250 and three.

That's helpful. And then, you know, in terms of volumes, have you seen any maybe reluctance on the part of sale leaseback partners to kind of come to market or close deals just given some of the interest rate volatility? I mean, essentially, are your partners on the selling of the property side maybe holding out for better cap rates or lower costs of alternative financing?

Yeah, there's some of that. There's, you know, clearly, you know, overall transaction volume in the single tenant net lease market is down 40%. And I think a lot of that are people not, you know, choosing not to transact in the current market environment. But the flip side of that is, you know, these operators are running their businesses and they have the opportunity to grow their footprints by, you know, buying smaller competitors or opening new units. And you know, rent is, you know, a small part of that overall investment decision for them. And, you know, they're aggressively growing and, you know, choosing to use us as a capital partner to do that. So, you know, while there is muted volume across the board, you know, we still see an ample opportunity set to transact.

Okay. And then maybe in terms of the competitive environment, you know, for sale-leaseback particularly? I mean, how does that look today? I mean, setting aside kind of the bank financing market or any kind of other types of financing you compete with, I mean, how many competitors are there out there today roughly, and how does that, you know, compare to this time last year or maybe even a couple of years ago?

Yeah, listen, I don't think it's materially different from where we were a year ago because, you know, it feels like the overall, you know, capital market environment is about the same, if not, you know, improved slightly. But two years ago, there was, you know, half dozen to, you know, 10 kind of new private capital-backed buyers who were coming to the market trying to, you know, build funds and platforms. And by and large, a lot of those guys are, you know, kind of not currently investing at the levels that they would have hoped. And so that Private buyers is greatly diminished. We also, on occasion, compete with 1031 buyers, people coming in with large exchanges who are looking to place tax-deferred capital, and there's not a lot of people who are generating gains from the sale of real estate assets, and that source of capital is largely dried up and not competing. There's plenty of public market participants. You guys follow them and know kind of where they are and what their appetites are. And so we certainly see, you know, competition here and there. But overall, you know, it's a diminished level of competition that we're benefiting from.

Okay.

That's helpful. And that's it for me. Thank you very much. Thanks, John. Appreciate it.

If you would like to ask a question, please press star 1 on your telephone keypad. The next question comes from Keevan Kim with True Securities.

Your question. Hey, good morning.

You have Kyle on for Keevan. I think on the second quarter call, you guys mentioned approximately 90 basis points, maybe are on the watch list with more than half of that in beaters. So can you just provide an update on how that's trended recently?

Yeah, so our current watch list, which I'll remind you we defined as the intersection of credit risk as a single B minus or below and coverage risk as 1.5 or below. It's currently 70 basis points, so 20 basis points inside of where it was in the second quarter, and it's still 50% theaters.

Gotcha. Thank you. Thank you. Operator, we got any more questions?

Next question comes from Jim Cameron with Evercar ISI.

Good morning, thank you.

What is your question?

Sorry, good morning, thank you. Pete, you and your team have worked with these middle market credits for a long time, obviously, and it seems like the business is pretty well set up with the unit and parent or entity financial reporting requirements. But what are some of the flashpoints that you monitor or set off sort of warning signs in your mind that, you know, something, a problem might be afoot with a given credit? I mean, is it when coverage declines from an original 3.5 to 2.5 or they've been, you know, round them up and collect the rent three months in a row tardy. I'm just trying to, I'm curious, what are those, what are some of those markers historically that have helped you monitor and proactively kind of engage with those tenants?

Yeah, you know, listen, I think, you know, I wouldn't even call it an early warning sign, but, you know, late payers or, you know, guys who aren't paying timely, you know, are certainly, you know, top of the list, you know, guys who are, laid on their rent, I would say generally that tends to be less than a handful of actors. And historically, it's the same guys that you're arm wrestling with. But, you know, currently that's, you know, not a material amount. But more importantly, it's monitoring the trends at the unit level because that's ultimately our collateral and our first form of payments is solid cash flow at the unit level One of the reasons we provide such disclosure around where our rents are covered and how they're covered, but from our analysis, it's more just tracking trends and anything that's falling off or below sector averages. When you have the amount of data that we have for each of these given industries, average sales per site, margin per site, rent growth per site, sales growth, all of that, you know, trying to see outliers as to performance at the unit and understand that and, you know, to the extent that something arises that's concerning, then you're taking a deeper dive into the corporate credit to understand, you know, if our asset fails as a source of rent payment, you know, how solid is the corporate credit that's backing that lease and understanding the risk there. And then ultimately, you know, making a sell decision on assets that you don't think have the durability that you want and expect in the portfolio.

That seems logical. And just one follow up to that. Do you have like substitution rights in your master leases and whatnot? I mean, you said you might obviously for ailing assets, maybe look to sell them. But do you have other protections where you could either add other collateral or? maybe work with the retailer to put a performing asset in and take the low performing asset out?

Yes. Many of our leases do have substitution rights where the tenant would be incented to take and exit a sub-performing asset and substitute it in. I would say, more importantly, it's really just having good relationships and working with these tenants because You know, our interests are aligned and not, you know, keeping a site that doesn't work online and operating. You know, so we may re-tenant a site and, you know, the tenant makes a toll for the contract rent that was in the lease, the delta between that and the, you know, underlying sub-tenant rent. You know, so there's a lot of ways to work through it, I would say. One of the benefits of being as granular as we are at the asset level, it's pretty easy and painless to work through individual site level issues.

Great. Appreciate the update. Thank you. Great. Thank you.

No further questions at this time. I would now like to turn the floor back over to Pete Mavoides for closing comments.

Great. Well, Nate, we're sorry we didn't get your question in. If you want to follow up with Mark or Rob afterwards, we'd gladly kind of answer any questions that you might have had. But generally, you know, congrats to the team for an excellent quarter and an excellent year. We feel pretty proud about the results we posted last year, and we're excited about this year. We're off to a great start. So thank you all for your participation today. We look forward to engaging with you all at the upcoming conferences, and have a great weekend. Thank you, guys.

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