Sila Realty Trust, Inc.

Good morning and welcome to SELA Realty Trust Third Quarter 2024 earnings conference call and webcast. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. I will now turn the conference over to your host, Miles Callahan, Senior Vice President of Capital Markets and Investor Relations for SELA. You may begin.

Good morning and thank you for joining us today to discuss SELA Realty Trust financial results for the third quarter of 2024. This morning we issued our third quarter earnings release and earnings supplement which are available on the investor relations section of our website at .selarealtytrust.com. With me today are Michael Seton, President and Chief Executive Officer, Kay Neely, Executive Vice President and Chief Financial Officer, and Chris Flowhouse, Executive Vice President and Chief Investment Officer. We will begin with prepared remarks and then open the call to questions. Before we begin, I would like to remind you that today's comments will include forward looking statements under federal securities laws. Forward looking statements are identified by words such as will, be, intend, believe, expect, anticipate, or other comparable words and phrases. Statements that are not historical facts such as statements about expected financial performance are also forward looking statements. Actual results may differ materially from those contemplated by such forward looking statements. A discussion of the factors that could cause a material difference in our results compared to these forward looking statements is contained in our SEC filings. Please note that on today's call we will be referring to non-GAAP measures. You can find the reconciliation of these historical non-GAAP measures to the most directly comparable non-GAAP measures in our third quarter earnings release and in our earnings supplement, both of which can be found on the investor relations section of our website and in the form 8K we filed with SEC this morning. With that, I will now turn the call over to our President and Chief Executive Officer, Michael Seeney.

Thank you, Miles. Good morning and welcome to SEAL A Realty Trust's third quarter 2024 earnings call. I would like to thank our shareholders, analysts, and all others interested in the company for taking the time to join us today. I would first like to thank everyone for your well wishes during and after Hurricane Helene and Hurricane Milton. All of our employees remained safe during the storms and SEAL A's properties in the affected areas in Florida and Georgia experienced no material damage. Our thoughts remain with those who are less fortunate as many communities continue their efforts of cleaning up and rebuilding after the devastation that these storms left behind. I will begin with market observations and highlights for the third quarter. I will then turn the call over to Chris Flowhouse, our Chief Investment Officer, to discuss our acquisitions, dispositions, and portfolio performance and have him share some observations on what we are seeing in the acquisition market. Kay Neely, our Chief Financial Officer, will then discuss our third quarter financial performance. I will wrap up our prepared remarks with a few closing comments before opening the call to questions. We are very excited about the prospects of SEAL A's investment thesis of investing in high quality healthcare properties over the continuum of care for years to come. The silver tsunami is upon us as all baby boomers will be 65 years or older by the year 2030. 5,000 people are hitting the 80-year milestone every single day in the United States. These demographics mean higher volumes of patients and higher acuity cases for healthcare facilities, which we believe translates into higher revenues for healthcare operators and consequently more durable income streams for the healthcare properties which SEAL A owns and endeavors to acquire. Instruction has been very limited in the market and many new construction projects have been shelved as the economics of such projects don't work based upon construction costs. However, we are seeing opportunities to provide bespoke capital solutions in certain circumstances where all of the various factors come together and create a compelling business case for a new facility with healthcare system alliance that will serve a specific market demographic. By definition, limits on new construction make existing healthcare real estate more valuable benefiting SEAL A's existing $2 billion plus portfolio. As most of you know, we listed SEAL A Realty Trust on the New York Stock Exchange on June 13, 2024. As a net lease REIT focused on institutional quality healthcare properties, we believe we offer REIT investors the best of both worlds. Participation in the large and defensive healthcare sector while receiving the benefits of a triple net lease structure, including longer lease terms and an appropriately conservative financial profile of the company. In the third quarter, we continue to execute our strategy of investing exclusively in high quality healthcare properties, focusing specifically on medical outpatient buildings, inpatient rehab facilities, and surgical and specialty facilities with a thoughtful and disciplined approach. At quarter end, our portfolio was well diversified with 136 properties in 65 markets, primarily in the smile states across the southern half of the United States. By design, our portfolio remains highly diversified geographically and across our targeted healthcare asset types. In the third quarter, we reported cash NOI of $40.8 million and AFFO of $31.7 million or 57 cents per diluted share. This was an increase from the $39.9 million of cash NOI and $30.8 million of AFFO reported during the second quarter of 2024. Kay will expand more on our third quarter results and financial trends later in this call. It was a busy and productive third quarter overall. We completed several creative transactions, including an acquisition in two dispositions and renewed and extended the lease terms on numerous leases. We also announced a share repurchase program and concluded a tender offer, buying approximately $50 million of our outstanding shares at what we believe is a highly creative price point to the intrinsic value of the company. Turning to acquisitions, in late July, we acquired a leading inpatient rehabilitation facility in Fort Smith, Arkansas for approximately $28.4 million. This property is in the sweet spot of our investment strategy, being a market leading facility in a high growth Sunbelt region and is 100% leased to a joint venture between one of the nation's leading operators in the rehab space and a leading local hospital system. Subsequent to the quarter end, on November 5, 2024, we closed on two mezzanine loans for the development of an inpatient rehabilitation hospital and a behavioral healthcare facility in Lynchburg, Virginia. To date, this brings our total acquisition volume and development loan investments to over $181 million and further expands our already highly diversified high quality portfolio and builds on our future pipeline opportunities. Chris will further discuss the details of these transactions and investment opportunities. During the third quarter, we closed on the sale of two vacant properties formerly leased to Genesis Care, leaving only two remaining vacant former Genesis Care properties, which Chris will discuss later in the call. Additionally, as previously disclosed, the company owns one property located in Massachusetts formerly leased to an affiliate of Steward Healthcare System, which filed for bankruptcy in May of 2024. On August 12, 2024, we entered into a contract to sell this property. However, on November 4, 2024, as disclosed in an 8K we filed with the SEC on November 5, the sales contract was terminated by the prospective buyer. It is our intention to either sell or lease the property as expeditiously as possible. Even before CELA became a publicly traded company, we have provided shareholders with -in-class comprehensive disclosures, financial reporting, and transparent communication. We continue to make even further enhancements to our disclosures based on the events taking place at the company and feedback received from the investment community. For example, this quarter we expanded our public disclosures on EBITARM coverage ratios to demonstrate the strength of our tenants and guarantors. You will find this disclosure in our earnings supplement, which is on the investor relations section of our website and in the form 8K we filed with the SEC this morning. We hope you find the information we provide through our earnings release, earnings supplement, SEC filings, and other forms of communication helpful and easy to understand. All told, I am very proud of our team this quarter and year as we continue to execute on our business plan, both thoughtfully and strategically, and have positioned CELA for a strong close to 2024. Now Chris will provide more detail on our portfolio positioning and the healthcare real estate acquisition market.

