Essential Properties Realty Trust, Inc.

Good morning, ladies and gentlemen, and welcome to Essential Properties Realty Trust's first quarter 2026 earnings conference call. This conference call is being recorded, and a replay of the call will be available three hours after the completion of the call for the next two 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 www.essentialproperties.com, an archive of which will be available for 90 days. On the call this morning are Peter Mavoides, President and Chief Executive Officer, Rob Salisbury, Chief Financial Officer, Max Jenkins, Chief Operating Officer, A.J. Peel, Chief Investment Officer, and Cheryl Call, Director of Financial Planning and Data Analytics. It is now my pleasure to turn the call over to Cheryl Call.

Thank you, Operator. Good morning, everyone, and thank you all for joining us today. for essential properties first quarter 2026 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. In our earnings release last night for the quarter, we reported gap net income of $60 million and ASFO of $105.8 million. With that, I'll turn the call over to Pete.

Thanks, Cheryl. And thank you to everyone joining us today for your interest in essential properties. We had a productive first quarter deploying $389 million into 126 properties and raising $419 million of equity in support of our pipeline while growing our AFFO per share by 11% year over year. Despite a macro backdrop characterized by heightened volatility, our team continued to source and execute attractive investment opportunities, as our ability to deliver capital is highly valued in this environment. Our focus on servicing relationships and providing sale-easeback capital to growing middle market operators across our targeted industries continues to be a differentiator for our company. Investment cap rates were stable this quarter, with an initial cap rate of 7.7% and a gap yield of 8.8%. This meaningful spread to our cost of capital is a key driver of our earnings growth. With $1.5 billion of available liquidity and low leverage of 3.5 times pro forma net debt to annualized adjusted EBITDA RE, our balance sheet positions us well to continue to deliver compelling growth.

Overall, investment activity and portfolio credit trends have started the year ahead of our budgeted expectations.

Coupling this with our investment trajectory drives our ability to increase our 2026 AFFO per share guidance to a new range of $2 to $2.05. We commensurately increase our investment volume guidance range by $100 million to a new range of $1.1 billion to $1.5 billion. And our cash G&A guidance has improved by $1 million as a result of cost discipline as the platform continues to scale. Turning to the portfolio, we ended the quarter with investments in 2,417 properties that were leased to over 400 tenants. Our weighted average lease term increased to approximately 15 years with just 2.8% of our annual base rent expiring over the next three years. With that, I'll turn the call over to A.J. Peel, our Chief Investment Officer, who will provide an update on our portfolio and asset management activities. A.J.? Thanks, Pete.

