Essential Properties Realty Trust, Inc.

Please stand by, your program is about to begin. Good morning, ladies and gentlemen, and welcome to Essential Properties Realty Trust's second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask questions by pressing the star and 1 on your telephone keypad. You may remove your question by pressing star 2. This conference call has been recorded and a replay of the call will be available 3 hours after the completion of the call for the next 2 weeks. The dial-in 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 .essentialproperties.com, an archive of which will be available for 90 days. On the call this morning are Pete Mavoudis, President and Chief Executive Officer, Mark Patton, Chief Financial Officer, Max Jenkins, Chief Operating Officer, AJ Peel, Chief Investment Officer, and Rob Salisbury, Head of Corporate Finance and Strategy. It is now my pleasure to turn the call over to Rob Salisbury. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining us today for Essential Properties' second quarter 2025 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 SEC and in yesterday's earnings press release. With that, I'll turn the call over to Pete.

Thanks, Rob. And thank you to everyone joining us today for your interest in Essential Properties. In the second quarter, despite a macroeconomic backdrop that remains volatile, the operating environment was favorable for our business as our team continued to source attractive investment opportunities, focusing on middle market sale leasebacks with growing operators within our targeted industries. During the quarter, we continued to support our existing relationships, which contributed 88% of our $334 million of investments, underscoring the value of recurring business with our tenant base. Pricing was favorable in the quarter, with a weighted average cash yield of .9% and a particularly strong average gap yield of 9.7%. Our portfolio continued to perform well, tenant credit trends, and same store rent performance healthy and ahead of our budgeted credit losses. We further extended our capital position during the quarter, issuing $119 million of equity through our ATM program. Our pro forma leverage is 3.5 times, and we have $1.3 billion of liquidity. This positions us well to continue to invest, support our relationships, and grow our portfolio while generating sustainable earned growth for our shareholders. With the portfolio performance and investment activity ahead of budgeted expectations, we are increasing our 2025 AFFO Per Share Guidance to a range of $1.86 to $1.89. On our first quarter earnings call, we discussed our expectation that competition could build as capital markets normalize, resulting in cap rate compression. Though we have not yet seen this materialize in our opportunities set, we continue to expect our investment cap rates in 2025 to trend lower. Having closed $642 million of investments in the first half of the year, our pipeline today gives us conviction to also increase our investment guidance range by $100 million to a new range of $1 billion to $1.2 billion. Importantly, we do not need to raise any incremental capital to achieve our guidance range this year. If we executed at the midpoint of our investment guidance range and did not raise any additional equity capital, our year-end leverage would be under four times, leaving us ample capital runway into next year. Turning to the portfolio, we ended the quarter with investments in 2,190 properties that were leased to over 400 tenants operating in our targeted core industries. Our weighted average lease term stood at 14 years at quarter end in line with a year ago, with just .9% of our annual base rent expiring over the next five years. From a tenant health perspective, our weighted average unit level coverage ratio was 3.4 times this quarter, indicative of the profitability and cash flow generation by our tenants at the unit level. With that, I'll turn the call over to Max Jenkins, our Chief Operating Officer, who will provide an update on our investment activities and the current market dynamics.

Thanks, Pete. On the investment side, during the second quarter, we invested $334 million at a weighted average cash yield of 7.9%. Our investment activity in the quarter was broad-based across most of our top industries, with no notable departures from our investment strategy. This quarter, our investments had a weighted average initial lease term of 19.5 years and weighted average annual rent escalation of 2.2%, generating a strong gap yield of 9.7%. Our investments this quarter had a weighted average unit level rent coverage of 3.4 times, reflecting a conservative rent level and healthy unit profitability for our operators. During the quarter, we closed 25 transactions comprising of 77 properties, of which 93% were sale leasebacks. The average investment per property declined to $4 million this quarter, as our deal activity was characterized by granular freestanding properties, which is one of the core elements of our strategy. Looking ahead, our investment pipeline remains strong across all of our targeted industries. Pricing in our pipeline is relatively consistent with our second quarter transactions, with cap rates in the high 7% range and strong contractual escalations, which is supportive of our long-term growth trajectory. Combined with our investments of $642 million in the first half of the year, we have sufficient line of sight to support our increased full-year investment guidance range of $1 billion to $1.2 billion. With that, I'll turn the call over to A.J. Peel, our Chief Investment Officer, who will provide an update on our portfolio asset management activities.