Thank you, Michael. At CELA, we leverage our robust investment management and property management teams to maintain ongoing dialogue with our tenants, both through active communication and site visits of each one of our properties. This proactive approach allows us to evaluate the health of our tenants, assess property conditions and performance, obtain superior market intelligence, and better understand our tenants' need for future growth. Our partnership approach with our tenants positions us well for future opportunities with existing and new tenants. Furthermore, our investment management team renewed or extended leases on approximately 134,000 square feet, which was set to expire during the first nine months of the year, representing an approximately 97% renewal rate. Our top five markets by ABR, Dallas, Oklahoma City, San Antonio, Akron, and Tucson were consistent with last quarter. At the end of the third quarter, our robust and diversified portfolio consisted of approximately 5.3 million rentable square feet with an attractive weighted average remaining lease term of 8.3 years, up from 8.2 years last quarter. At the end of the third quarter, our portfolio weighted average lease rate decreased by 2% to .5% from .5% due to the reduction of approximately 181,000 lease square feet related to the company's sole property formerly leased to Steward that Michael mentioned at the outset of the call. We collected rents from Steward during the third quarter for the months of July, August, and prorated through September 19, 2024, the date the bankruptcy courts rejected the lease. The rejection was welcomed as it allows us to move forward in disposing or re-letting of this asset. The loss of lease square feet from this property was partially offset by the sale of two vacant former Genesis Care assets located in Fort Myers, Florida, which totaled approximately 79,000 square feet. .9% of our 168 leases are structured as triple net or absolute net leases, providing the company with attractive internal growth. At the end of the quarter, .6% of our portfolio based on ABR had an average annual rent escalators of .2% and the remaining .4% had base rent increases indexed to the CPI. At the end of the third quarter, 68% of ABR from tenants who provided financial reporting at either the tenant or guarantor level maintained a strong EBITDA coverage ratio of 4.82 times. Of the remaining 32% of ABR, approximately two-thirds of the tenants who do not provide financial reporting are associated with investment grade rated tenants, guarantors, or sponsors. Moving to our growth strategy, we continue to find opportunities in the market through both on and off market transactions. Our boots on the ground, granular approach to capital allocation and tenant partnerships has resulted in a robust and increasing pipeline in a market where acquisition volumes and competition are down. Our low leverage fortified balance sheet and strong capital position affords us the opportunity to see an outsized level of investment opportunities. As Michael mentioned in the third quarter, we acquired an inpatient rehabilitation facility in Fort Smith, Arkansas for $28.4 million, leased to a joint venture between LifePoint Health and Mercy Hospital of Fort Smith, an affiliate of Mercy Health of Missouri, which carries an investment grade rating. Additionally, subsequent to quarter end on November 5th, we closed two mezzanine loans, one for the development of approximately 62,000 square foot inpatient rehabilitation facility, and one for the development of an approximately 60,000 square foot behavioral hospital. These facilities will be located adjacent to one another in Lynchburg, Virginia and are being constructed by a leading national healthcare developer and one of the largest general contractors in the United States. These mezzanine loans were structured to maximize risk adjusted returns for CELA while also building future acquisition pipeline by providing CELA with the option to purchase each facility at the completion of construction. We are actively seeking additional opportunities that we believe will be accretive to our earnings and portfolio construction. Turning to dispositions, we closed on the sale of two vacant properties formerly leased to Genesis Care for a gross sales price of $15.5 million. We've successfully re-laid or sold most of the remaining Genesis Care properties that we owned throughout the bankruptcy, leaving only two remaining vacant former Genesis Care properties in our portfolio, both located in California. We are finalizing lease negotiations with a credit tenant at one of the properties and recently entered into a sales contract for the other, which subject to completion of the buyer's due diligence is expected to close this year. With that, I'll now turn the call over to Kay.