Overall, our portfolio credit trends remain healthy, with same-store rent growth in the first quarter of 1.4%, an occupancy of 99.7%, and just seven vacant properties. Portfolio rent coverage remained strong at 3.5 times, and the percentage of ABR under 1.5 times rent coverage declined by 140 basis points. Disposition volume moderated to $10.2 million at a cap rate of 6.9%, following an elevated fourth quarter of car wash property sales. Looking ahead, we continue to expect modest disposition activity driven by proactive asset management, as well as overall portfolio construction shaping. Our focus on middle market operators continues to yield a highly diversified tenant base, with our top 10 tenants comprising only 15.8% of ABR and our top 20 representing only 26% of ABR at quarter end. We remain disciplined in actively managing the portfolio toward long-term credit stability and broad diversification as a pillar of our risk management framework. On the credit event side, during the quarter, one of our restaurant tenants filed for bankruptcy. We own seven properties that were leased to this tenant, which represented approximately 30 basis points of ABR. With identified backfill tenants on five sites and two locations under contract for sale, our expected recovery rate is consistent with our historical range of approximately 80%, which is better than our budgeted expectations. The relatively quick resolution timeline and a reasonable recapture rate demonstrates the inherent fungibility of our restaurant assets. As is typical, this situation was operator-specific in nature, and looking at our restaurant exposure overall, operator revenue and margin trends remain healthy and consistent with recent experience. 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, AJ. On the investment side, during the first quarter, we invested $389 million at a weighted average cash yield of 7.7%. Our capital deployment was broad-based across most of our top industries with no notable departures from our investment strategy. During the first quarter, our investments had a weighted average initial lease term of 17.7 years and a weighted average annual rent escalation of 2.1%, generating a strong average gap yield of 8.8%. Our investments this quarter had a weighted average unit level rent coverage of 3.1 times, reflecting a conservative rent level and healthy unit profitability for our operators. We closed 22 transactions comprising of 126 properties, of which 100% were sale leasebacks. The average investment per property was $2.9 million this quarter, consistent with our historical range, reflecting our focus on investing in fungible assets. Though we don't normally comment on specific investments, this quarter we closed on a large portfolio that is noteworthy and was reported publicly by this tenant. In January, we acquired 74 properties and a $147 million sale lease back with Denny's as part of their privatization transaction. With an average price of under $2 million per asset and strong unit level coverage, the property profile exhibits the high level of fungibility that we seek in our restaurant investments. The transaction is a great example of how we add value to our relationships with a reliable and transparent closing process. It also shows how our deep industry expertise, especially in the restaurant sector, enables us to leverage proprietary data to drive an efficient underwriting process. Looking ahead, pricing in our pipeline remains constructive, with cap rates in the mid to high 7% range representing an attractive spread to our cost of capital, which is supportive of our long-term growth trajectory. After a great start to the year on the investment side, we increased our full-year investment guidance by $100 million to a new range of $1.1 billion to $1.5 billion. With that, I'd like to turn the call over to Rob Salisbury, our Chief Financial Officer, who will take us through the financials for the first quarter. Thanks, Max.

Overall, we were pleased with our first quarter results. The company generated AFFO per share totaling 50 cents. representing an increase of 11% versus the first quarter of last year. On a nominal basis, our AFFO totaled $105.8 million for the quarter. This AFFO performance was slightly above our expectations, driven by a combination of earlier deployment timing, lower cash G&A, and favorable portfolio credit trends. Total G&A in the quarter was $12.3 million, and cash G&A was $8 million, representing just 5% of total revenue, down from 5.9% in the same period a year ago. As a result of continued cost discipline, we reduced our cash G&A guidance for the year by $1 million to a new range of $30 million to $34 million. We declared a cash dividend of 31 cents in the first quarter, which represents an ASFO payout ratio of 62%. Our retained free cash flow after dividends reached $40 million in the first quarter, equating to approximately $160 million per annum, and represents a substantial source of internally generated capital to support our future growth. Turning to our balance sheet, our income-producing gross assets increased to over $7.5 billion a quarter end, The increasing scale and diversity of our portfolio continues to enhance our credit profile. On the capital markets front, we completed an overnight equity offering in February, raising over $402 million. We also raised approximately $17 million of equity on our ATM program. All of our equity issuance this quarter was completed on a forward basis. We settled $193 million of forward equity during the quarter with a portion of the proceeds utilized to partially repay our revolving credit facility balance. Our balance of unsettled forward equity totaled $541 million at quarter end. The weighted average price of our unsettled forward equity was $30.55 at quarter end. During the quarter, our share price was modestly above this level. As a result, under the Treasury stock method, the potential dilution from these forward shares is included in our diluted share count. For the first quarter, our diluted share count of 212 million shares included an adjustment for 671,000 shares related to this Treasury stock calculation, representing a minimal headwind to our AFO per share for the quarter. Looking forward, our updated AFO per share for Treasury stock method dilution of approximately one to two cents for the full year. Our pro forma net debt to annualized adjusted EBITDA REIT remained low at 3.5 times a quarter end, which is well below our long-term average in the mid-fours, leaving us with ample dry powder to execute our 2026 business plan. We remain committed to maintaining a conservative balance sheet with low leverage and significant liquidity. As we have previously discussed, we continue to anticipate an unsecured debt issuance in the middle of the year to fund our growth pipeline and extend the weighted average maturity of our liabilities. Lastly, as we noted earlier, we have increased our 2026 AFO per share guidance to a new range of $2 to $2.05, reflecting a growth rate of 7% at the midpoint and over 8% at the high end. With that, I'll turn the call back over to Pete.