Thanks, Max. At a high level, our portfolio credit trends remain healthy, with same-store rent growth in the second quarter of .4% and occupancy of 99.6%. As a reminder, the weighted average lease escalation in our same-store portfolio is lower than our overall portfolio, as the higher lease escalations on investments executed over the past several quarters have not entered the same-store pool yet. While there were no noteworthy credit events during the second quarter, we received resolution regarding the Zipf's carwash bankruptcy. As a reminder, Zipf filed for bankruptcy earlier this year, at which time we owned three properties representing approximately 20 basic points of ABR. Down from a peak exposure in 2017 of 16 sites with over 5% of ABR. Of the three sites that remained in our portfolio at the time of bankruptcy, we sold two, and one remains leased to the operator. The overall recovery rate was consistent with our historical recoveries and in line with our budgeted credit loss assumptions. From a tenant concentration perspective, our largest tenant equipment share represents .7% of our ABR at quarter end. Our top 10 tenants account for just .6% of ABR, and our top 20 account for .8% of ABR. Tenant diversity is an important risk mitigation tool, and it is a direct benefit of our focus on middle market operators. On the disposition front, we had an active second quarter selling 23 properties for $46.2 million in net proceeds. This represents an average of approximately $2 million per property, highlighting the importance of owning fungible, liquid properties, allowing us to proactively manage portfolio risk. The dispositions this quarter were executed at a .3% weighted average cash yield. Over the near term, we expect our disposition activity to be more muted, driven by opportunistic asset sales and ongoing portfolio management activity. With that, I'd like to turn the call over to Mark Patton, our Chief Financial Officer, who will take you through the financials and balance sheet for the second quarter.

Thanks, AJ. Overall, we were pleased with the second quarter results, highlighted by the strong level of Max outlined, at a .9% cash cap rate. Our AFFO per share totaled 46 cents, which represents an increase of 7% versus Q2 2024. On a nominal basis, our AFFO totaled $93 million for the quarter, which is up 21% from the same period in 2024. This AFFO performance was consistent with our expectations, and is reflected in our guidance range. Total G&A in Q2 2025 was $10.7 million versus $8.7 million for the same period in 2024, which is consistent with our budgeted expectations. The majority of the -over-year increase is related to increased compensation expense as we continue to expand our team in support of driving our growth ambitions. Our cash G&A was $7.2 million this quarter, which is consistent with our guidance range of $28 million to $31 million for the year, and represents just .2% of total revenue, down from .6% the same period a year ago. We declared a cash dividend of 30 cents in the second quarter, which represents an AFFO payout ratio of 65%. Our retained free cash flow after dividends, which we view as an attractive source of capital to support our growth, continues to build, reaching $34.4 million in the second quarter, equating to over $130 million per annum on a run rate basis. Based on our investment guidance for 2025, that would represent more than 10% of our capital needs to fund our external growth. Turning to our balance sheet, with the net investment activity in Q2 2025, our income producing gross assets reached $6.6 billion at quarter end. The increasing scale and diversity of our income producing portfolio continues to build, improving our credit profile. On the capital markets front, we raised approximately $119 million of equity through our ATM program and settled $20 million of forward equity in the quarter, leaving us with a balance of unsettled forward equity totaling $507 million at quarter end. We expect to utilize these funds in the near term to support our investment activities and preserve our balance sheet flexibility by repaying our revolving credit facility balance in the third quarter. Similar to last quarter, our share price remained above the weighted average price of our unsettled forward equity of $30.73 at quarter end. As a result, under the Treasury stock method, the potential dilution from these forward shares is included in our diluted share count. For the second quarter, our diluted share count of $199.6 million included an adjustment for .6 million shares from our unsettled forward equity related to this Treasury stock calculation. This represented a modest headwind to our AFFO per share for the quarter, which was consistent with our budgeted expectations. Based on our current share price, we continue to expect a modest headwind again in the third quarter. Our pro forma net debt to annualized adjusted EBITDA as adjusted for unsettled forward equity was 3.5 times a quarter end. We remain committed to maintaining a well capitalized balance sheet with low leverage and significant liquidity to continue to fuel our external growth and allow us to service our tenant relationships in this choppy capital market environment. Lastly, as we noted in the earnings press release, we have increased our 2025 AFFO per share guidance to a new range of $1.86 to $1.89 representing 8% growth at the midpoint. Importantly, this guidance range requires no incremental equity issuance. With that, I'll turn the call back over to Pete.