Thank you, Chris. Our gap net income for the third quarter was $11.9 million or 21 cents per diluted share compared to $15 million or 26 cents per diluted share in the third quarter of last year. Our gap net income for the first nine months of 2024 was $31.5 million or 55 cents per diluted share compared to $33 million or 58 cents per diluted share for the first nine months of 2023. Our cash NOI for the third quarter was $40.8 million as compared to $44.2 million in the third quarter of 2023, or a .6% decrease. This cash NOI reduction results from a combination of dispositions exceeding cash NOI gained from acquisitions, the reduced and lost rent associated with the amended master lease with Genesis Care, the Stewart event previously described, and a decrease in lease termination fee income received. These decreases were partially offset by the third quarter 2024 increases at our other properties of .2% or approximately $765,000 when compared to the third quarter of 2023. Cash NOI was $127.6 million for the first nine months of 2024 as compared to $132.1 million for the same period last year, or a .4% decrease. This is the result of the net effect of an increase in same store cash NOI of approximately $850,000 and a decrease of non-same store cash NOI of approximately $5.4 million. The increase in same store cash NOI is primarily due to a one-time severance payment from Genesis Care paid to SELA as consideration of approximately $875,000 for the removal of certain properties from the master lease. In addition, there was a .3% increase or approximately $2.4 million in other same store property cash NOI in the first nine months of 2024 when compared to the same period in 2023, particularly attributable to annual contractual rent escalations. This was partially offset by a $2.4 million decline in cash NOI in that period related to the loss of income and higher expenses associated with the Genesis Care and Steward events previously described. Non-same store cash NOI decreased largely due to cash NOI loss from dispositions exceeding cash NOI gain from acquisitions related to the timing of the redeployment of proceeds from dispositions. The most notable of these dispositions occurred in December of 2023 when the company sold significant asset for a sales price of approximately $258.4 million. We used the net proceeds of approximately $257 million to acquire $135.7 million of real estate, reduced the company's variable rate debt by approximately $72 million in December of 2023, and funded the approximately $50 million modified Dutch auction tender that concluded on July 19, 2024, all of which were created to the company. We reported third quarter AFFO of $31.7 million or $0.57 per diluted share compared to $34.1 million or $0.50 per diluted share in the third quarter of 2023, a decrease of 7.1%. In addition to the cash NOI items just discussed, AFFO includes income received from money market accounts which included interest received on $185 million in net cash proceeds after the debt repayment from the sale of the significant asset I mentioned previously. Third quarter AFFO also includes lower interest expense compared to the third quarter of last year primarily due to lower interest rates and lower company borrowings. AFFO for the first nine months of 2024 was $100.8 million or $1.77 per diluted share. This compares to $100 million or $1.75 per diluted share for the first nine months of 2023, an increase of .9%. The increase is driven by higher interest income and lower interest expense more than offsetting the reduction in cash NOI. As Michael previously mentioned, we reported sequential increases in both cash NOI and AFFO from the second quarter of 2024 to the third quarter of 2024. Although the timing of redeployment of capital and the workout of the Genesis Care and Steward Matters have impacted our third quarter results compared to last year, we have made solid progress positioning our portfolio for accretive growth. Importantly, we continue to maintain a strong balance sheet and ample liquidity. At quarter end, we were conservatively leveraged with a total net debt of $496.4 million or 3.5 times EBITDA RE. Going forward, we believe a leverage ratio of approximately four to five times net debt to EBITDA RE is an appropriate level for the company, though at times we may run lower or higher than this level. This target leverage level is generally lower than our peers and we believe is a testament to the thoughtful and appropriate manner to which we will approach our balance sheet management. At quarter end, we had cash, cash equivalents, and availability under our credit facility of approximately $528.6 million, providing us with substantial liquidity to make acquisitions that we believe will enhance the value of our portfolio for the benefit of our shareholders. Our outstanding debt was 100% fixed through 11 interest rate swaps, five with an outstanding notional amount of $250 million that mature on December 31, 2024, and six with an outstanding notional amount of $275 million that mature on January 31, 2028. We are actively monitoring broader economic news, reports, and the Federal Reserve's outlook on interest rate cuts as we evaluate new interest rate swaps to replace the notional maturing at the end of 2024. On July 19, 2024, we concluded a modified Dutch auction tender offer at the lowest offer price by the company of $22.60 per share. We used cash on hand to pay for the approximately $50 million of shares purchased in the associated transaction costs. On August 16, our board of directors authorized a share repurchase program of up to the lesser of 1.5 million shares of the company's common stock, or $25 million, for a period of 12 months from the authorization date. At this time, we have not purchased any shares under the program. We maintain a conservative dividend payout ratio to provide confidence in the stability of our dividend and to retain capital for future accretive investments. In the most recent quarter, our payout ratio was .7% of AFFO. On October 18, our board of directors authorized a monthly dividend of 13 cents per share, payable on November 15 to stockholders of record on October 31. This distribution represents an annualized aggregate dividend of $1.60 per share. Also, on October 18, the board approved a change in the frequency of the company's distributions from monthly to quarterly, effective in 2025, with the first quarterly distribution to be paid in the first quarter of 2025. Adjusting to a quarterly distribution allows management and the board of directors to better saving the company money associated with the processing and payment of a more frequent monthly distribution. I will now turn the call back to Michael for his closing remarks.