Great. Thanks, Rob. In summary, we are happy with our first quarter results. Our high-quality portfolio is performing well with a compelling 15-year weighted average lease term, sector-leading diversity, and a deliberate commitment to fungibility that allows us to effectively and efficiently manage the potential risks in the portfolio. On the investment side, our differentiated sourcing and underwriting discipline focus on delivering value to our longstanding relationships and a well-capitalized balance sheet position us well to continue to generate best-in-class total shareholder returns. Operator, please open the call for questions.

Certainly. At this time, if you'd like to ask a question, please press the star 1 on your telephone keypad. To leave the queue at any time, please press star 2. Once again, that is star 1 to ask a question. We'll take our first question from Caitlin Burrows with Goldman Sachs. Your line is open.

Hi, good morning, everyone. Maybe just looking at the acquisition volume and cap rates in the quarter, volume was high. You mentioned cap rates were stable. I think they were maybe a little lower than recent quarters. So on the cap rate side, could you just go through what drove that decline? Is it just reality of business today? Industry mix, the portfolio deal, something else? And would you expect that level to continue?

Yeah, hi, Caitlin, and thank you for the question. You know, as we communicated on our last call, we expect cap rates in the mid to high seven range, obviously coming down from the eight that we saw last quarter. Some of that is capital markets and competition. Some of that is industry mix. But certainly, you know, the seven seven is a healthy rate. And, you know, we feel pretty good about that.

Got it. Okay. And then maybe just on the kind of macro side, as you think of the macro volatility that is going on, can you go through how that impacted EPRT in the quarter or not, and maybe how it impacts the competition?

Yeah, I think most of the volatility that we see today is going to impact us in next quarter, right? And so, the deals that are closing and pricing, In Q1, we're really baked in Q4, and it was much more stable in Q4. I think as we think about the current market, you know, volatility, a higher 10-year, I think all on balance help us as we are a consistent, reliable capital provider with a lot of liquidity and a long track record of, you know, reliably closing transactions. And counterparties value that in an uncertain and volatile market. And so on balance, I think it helps. Obviously, the volatility, as it persists, is going to put some strain on the consumer, and that puts strain at the margins on the portfolio, but certainly nothing that is outsized or gives us pause, which is one of the drivers of raising guidance here on this call.

Got it. Thank you.

Thank you, Kaitlin.

Our next question comes from John Masoka with B. Reilly Security. Your line is open.

Good morning. Good morning, John.

Can you provide a little more detail on the Denny's transaction? I guess, I mean, how is that sale-leaseback structured? Is everything kind of a maybe uniform distribution in terms of lease maturity, or is there some kind of variance there? and I guess maybe a bigger picture, what kind of made you comfortable with the tenant, given some of the news that's been out there about location closures and you take private transaction, but obviously, you know, maybe potentially outside from having new owners in place.

Yeah, I'll have Max tackle that question, but I would start, you know, first and foremost, as a real estate investor, we take comfort in the properties that we're buying and the lease. And then the tenant comes into consideration. But Max, why don't you get into that deal a little bit for him?

Sure. Thanks for the question, John. I think to start, at the end of the day, these are small, bite-sized, granular, fungible restaurant properties, which we've had tremendous success investing in over the years here. And so you have 74 properties, less than $2 million per asset. And the key thing here was the average operating history was over 40 years across our portfolio. And so you have durable, strong unit-level coverage, stable performance across the board, and attractive yield. And so that's what we look for in restaurant investments. To your question about the structure, it was a combination of both corporate-owned and operated stores as well as multiple franchisees, which is good for us because we have a geographically diversified, we have a tenant credit diversification. And so you put that all together, and we were very happy with the process, and we've known the equity group for a few years, and so a strong relationship. They relied on our certainty of close, and so we're happy with how that transaction played out.