Thanks, Mark. In summary, we are happy with our second quarter results. The portfolio is performing well, the investment market is exceptional, and the capital markets are supportive. We remain excited about the prospects for our business. Operator, let's please open the call for questions.

Thank you. And at this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw your question by pressing star two. And once again, that is star and one for your questions. We'll take our first question from Eric Borden with BMO Capital Markets. Please go ahead.

Good morning, everyone.

Pete, just with acquisitions -to-date tracking above the midpoint of your race guidance, positive commentary around the pipeline and your prepared remarks, understand that you do expect some competition here, but just curious, what's preventing you from leaning more into the acquisitions just given the presumably strong fourth quarter, but also understand there's some offset with seasonality in the third quarter? Thank you.

Yeah, listen, I think, you know, we are leaning strong into acquisitions. And as I said in the prepared remarks, the investment market continues to be pretty exceptional for us, was the word I used. So we are leaning strong into acquisitions. I think your question is more around guidance and, you know, really the guidance on investment volume more is just really conservatism because we rarely have more than 90 days of visibility on the pipeline. But you're correct. The fourth quarter tends to be elevated and we'll see what the fourth quarter brings. From an earnings perspective, you know, the fourth quarter investments don't impact 2025 a lot and more impact the out years and, you know, we'll adjust the guidance accordingly throughout the year as we always do.

Thank you. And then just on the occupancy side, you know, occupancy dips slightly sequentially to, you know, still solid 99.6%. You know, is there anything specific to call out there? And then just taking a step back as it relates to the 40-bips of total vacancy, you know, what is the quantum of assets that make up that bucket? And then can you provide an update on either leasing progressions or potential dispositions?

Yeah, listen, there's a lot in that and it really just all goes to asset management. In terms of vacancy, we have nine properties at a 2100 and I think that was up from six. Is that correct, KJ? Correct. You know, and you're talking with average property value of 3 million, you know, 27 million of value. It's not really material. There's always ebbs and flows, tenants who, you know, no longer want to be in the properties or expiring leases and we're selling those, engaging those. Anything specific you'd call out, AJ?

No, I would say the majority of the vacant is in the restaurant space. And I think what you'll see is the recoveries are consistent with our historical recoveries. We should be getting around 80 cents on the dollar when we re-let those assets or sell them off. That's really what makes up the vacant bucket today.

Gotcha. Yeah, nothing material there. And you know, I think the bigger point is, you know, the, you know, the forward indicators of risk around coverage and recover and same store sales and, you know, back to the prepared remarks and portfolio credit health is very strong.

Well, thank you very much. Appreciate the time. Okay, thank you for the questions.

Thank you. Our next question comes from Michael Goldsmith with UBS. Please go ahead.

Good morning. Thanks a lot for taking my question. Just back to the competition piece, right? You noted on the first quarter call that you expected it could to show up and it hasn't yet. So I guess, you know, what are you looking for in order for that to show up and start to drag cap rates down a little bit? Like, is it, you know, what is it exactly that you're looking for and when are you expecting that to start to impact cap

rates? Thanks.

Yeah, listen, I've been saying it for, you know, almost a year now. And you know, I really, I don't control capital or competition. And when it comes, it comes. And we just know that there's a substantial amount of capital that's been raised and targeted towards net lease investments. And we expect it to impact, you know, us in the transaction market. But you know, we continue to have an ample opportunity set. Our counterparties continue to value our consistency and reliability. And we continue to be very aggressive in deploying capital. And if you think about it, you know, an average gap yield of .7% for the type of investing we're doing is pretty extraordinary. So I don't know. I don't know when it's coming. I've been wrong, I guess, for the last two years. But you know, I'll stick to my guns and, you know, and say it's

coming. Got it. Thanks for that. And as my follow up, I think your bread and butter has been doing kind of individual deals for all properties, right? Average acquisition size of a property value of $4 million. But now the past couple quarters, you've done a couple portfolio deals. So is that going to be an, you know, as you get larger and you need to continue to acquire more, is that going to increase, become part of your repertoire? Or is this just more, just two opportunities that you have identified and you should get back to kind of doing a bunch of individual property deals going forward? Thank you.