Thank you, Kay. On behalf of the entire CELA team, I would like to welcome our new coverage analysts and any new investors to the company. We are grateful for your interest in CELA. We have had many meetings since we listed the company on the New York Stock Exchange in June, and we sincerely appreciate the chance to tell our story. We're looking forward to meeting many more of you at future conferences. That concludes our prepared remarks. Operator, please begin the Q&A.

At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one to ask a question. We'll take our first question from Nate Crossett with BNP. Your line is open.

Hey, good morning. I was wondering if you could maybe just talk about the acquisition pipeline currently. I don't know if you can try and size it maybe a bit for us. And what are you seeing in terms of pricing? And then what's your view, I guess, on the buyback if potential acquisition activity is late?

Nate, great to hear from you today. Thank you for joining the call. Let me speak first to the overall picture on the acquisition front. We're very excited about the opportunities that we're seeing from a volume perspective. I definitely think from a positioning standpoint, taking the company public on the New York Stock Exchange, getting that visibility to the market, also telegraphing to the market the leverage of the company and the liquidity that we have has been beneficial for folks, brokers, developers, and sellers in the marketplace to be a go-to capital provider in this space. What I will do is I'll let Chris address some more specifics that we're seeing around the acquisition market. And then Chris, I'll address the aspect as it relates to buyback shares.