Okay. And then, you know, relatively small numbers in terms of the overall ABR, but it seemed like there was a bit of an increase in rent in some kind of shorter lease maturity years, you know, particularly 2026. Is there something driving that? Is it releasing or is it something with one of the transactions that closed? Just kind of curious that number came up versus kind of prior quarters.

Yeah, I would point to our weighted average lease term for our investments in the quarter was 17 years, so that's unlikely.

So, John, some of that a little bit was in the Denny's portfolio. So we got creative with some of the franchisee stores, and so it wasn't all a contiguous lease termination, which is one of the reasons why we won the deal is because we were able to get creative and underwrite every individual property, every franchisee, the corporate credit as well. And so there's a little bit of noise, but I wouldn't look too deep into it.

Okay. And then, you know, the number of kind of relationships, transactions was a little bit, or prior relationship transactions was lower this quarter. Was that all primarily tied to Denny's, or was there any other transactions that were kind of with new kind of stale Eastback partners?

Yeah, I would say that decline is mostly related to Denny's. Okay. All right. That's it for me. Thank you very much. All right. Thanks, John.

Our next question comes from John Kilachowski with Wells Fargo. Your line is open.

Hey, good morning. It's Jamie Feldman filling in for John here. A couple of questions for you. So I guess number one, I mean, Denny's was the result of a take private of a public company. Certainly seeing a lot of activity in the capital markets, whether it's IPOs, take privates. We've got a lot going on in the private credit world. What are your thoughts on just larger-scale deals going forward versus one-offs? I know the one-offs have been a little bit more of a sweet spot, but as you think about the pipeline and the conversations you're having with your seller-type clients, what do you think the world looks like over the next 12, 18 months, given all the movement we're seeing?

Yeah, I don't think we're going to see a ton of ripple-down effect into the middle market trends we're dealing with. Our larger transactions tend to be very episodic. Certainly Denny's is an outsized one, but I would expect our portfolio going forward to still be predominantly small granular deals and not the larger kind of M&A type transactions. It's rare that they happen in our industries and with size and with real estate that really gives us an opportunity to get in there. So I would imagine our pipeline going forward remains very granular.

Okay, thanks for that. And I know your response to a prior question on cap rates was more competition. They're coming in a little bit. But how do you just think about your investment spread to your cost of capital going forward? given your different capital sources and just the ability to create the same level of accretion for the same dollar amount? Rob?

Hey, Jamie, it's Rob. As we've talked about on quarters past, the investment spread is really more of an output than an input. We tend to price deals in the marketplace based on where the facts and circumstances shake out for each individual deal. And of course, on the capital side, our weighted average cost of capital hasn't moved that materially relative to the last time we gave an update. So if you look at where our unsecured debt trades today, it's probably in the mid to high fives. Look at our cost of equity, which we tend to use our AFO yield as a proxy for that. It's in the mid to high sixes. And as you know, we retain nearly $160 million now of annualized free cash flow after paying out dividends, which is a free source of capital for funding our investment pipeline. So when you throw all those sources of capital into the blender, we're in the mid fives on a whack basis today. When you compare that to where we're deploying capital in the mid to high sevens, a healthy spread of 200 basis points plus and very supportive of our long-term growth algorithm. So, you know, from where we sit today, we certainly would love to see our share price at a higher level, but we're very much in business deploying capital accretively for shareholders.

Okay. Thanks for that. And if I could just ask one more. I mean, we're all kind of trying to make sense of the headlines, higher fuel costs, higher Food costs now, you know, a lot of talk lately about fertilizer costs. Just as you guys are all digesting the headlines and thinking about, you know, what could change the next month's quarters, like as you look at your tenant base, like where do you think you'll see the most flow through or impact? I know your credit quality is all very good, but like what are you just watching the most as you think about your portfolio?