Yeah. So the average profile of our deal is going to be, you know, $10 million to $15 million involving, you know, two to five properties with an existing tenant. And that hasn't changed. And every quarter there, you know, that can flex up to $50 to $100 million or, you know, and I think one of the reasons we provide the stats around our investments, you know, is to kind of give you a view as to our consistency there. And, you know, Max gave the commentary and the prepared remarks. And I think the second quarter was certainly consistent with past quarters. As we get bigger, we have the capacity to do bigger deals, whether it be $100 million or, you know, and we did a $100 million deal in the second quarter without, you know, sorry, that's my fault, without blowing our concentration limits. But, you know, you should expect us to continue to be very granular in our investments and in our properties.

Thank you very much. Good luck in the back half. Thank you very much. Appreciate this, Michael, for the question.

Thank you. Our next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.

Hi. Good morning. Maybe just back to the cap rate side. So, like you mentioned, the cash cap rate of .9% in QQ is pretty consistent with the past eight quarters, but then the gap cap rate was higher. So, can you go through what drove that higher? Is it due to industry mix, the strategy on lease steps, some combination or something else?

Yeah, I think it's really, Caitlin, it just comes down to the math. You know, when you have a longer average lease term, right, at .5% versus past quarters at 17%, and then you have better bumps. And I think overall, our ability to negotiate longer lease terms and better bumps is just reflective of the competition that we're facing in the market. And, you know, we're always trying to get the best economic returns we can in a deal. And ultimately, competition drives our ability to drive those numbers. And, you know, we're pretty happy with the results in the second

quarter. I guess what you said then on that competition point, because there was less competition, you were able to push it more in the second quarter?

I think that's accurate, yes.

Got it. And then sticking on the competition point, so you mentioned that 88% was repeat business. So, I guess when you think of the other 12%, could you go through some of, like, your strategy on how you identify that business? It seems like that could be a way to somewhat avoid the competition going forward, as long as you have incremental new business to go after.

Max, that's your job.

Why don't you answer it? Sure. Thanks, Pete. You know, we kind of take a three-pronged approach. You know, number one, it's always going to be repeat business and referrals. And in the middle market, our operators, they all talk within their industries. And the fact that we've been doing this consistently for years since inception and sticking to our core thesis of providing growth capital through saly-spec financing to middle market operators, you know, that's a strong sourcing method. We obviously do cold outreach and visit industry conferences. And so, that three-pronged approach continues to drive new operators and new relationships. And we're continuing to do that every quarter and have been since inception. And the percentage is kind of volume-weighted. So, we're always adding new relationships every quarter. It just depends on the transaction size. And so, sometimes that can be skewed one way or another.

Got it. Thanks.

Thanks. Thanks, Cale.

Thank you. Our next question comes from Handel St. Just with Misuho. Please go ahead.

Hey, guys. Good morning. Thanks for taking my question. Pete, I was hoping you could give us maybe some insight into your thought process on acquiring the portfolio of the whistle car washes in the quarter. I think many of us have expected your car wash exposure to head lower. You're sitting here on 15 percent, so maybe some color on that thought process. And also, if there's any color, you can share on the price of pay for the portfolio, cap rate, rent coverage, bumps, any of those details. Thank you.

Well,

thanks for the question,

Handel. I think I'll take the illustration question and kick it to AJ for the details on the transaction itself. But, you know, we always have articulated a soft ceiling of 15 percent on any concentration. Bringing car wash down through the fourth quarter into the first was very deliberate because we had visibility on the whistle transaction. And so, you know, we're happy with our ability to manage that exposure, bring it down to fill up capacity to, you know, add new tenants with good investments. In terms of specifics, AJ, why don't you not get too specific, but give an overview of the transaction?