Yeah, thank you, Michael. Yeah, as it relates to the acquisition market, we have seen an increasing pickup of volume of potential transactions that we're able to underwrite. This, as we mentioned on the prepared marks, is both on- and off-market transactions. I would say really since the Fed cut rates and actually pivoted while rates have not moved, it has gotten sellers to really think about monetizing of an asset. We are looking at acquisitions again across the continuum of care. Really looking at outpatient medical, inpatient rehab, et cetera. I would say with a bit of a weighting towards outpatient medical in the markets where we currently invest in, looking at the Sunbelt particularly, in addition to other markets, but with some emphasis on the Sunbelt. We do feel encouraged about what we see out there as it sets up really for 2025.

Thank you, Chris. Nate, in respect of your question about share buybacks and when it might make sense, I think where we sit today is we see greater opportunity on the acquisition front, especially going into 2025. Where the stock's trading today, although we're trading at what we believe is a pretty significant discount to our intrinsic value, we obviously executed our modified Dutch tender at a significantly lower rate. So the board did approve a share buyback up to $25 million and it's something we have as a tool in our back pocket. I would say from a trading perspective, really, SEAL has just made its debut and is really just starting to get traction. So particularly as we get more visibility in front of generalists and rededicated investors, we expect to get more traction. We obviously have been added to some indices and expect further ads coming up. So we think this is probably not the right time for it, particularly also in light of the acquisition opportunities that we're seeing.

Okay, that's helpful. I had another question just on the new disclosure, the EBITDA arm coverages. I was wondering maybe you can just help us unpack what's in that under one times bucket and if there's any potential rent resets there, how should we be thinking about that piece?

Sure, let me give you color. We did disclose in the supplemental that we filed this morning some more detail as it coverage buckets and you're obviously asking specifically to those that fall under one times. There are 10 properties that fall into that bucket and that percent of ABR under one times. And what I would tell you is at least 50% of those properties are owned or affiliated with large national, some of the largest national healthcare systems in the country and much of their use in those facilities is for primary care. So primary care is often a loss leader. I would also mention to you, by the way, that nine of those 10 properties are medical office buildings. So we feel good about despite those at the property level, those assets covering at lower than one times, all of those tenants, by the way, are current on rent. So the paying of rent does not seem to be an issue. They're obviously being otherwise supported or it just may be a timing based upon the most recent reporting period. Hopefully that provides you a little bit more color.

Yeah, I mean, you said that five of them were attached to someone. What about the other five, I guess?

Approximately 50% of the ABR in that bucket based on ABR is affiliated or owned by large healthcare systems. By the way, of the other 50%, a good portion of that is just simply MOB's primary care offerings. And, you know, the primary care business is again, oftentimes a referral source to other facilities. So serving obviously really the entry point for patient care. So I would tell you overall, as we look at the detail around these tenants, we still feel very good about our ability to receive rent from these tenants.

Okay, that's helpful. I'll leave it there.

Thank you, Nate.

Thank you. Once again, that is star one to ask a question. We'll take our next question from Rob Stevenson with Jany. Your line is open.

Good morning, guys. At this point, what are you guys thinking is the primary use of the Stoughton facility going to be? Is that still as a healthcare asset? Is that going to be for some sort of alternative use at this point?

Rob, great to hear from you today. Thank you for joining. The Stoughton facility, I would say we're agnostic as to if there is a buyer, what the buyer uses it for. The buyer that we had fall out of contract was going to fashion it into some kind of a residential site. And we have been advised by various folks. And by the way, I will mention that we did engage a broker already, even though that contract was just most recently terminated last week. We've already hired a broker, national broker, to market that property. And that broker has already had conversations with folks and is anticipating very short order giving tours of that property. I would say that it sets itself up to be a continued healthcare site. It's a large building. However, we've also gotten a lot of feedback, as the other buyer was also interested in it being some kind of a residential site because it's a rather large tract of land. So clearly, if we're leasing it and we're going to own it longer term, we're interested in it being a healthcare user. That being said, we're agnostic, of course, as it relates to a buyer buying it and using it for whatever they deem most appropriate. So I would tell you also, I'm fairly optimistic about that being executed on because we received even without the hiring of a broker early this year, a number of interested parties who reached out to us proactively. This prior buyer came to us along with these other buyers without a broker involved. Now we've hired a broker, obviously, since that has fallen out of contract. And we're going to hit the market pretty hard in terms of blanketing it to determine who will pay us, of course, the most for that property should it be a sale.

Was there any issues in the rezoning as residential? And can a new buyer leverage any of the work that the former buyer done over the couple of months that they had it under contract?

I won't speak specifically to the zoning, Rob. What I would say, the prior buyer was in conversations with the relevant municipal authorities regarding it being residential and based upon the feedback that we got, there was a very strong reception to that.