Yeah, I think, you know, the casual dining and the entertainment space, you know, has seen and we expect to continue to see the most weakness. And that weakness really manifests itself in, you know, kind of sort of flat to downish 2%, 3% sales and some margin pressure, maybe 100, 200 basis points. where that kind of flows through to maybe 10, 20 basis points on rent coverage. And so, you know, thematically, we don't expect, you know, major shifts in our industries. And then you dig down to the idiosyncratic risk with specific operators that are either growing or over levered or grew too fast or a lot of development and really understanding the how they're performing and how our sites within those credits are performing. So we're watching it. Obviously, you know, the portfolio is performing well. You know, hiking guidance here today early in the year, as we said, our credit performance is coming in better than anticipated. So, you know, we don't expect material flow-throughs to our portfolio performance, but, you know, we're watching the consumer and specifically our casual dining and entertainment space.

Okay, great. Thank you for taking the questions. You guys, thank you.

Our next question comes from Michael Goldsmith with UBS. Your line is open.

Good morning. Thanks for taking my question. First question is just on the bad debt in the period. I think you mentioned a restaurant property group, but presumably that's the Applebee's franchisee. And in addition, I think I saw that there was an impairment on the income statement. So just, you know, can you just talk a little bit about what you're seeing from your tenants and if the environment has gotten particularly challenging for any of them? Thanks.

Yeah, I would say I'll let AJ tackle the specific impairments, but in general, much like my earlier comments, people performing and credit is coming in better than anticipated, which was supportive of our guidance increase this quarter. You know, it tends to be very idiosyncratic events that drive, you know, impairments and bad debt. But on the impairment for a quarter-aged, you got some commentary?

Yeah, and more broadly, just kind of on the health of the portfolio, to the question prior that Pete was addressing, you know, we're paying a little bit closer attention to the entertainment and casual dining space. And you referenced in your question the casual diner we called out in the prepared remarks. That was significantly more episodic than it was kind of a trend line. I would say broadly speaking, our restaurant portfolio is generating two and a half times plus coverage across the board. So we feel good about the portfolio, but specifically on the impairment, Rob, just kind

Yeah, thanks, AJ. As AJ just mentioned, a lot of these situations are much more idiosyncratic in nature. And as it relates to the impairment itself, we have a pretty robust quarterly impairment testing process that's well-established and been in place for a long time. And as part of that rigorous process, we are constantly testing on a quarterly basis. For the impairment this quarter, it was driven primarily by one site on a former American Signature location. As I think we've talked about in quarters past, that tenant went bankrupt in the fourth quarter, and paying rent-a-lease had not been rejected until a time during the first quarter, and so that triggered the impairment testing process. In general, we have not been bullish on the home furnishing industry. That's an industry that we have not invested in for many years. And we are down to one location now, representing effectively a rounding error in terms of exposure to the portfolio, probably. So not a huge surprise in terms of where the exposure is there, but happy to report that's not a material impact going forward.

Thanks for that, all three of you. And then as a follow-up question, you have a term loan that's expiring and early February at a particularly low rate. I just wanted to get a sense of how you were thinking about attacking that and refinancing that. And then also, you know, the refinancing would be a bit of a headwind for your 2027 earnings. So would you look to accelerate transaction activity to kind of maintain that really strong growth that you have generated over the last several years? Or is that just kind of You know, is that not like a way that you think about it? You just kind of proceed as normal.

Thanks. Yeah, I'll tackle that. You know, obviously, you know, we've talked a lot about terming out our debt and getting long-term debt on the balance sheet to match fund or assets. So we're likely to look to the unsecured bond market at some point to take out that term loan, and there will be some incremental changes. dilution as a result of that rate falling off. You know, we think about our investment trajectory on a much longer term basis and make investments in our team to be able to do more and source more and process more transactions, much to my earlier comment, that are granular, which is where we think we add value. And so, you know, when we come into Developing a business plan for 2027, we'll look at that. Our ambition has been and continues to be to offer total compelling shareholder return in the net lease space. I think we have a lot of room to where we're performing to do that. And so we'll address that as it comes upon us. And so I would Not saying the automatic toggle is to buy more, just to cover up a little bit of the earnings, but we'll certainly look at a fulsome business plan in 2027 to position ourselves as the best-in-class grower.