Sure, Handel. So, you know, as Peter mentioned, we were working the exposure down and this was an existing tenant. We had the opportunity to partner with them on the sale of these back transactions as they acquired the car wash portfolio from Driven Brands. The assets we acquired were well-established, seasoned sites. The portfolio coverage was greater than two times. We feel we have really good economics on the lease escalations. We're able to provide attractive sale leaseback financing to an existing tenant. We're really happy with the transaction.

I agree. I appreciate that.

Go ahead. Given the size of the operator and quality of the assets, the cap rate on that investment was probably inside of the average for the quarter.

Okay. I appreciate the details, the comments. And just one more, just going back to the conversation around the competition set. Obviously, you know, the list of folks who have entered the single tenant space here has been growing here in recent quarters. I guess I'm curious, has there been anything about their strategies that you are able to identify or ascertain that suggests that they're maybe less likely or perhaps less of a competitive threat to what some people might perceive? I'm just curious if you know any insight into what perhaps they might be doing or targeting differently that could suggest less of a threat. Thank you.

Yeah, listen, I can't really speak to other shops and how they're organized and what their competitive advantages are. I can certainly speak to ours. And, you know, I think our ability to consistently provide capital into these industries, our ability to do small transactions, you know, and our proprietary data around to support those investments is what differentiates us in the market. We tend to see the most acute competition on the bigger, broadly marketed deals. And you see cap rates on those deals, you know, really getting away from us and well inside of, you know, we're currently deploying capital. And, you know, I think it's, you know, you're a new shop, you're going to rely on the brokerage network and compete solely based upon your cost of capital, which is not how we go to market.

Thank you. Thank you.

Thank you.

Our next

question

comes from a rich high tower with Barclays. Please go ahead.

Good morning, everybody. I think most of my questions have been asked and answered, but maybe it was just curious for a little more color on the credit side of things. It sounds like, you know, maybe if we go back in time and think about, you know, expectations 90 days ago, I think, you know, sentiment was probably a little worse than it is today or has proven out to be. So, you know, why do you think that is? And what's what's in the crystal ball from what you can sort of tell with your existing portfolio companies and just what the feedback is, what you're seeing in the numbers, just give us a little more color on the credit side. Thanks.

Yeah, you know, I think I would start our position on the credit as a super senior secured landlord, you know, remains pretty, pretty durable. And we don't see any erosion in our cash flows or delinquencies or things that give us concern looking at the operators and numbers and the industries. Generally, we see, you know, flat trend with, you know, not, you know, not sales that are same store sales that are growing at a at a high rate. And we're seeing slightly improved margins, but I think overall, we're encouraged by the stability that we're seeing in our industries. And, you know, I don't see we don't see any major concerns emerging.

Okay, that's that's good news. And then, you know, just to, I guess, ask another follow up on the competition side. You know, if you break down the typical deal between, you know, going in yield escalators, wall industry, you know, exposure, that sort of thing, I mean, as more and more competition comes in, even if it's not precisely in the sandbox that you guys typically play. And I mean, where would you expect deal terms to change out of out of kind of those mix of, you know, different elements of every deal?

Yeah, I think the most, you know, you can certainly look back at our disclosure and, you know, where we're deploying capital back in 2020 and 2021. I think the low on the initial cap rate was six nine and the low on the escalations was one four and a low on the term was, you know, call it fifteen. You know, we negotiate all those economic terms. I think the point of most sensitivity is going in cap rate followed by escalations with with least term being the least sensitive to these operators. And certainly, you know, when we're doing a deal, we want an operator who's committing to the proper long term. So I think the first place you're going to see it is in the initial cap rate and then it'll trickle down through escalations.

Very helpful. Thank you. Thank you.

Thank

you. Our next question comes from a Motayo with Dutch bank. Please go ahead. Your line is open.

Hi. Yes. Good morning. Congrats on the continued solid execution. Quick question on the acquisition front. So we kind of had the Starwood fundamental deal. Just curious again, if something like that ends up being too large for you guys to look at, whether again pricing on deals like that becomes an issue. Just kind of curious again. I know your wheelhouse is doing these smaller granular deals, but for something that's bigger, but not too big, you know, such as this deal, how do you guys kind of think to an opportunity set like that?