Thank you very much. Good luck in the second quarter. Thank you, sir.

Our next question comes from Handel St.

Just with Mizuho. Your line is open.

Hey, guys. A couple of quick ones left here for me. So I guess first on the coverage for the investments in the quarter, down a bit versus last quarter when I think you had more industrial deals and below your overall portfolio average. I know this bounces around a bit, but just curious on how we should think about your coverage levels on deals going forward in this environment if indeed this past quarter should prove more of an anomaly. Thanks.

Yeah, I wouldn't read too much into that subset of deals. It's highly influenced by the mix of industries and the individual transactions, and that's going to vary quite a bit, and it's not really indicative of much because it is such a wide variety of investments. We had 22 investments in the quarter. So there's always going to be a wide variation in that number. I would say, you know, restaurants tend to have, you know, some of the lower coverage. So the Denny's in the mid to high twos would certainly kind of drag that down a little bit.

Got it. Got it. Thanks, Pete. That's helpful. And then maybe some color on Chicken and Pickle, top tenant of the year. There have been some reports that some of their assets may be lagging a bit in terms of sales. Curious on your comfort level with that exposure and anything within the sales trends or credit overall that perhaps might be changing your view on your exposure to that particular tenant. Thank you.

Yeah, I don't know where they're a private company and, you know, I don't know where there'd be public commentary around their sales. But as we've said, the entertainment space has seen some challenge and certainly chicken and pickle sits within that bucket. We remain, you know, we continue to believe we have good assets owned by that operator. We have seen some, you know, flat top line. Our coverage remains healthy and, you know, It's a good relationship, but we'll continue to watch the trends and overall our entertainment bucket.

Got it. And then if I could just squeeze one in just on car wash, I think your exposure there in the quarter was down a bit. Is that just by virtue of other investments in the quarter? Is there more of an effort to get that exposure down a bit and maybe remind us on kind of where you see the long-term exposure target for that particular segment? Thanks.

Yeah, we continue to think car wash is a very compelling industry with great cash flow dynamics and strong margins. And the real estate within that industry presents a compelling investment opportunity. As we have said in the past, we have a soft ceiling for any one industry at 15%. We certainly... you know, have run car wash up to that level or above it. And we have comfort doing that given our deep experience and our deep data within that space to underwrite incremental investments. As we disclosed in the past, we sold a bunch of car washes in the fourth quarter where we saw an attractive bid for our assets, really with investors looking to take care of, take advantage of accelerated bonus depreciation. so you're likely to see that bounce around. I don't know that it's going to go up or down. It'll depend upon the opportunity set, but we're happy where it is, and we'd be happy taking it up if we saw compelling investment opportunities.

Got it. Thanks for the time and insights. Thanks. Thank you.

Our next question will come from Rich Hightower with Barclays. Your line is open.

Hey, good morning, guys. Just a couple of quick ones for me. But back to the impairment charge that was booked in the first quarter. I didn't catch this. Was it just the one furniture location that led to the entire, you know, 16 plus million dollars? And then just help us understand the mechanics of how any potential sale of a vacant box or backfilling with a, you know, a cash rent paying tenant. How does that affect? Any potential change to that number going forward? Just help us understand the mechanics there.

A good chunk of that was the furniture store, but there certainly was others. We operate almost 2,500 property portfolio, and there's multiple scenarios happening in any given quarter. Take an impairment when it becomes apparent the value has changed from what's on your balance sheet. You tend not to mark it up once something subsequent happens, but we'll see what happens with that property and our accountants will tell us and we'll evaluate what to do accordingly.

Okay, that's helpful. And then I think you guys have a relatively muted... I guess, official watch list, you know, lower than even some other peers in the space in terms of, I guess, everybody can define it how they like. But maybe walk us through how you define your watch list and kind of where that stands today, even relative to a couple of quarters ago, if you don't mind.

Yeah, so we define our watch list and we have a pretty, you know, defined definition so that, you know, investors can understand and track it. What we do on an asset actual portfolio management perspective is slightly more encompassing. But we define our watch to a credit risk of single B and unit level coverage risk of 1.5. And that's tended to hover around 1%. And I think it's slightly up, maybe 20 basis points within the quarter. AJ, what is it? It's at 1.3% today. So it's 1.3%.

All right. Very helpful. Thanks, Pete. Thanks, guys. Thank you.

As a reminder, if you would like to ask a question, it is star one to join the question queue. Our next question will come from Jay Kornreich with Cantor Fitzgerald. Your line is open.

Hey, thanks. Good morning. You mentioned that volatility could cause some strain in the consumer, yet you still feel confident in the investment pipeline as you increase guidance to You know, $1.3 billion at the midpoint. So I just wanted to drill further into just kind of how the pipeline looks and what industry segments, I guess, beyond car washes that you may want to expand in as the year goes on.

Yeah, so, you know, we focus a large part of our investment activity on our relationships, and our relationships exist within our targeted industries. So our investment pipeline and our opportunity set comes from there. And so generally... We anticipate growing our pie radably across all our industries. Clearly, we had an outsized transaction in Q1 within the restaurant space, and you see that flying through. But overall, I would expect it to grow radably. And, you know, we're pricing long-term investments, 20-year deals. And, you know, it's taking a long view of performance, a long view of coverage and sales. to develop that pricing and that doesn't change with short-term volatility that we're seeing today.

Okay, thank you. And then just looking a little bit more into just the casual dining where you referenced maybe some weakness there. It looks like your exposure to casual dining actually declined 20 basis points this quarter, even though you did the Denny's portfolio acquisition. So just curious, are those dynamics, you know, was there maybe some movement in getting out of some less favorable operators while you're moving into Denny's or kind of what was going on there?

Well, Denny's is in the family dining category, given their focus on breakfast and lunch. And then we had some commentary around a casual diner on our prepared remarks, which is roughly 30 basis points of ABR, which we worked through, and so that's probably what you saw flying through the casual dining spot.

Got it. Okay. Thanks for clarifying. That's it for me. Got it. Thank you.

Our next question will come from Smetros with Citi.

Your line is open.

Hi. Thank you. I wanted to ask you just in general, as you're working with these middle market operators, either existing or potentially new clients, do you get the feeling that their access to capital from other sources is maybe more constrained now than it was a year ago, either through direct competitors to yourselves or maybe more traditional financing like through regional banks, et cetera? Have you seen any changes there?

Hey, Smith. Thanks for the question. At the margin, I would say, and clearly, you know, with 20 transactions during a quarter, there's a lot of different scenarios. But I think overall, the capital market environment is a little more constrained, but not materially so.

Okay. And I just wanted to clarify, you mentioned of the seven properties that were in that bankruptcy, I think they were all Applebee's properties. Five were backfilled. Are they now open, or they're just scheduled to have a new tenant come online at some point?

Yeah, they had a new Applebee's tenant come right in and step in to at least, and so they're open and operating and selling hamburgers.

Paying rent. Okay. Gotcha. Okay. Thank you. Appreciate it. Thank you, Smedes.

Our next question will come from Greg McGinnis with Scotiabank. Your line is open.

Hey, good morning. Denny's is now a top five concept in the portfolio at around 1.6% of ABR. Are you able to disclose the split between corporate and franchise-owned exposure and then how many different franchisees of Denny's are now tenants as well?

Yeah, we're not disclosing the split between corporate and franchisees, but it's pretty diverse. I think we have up to 15 franchisees.

Okay, thanks. And then, you know, for a company with your expected earnings growth, we were a bit surprised to see cash G&A guidance actually lowered. Could you talk about the drivers of that reduction?

Robert?

So as we look to the guidance range this quarter, you know, a number of moving parts on the cash G&A front. We had an initial budget that included a range of assumptions around hiring, technology spend, and other initiatives throughout the company. And in general, we're just trying to be as efficient as we can as we move through the year. So that was on the cash G&A side. And then I think you saw the other drivers in the press release.