Yeah, quite frankly, we didn't even take a look at it. We have an ample opportunity set of freshly originated deals through our relationships. And, you know, I think the bar for me to buy someone else's underwriting someone else's existing portfolio is pretty high. You know, we would have to be wide of where we're deploying capital. And, you know, ultimately, I don't think that transaction was priced at a, you know, seven nine was where we deployed capital in the second quarter. And, you know, I think anecdotally that transaction price closer to seven.

Fair enough. Thank you. Thank you.

Thank

you. Thank you. Our next question comes from John Kielikowski with Wells Fargo. Please go ahead.

Thank you. Good morning. Maybe it's on a topic we haven't really touched. It's been a quarter now since some tariffs have been in place. You know, some have been paused, but I'm curious, you know, as you look across the sectors or you're getting, you know, level coverage data, if you're seeing any delta and performance, you know, certain sectors being more impacted than others,

we really are, you know, and, you know, it's not our portfolio is largely service and experience, right? Ninety plus percent. And, you know, they're not buying goods that are subject to tariffs that they're then selling reselling to the consumer. And so, as I mentioned earlier, the portfolio trends have been incredibly stable.

And then maybe just on the guidance raise, I think you touched on this a little bit earlier, but how do you think about raising the low end versus the high end? Is that more of a product of better than expected credit performance or is that the outperformance on the acquisition side or some grouping of both? And why does that not impact the high end?

It's just what the model is saying, but Mark, you want

to? Yeah, I mean, listen, I think, you know, John, the first two things you mentioned are probably right. We had a strong first and second quarter investment levels, strong cap rates, what we were expecting. So that gave us comfort on the bottom end of the range and credit loss, I think, was better than we were expecting. But, you know, when you're at you're at an eight percent growth rate on the FOPRA share for the year, you know, for us, I think it's a function of we just didn't think as Pete said, the model was telling us we should we should bump the top end.

Thank you.

Thank you. Our next question comes from Ryan Caviola with Green Street. Please go ahead.

Good morning. Thanks for taking my

question. You know, since that fifteen percent ABR soft feeling was nearly achieved for car washes, assuming those acquisitions in that segment. So down which other retail areas are most attractive and where you hope to grow exposure to close out the year.

I think you're going to see our investment activity be pretty pro rata and the portfolio grow radically, you know, will continue to invest in car washes and, you know, really, I think that as I look at the end of the year, the percentages of our industry mix

will be pretty consistent.

Great. Thanks. And then there are two industrial acquisitions over the quarter. I know that's very small, but anything, you know, any expanded interest there or this just sort of opportunistic as you see them.

Yeah, I think, you know, we don't we don't we like industrial. We like doing sale, lease backs with no market tenants. We like servicing our relationships and when we find good opportunities, we deploy capital. There I would say, you know, our industrial investments tend to be characterized by very fungible real estate asset, real estate assets, industrial assets that have, you know, ready alternative uses. We try to avoid big chunky special use assets, but we do see good opportunities there. And when we do, we take advantage of.

Awesome appreciate the color. Thank you. Thank you.

Thank you. And our next question comes from keeping Kim with Trist. Please go ahead.

Thanks. Good morning guys. Just a couple of follow ups here. Can you just comment on any foot traffic or sales trends that you've noticed in your restaurants or entertainment segment?

AJ, what do you got?

So, anecdotally, I would, I would tell you that, you know, we use place or internally to monitor that. And we have noticed a marked increase. In particular, in the entertainment sector, as as June rolled over on the calendar, I think that is flowing through the restaurant space as well. I wouldn't want to call it any one specific restaurant or entertainment concept is where we're noticing this, but we do keep an eye on and we have seen traffic increase.

Okay, and for the tenants that are in the under one and a half times coverage bucket, just curious, has that coverage. Been stable or improving over time?

Yeah, listen, I would say it's. We don't really think about it as 10. We think about it as properties. You know, those individual properties are sub performing for some reason, and it tends to be very transitory. You know, we have. Sites where it's underperforming and the operator hires a new manager and gets the site performing well, or sites that lose lose a manager and tend to perform poorly. We also have sites that are performance sites that are coming online that tend to ramp and come in and out of that bucket. So, it's it's there's a lot of different situations going on it within our 2100 properties that kind of influence that.

Okay, thank you.

You got it. Keep it.

Thank you. Our next question comes from. With a CD, please go ahead.

Hi, thanks. I just wanted to ask you, you mentioned, I think, Mark, in your in your remarks that you guys will look to probably settle the. Forward equity over the balance of the year. And I was just wondering, as you think about next year, given your low performance leverage, would you anticipate using leverage as a higher percentage of external growth next year and kind of maybe kind of how would you think about getting to sort of a more normal leverage level? I guess. Since you're kind of on the low end, I think of where

you would be over time. I mean, you know what? I appreciate that question. Smith's I guess what I would say is, first and foremost, you know, when you think about our capital sourcing, you could probably use a split of 50 to 55% equity, 35% debt, give or take. And then that 10% free cash flow, which is improving every quarter. So I think for us every year, we're going to be sourcing debt capital. And certainly, I think Pete said in his remarks, maybe I even did as well. The good news for us today is, is we don't have to do anything on the equity side to achieve our. Ample dry powder to take us into 2026. For us, in terms of accessing debt capital, it's opportunistic for us. But in terms of the mix, I think you should expect for us to do what we've been doing for, frankly, since we've come public, but certainly just use the last 12 quarters. You know, that leverage is somewhere around four and a half times.

So I think. Okay, thank you. Thanks, we.

Thank

you. Our next question comes from Jenna gallon with bank from America. Please go ahead. Thank you. Good morning.

Just a quick question on the strong growth of the company and the team growing, you know, given Mark called out the compensation expense. How do you think about the scale of the platform? You know, are you targeting an overall GNA as a percent of revenue or assets or you're just looking to meet the needs of the company with new hires?

Yeah, I think more than anything, we're trying to drive sustainable earnings growth and to do that. It requires, you know, one, we grow our investment teams to meet the growing investment. Opportunity set that we capitalize on and then growing the portfolio management team to manage the growing portfolio and then growing the finance and accounting team accordingly. And so. We've, we've grown the company since coming public pretty steadily both in terms of assets and people and we continue to invest in our people to do that. GNA really is an output of that. You know, we look at our infrastructure. We look at our organization. We look at what we need to execute the business plan. That really is ultimately driven by growth and

and growth and earnings.

Thank

you. Thank you.

Thank you.

Our next question comes from Daniel with Capital one securities. Please go ahead.

Hi, thank you for taking my question. Just one from me. You all are always nimble on the industries you invest into, and there was an update in the convenience store space with all subs as a new top 10 tenant as well. What are some key characteristics you look for in that business type? Is it hot food option necessary or is fuel traffic and location most important? Anything you can give there would be helpful. What do you, what do you got?

So, so just a quick clarifying point. All subs. We previously a brand of that. Yes way. It's a dual brand and they're growing the all subs platform. So we just. Put the new logo in so that was not a new investment. It's something we've owned for well over a year at this point and then more broadly just in the convenience store space. You know, we're looking for groups that have a reasonable size and scale. We track gallons sold inside store sales. And then, you know, underwrite the underlying profitability of the unit and make sure the corporate credit is stable. So then we make the investments where we're generally looking for well positioned C stores with ample inside store sales and very strong gallon sold.

Great. I appreciate that clarification too. Thank you.

Thank you. We will move

next with Greg McGinnis with Scotiabank. Please go ahead.

Hey, good morning. Peter appreciate your earlier commentary on the acquisitions of the industrial category, but given the size of the transactions with on average rents for portfolio average. Could you provide some more details on those and why you're comfortable making bigger bets in that space?

Yeah, listen, I don't, I don't think it was a bigger bet. Very granular investments and you know, we like the real estate and the tenants that were assigning long term leases to be in that space.

So, ABR was up two and a half million with the two investments there. So seems to imply they're at least bigger on the rent side now.

Yeah, I mean, part of that's the initial cap rate too. And, you know, it was three different investments. And so, yeah, they're bigger assets, but still under 20 million and certainly with the size and scale of our portfolio, we have, you know, not outsized risk.