Okay. Thank you.

Our next question comes from Eric Borden with BMO Capital Markets. Your line is open.

Hey, good morning. Just one for me. On the disposition front, are there any tenants or verticals where disposition yields in the market are tighter than your internal view and where you'd become more inclined to recycle capital just given the current market yields there?

Yeah, you know, pricing is very idiosyncratic. You know, as Rob walked through earlier in the call, our way to average cost of capital is in the mid to high fives. You know, we do not see a lot of properties within our portfolio that would trade below that. And so, you know, generally our disposition activity is focused on de-risking sales and And, you know, as you think about, you know, selling a more risky asset, it's not going to garner premium pricing. So, you know, as we think about disposition, it's more portfolio shaping. And, you know, we're not using that as a drive and a creative source of capital.

Great. Thank you. Thank you.

Our next question will come from Jaina Galen with Bank of America. Your line is open.

Thank you. Good morning. Maybe just quickly following up on the dispositions, it's funny to see two Q-to-date activity dispositions higher than acquisitions. Can you just comment on if you think disposition activity will be elevated this year, or is this just a little bit more first half heavy?

Yeah, I wouldn't read too much into that. It's really just timing. The closing timeline on our dispositions tends to be unpredictable. And, you know, we just don't control when the buyer is actually going to close. But I wouldn't read too much into it. I would expect normalized disposition activity in the $20 million a quarter type range.

Thanks, Pete. Thank you, Gianna.

Our next question comes from Daniel Guglielmo with Capital One Securities. Your line is open.

Hi, everyone. Thank you for taking my question. Just one for me. On the previous call, you mentioned that 10-year yields in the mid- to high-threes would be a spot where competition could increase, and in true markets, that... to the transaction market, or was it too quick to glean anything there?

You know, Dan, you broke up. I didn't catch your question. Can you repeat it, and hopefully it doesn't break up again?

Hi. I took my headphones off. So on the previous call, you mentioned that 10-year yields in the mid-size where competition could increase. And in true markets fashion, yields still down towards 4% after all, but have come up since. In that short period, were there any changes to the transaction marks that you saw, or was it really too quick to glean anything there?

Yeah, I would say it's too quick. You know, with a 90-day transaction cycle, you know, we're constantly pricing and closing on deals. And You know, the two-week, 30-day volatility really doesn't come into play.

Thank you. Thank you, Dan. Get a new headset.

We do have a follow-up question from Caitlin Burrows with Goldman Sachs. Your line is open.

Hi, again. Maybe just two more modeling or smaller questions. But it just seems that I realize you increased full-year acquisition guidance, so it seems like you're pretty confident. But it also looks like the start to 2Q has been slow. So do you think 2Q will end up being a lower volume quarter or not necessarily?

Yeah, I think it'll likely be lower than the first quarter just given the start to the quarter. But generally the pipeline is full and, you know, without putting too fine a point on it, you know, something in the 300 range, 275, 325, you know, it's too early to tell.

Okay. And then just another specific one on the straight line adjustment, it was 15.365 million in one queue. It does seem like that's higher than it has been. So is that just the new normal or was there something one time in that?

Hey, Caitlin, it's Rob. Appreciate you getting in the weeds on the straight line around adjustment. Actually, into the fourth quarter, we had a couple of one-time items that had moved that around. If you look back to the trend line prior to fourth quarter, the number in 1Q is a little bit more in line with that trend. I would say, in general, the 1Q number is a pretty good run rate, absent any acquisition activity, which would obviously impact where the straight line would go from here, booking gap cap rates in excess of our cash cap rates. So hopefully you can use that as a good run rate going forward.

Okay, thank you.

It appears we have no further questions at this time. I'll turn the call over to Pete Mavoides for any additional or closing remarks.

Great. Well, thank you all for your participation in the call today and your questions. We look forward to seeing you all in the upcoming conferences, and have a great day.

Thank you.

This concludes today's program. Thank you for your participation, and you may disconnect at any time.