Okay, thanks. And we understand there's no necessarily a need to raise equity in order to hit acquisition guidance, given the ample dry powder. But with the stocks not materially below where you issued last quarter, is there any reason to expect that you wouldn't use the ATM at this time to help continue to pre-fund investments?

I would say, you know, we'll execute accordingly and, you know, see how the market performs. We're in a great position from a liquidity and leverage perspective. And, you know, if we see the opportunity to continue to, you know, maintain that position, we will or, you know, it'll just depend on how the market reacts.

Okay, thank you.

Thank you. We will move next with John Mazoka with B Raley Securities. Please go ahead.

Good morning, everybody. Morning, John. So, how should we

kind of feel about the cadence of transaction volume in the current quarter? So, just kind of thinking about, you know, I know we're early in 3Q, but you've only closed eight million a year to date, sorry, quarter to date. And you had a pretty decent amount, you'd think, still left in kind of the PSA or LOI bucket, even kind of netting out, you know, what you closed between the end of May and the end of QQ. So, it's just kind of curious, is there something chunky out there? Is there stuff that's kind of falling in and out of the pipeline? Just trying to get a feel for transaction volume, maybe on a super short term basis. Yeah,

week over week. That's your fault. What do you get? Sure.

I wouldn't look too much into it. The pipeline, we're happy with where it is. It's pretty consistent. And, you know, some timing with July 4th and the start of summer. But so I wouldn't look into read into the 8 million, but overall pipeline is strong and consistent with Paraglory. What is the pipeline currently? Currently, we're setting at about 290 million at a 7-8. Great. Helpful.

And then on the debt side, you know, how are you thinking about maybe potentially raising some debt? I know you talked about the ability to use the employees forward equity to fund the rest of the year's investment activity, but you took 200 out on the line. It seems like markets are getting pretty accommodated from a spread perspective. I mean, would that be something you would consider in 2H?

Yeah, I mean, I guess thanks for that question, by the way. You know, look, we I'd say we maintain our view regarding the merits of returning to the bond market. You know, as a logical long term source of permit debt capital, particularly, you know, that's really optimizing the alignment with our weighted average lease term. And gratefully, since we last were on a call, you know, the spread environment for us, if you use our current one existing bond has has gotten has improved markedly. Obviously, the 10 year remains somewhat volatile. But I guess what I'd say is the equity deal we did March a good quarter on the ATM in second quarter really puts us in a position where we.

But

I would tell you that I had expected

in the. We'd be looking for that spot to. But I guess.

Said, and I think I did my remarks. We don't need the capital today. We're in a great position in terms of liquidity and our dry powder runway.

So that's that's why we're in. Awesome. Thanks, John. Sorry, I was I

breaking up or was you bring them? I couldn't hear the end of Mark's mark there.

He said you were a great analyst.

I did say that right. I don't know if you, I don't know if you heard the part about we still view the bond market as the logical long term source of permit debt capital. Going forward lined up with our wall and that the environment's improved. Certainly, if you use our one issuance, I'm not sure if it's still coming through, but our liquidity position today really puts us in a spot where we can be opportunistic somewhere in the second half to your question. Most likely.

Is, you know, I know just to give the only the one piece of debt outstanding, but on secure debt outstanding or on secure bond outstanding is term loan market even more accommodative than that. Just given, you know, he's a little bit of an orphan issuance at this point.

Well, I guess I'd say it a different way. The term loan market, we think still open to us and obviously has an attractive, you know, all in swap rate. But if you think about it, there's a real benefit in the bond market where we think that's the long term solution. As I mentioned in terms of the best long term permanent to perm out our debt needs certainly aligned more closely with our weighted average lease term. So I guess what I'd say is there's a benefit to continuing to build your complex in the unsecured bond market, which is why even though they might price a little higher, it'll call it in the high fives. We just think long term that's going to be a better strategic solution for us in terms of accessing debt capital.

Understood. Thank you very much.

Yep. Thanks, John.

Thank you. And this conclude our Q&A session. I will now turn the call back to Pete Mavoides for closing remarks.

Great. Well, thank you all for participating in today's call. As we hope we conveyed the business is in a great spot and we look forward to engaging with you all in the coming months. Thank you.

Thank you. And this concludes today's program. Thank you for your participation. You may disconnect at any time.