OK, that's helpful. Chris, what's the interest rate going to be on the Lynchburg MES loans? And when do you expect that entire 17 and a half million will be out the door by?

Yeah, good question. So I would characterize it as a mid-teens return for both of the MES and EIN loans, again, to a developer that has significant development around development experience around health care assets and a nationally recognized general contractor. Those draws will begin likely later this month and would continue into the first quarter, really next year.

OK, and when are those two facilities expected to be completed? And I guess you need to have them occupied before you would acquire them? And I guess the other question. Correct. Go ahead. No, no. So I guess the first question is, is that a 25, 26 completion? How far out into the future are those completions expected? Yeah, it would be the first quarter of 2026. OK, and is your ability to purchase that, is that based on a fixed price or an appraisal at that time? What's the mechanism there?

Yeah, we've pre-negotiated a cap rate based on the next 12 months of the NOI at the time of purchase. OK,

that's very helpful. Thank you. And I guess in your mind, given your ability to do stuff like this, what's the relative attractiveness today between making loans and buying assets?

Yeah, I think this is really a means to, you know, obviously with an operator that in system, you know, that we have confidence in and a developer we have confidence in, it's really a way to build our pipeline in the future while having very good risk-adjusted returns along the way. It would not be our expectation that this would be the overwhelming majority part of our portfolio or capital allocation strategy. And again, this is a creative way to really get to, you know, new assets that, you know, we have confidence in the markets around it.

All right, that's helpful. And Kay, am I doing the math correctly in that Stuart was about 500,000 of revenue in the third quarter that we need to strip out of the run rate going forward?

Yes. Rob, let me, on a NOI, cash NOI basis, it was about 275,000 for the quarter.

Okay. All right. And then lastly for me, how should we be thinking about pricing today on any swaps that you put in place to replace the ones that are expiring at year end? How significant is the gap today versus what you'd really want to do?

What we have really seen in the past couple of months is that kind of midterm rates really kind of rising. And so when we look at swap rates today, we see something close to 300 bips increase on the swaps we have in place for the ones that are maturing at the end of this year. We still have some time to see if those can move, but they have moved up.

Okay, that's very helpful. Thanks, guys. Appreciate the time this morning. Thank you, Rob. Thank

you. We'll take our next question from Michael Lewis with Truist Securities. Your line is open.

Thank you. So most of my questions were addressed there, but I have one about kind of details back to the Mez loan investments. I'm just curious if you could talk about the size of these acquisition amounts. Is it a large dollar amount? And then it sounds like on the pricing, you talked about tying it to a cap rate. Is that a fixed cap rate that you already negotiated? Is it at market or below market? Just kind of a sense on that.

Michael, great to hear from you today. Thank you for joining. In terms of the overall transaction, and I want to clarify something Chris said as well. Chris was referring to mid-teens pricing for each of these two loans. They're two independent loans for the development. And one of the inpatient rehab, the second of a behavioral health care facility. So these will be brand new built subject to very long-term leases with sponsorship from one of the leading operators in the country and each of those respective types of assets along with the dominant health care system in this market that's investment grade rated. Those mid-teens returns, by the way, are unlevered. So that's essentially the fees associated with the coupon on the deal in each case paid on the outstandings. So we consider those to be very accretive to the company. In terms of future purchase price sizes of these assets, roughly speaking, they're in each and about the $50 to $60 million range, roughly speaking. So as Chris talked about building pipeline, these would be really call it 2026, you know, if they're executed at that time. In respect of the structure of the transaction, I'll also note we've done different types of development, financing and provided capital for transactions in the past. And we've done transactions where there are obligations to purchase and options to purchase in each of these two transactions. These are options to purchase, not obligations by us. So the way we look at that is the loans themselves stand on their own in terms of structure, in terms of security, in terms of returns. Moving then to the pricing of the acquisitions, to the extent we decide to exercise those, those were negotiated at what we think are slightly better than what I would call retail cap rate. So we're getting a little bit better pricing than we would otherwise get as a result of providing, you know, part of the capital structure for the development of these transactions. So the option really gives us a chance to look at these opportunities in 2026 and say, hey, we like the pricing, we don't like the pricing relative to where market pricing is at that time. I would like to think that it's going to be attractive pricing at that time, as we see maybe rates settled by that point in time. It's attractive pricing today, I would tell you, for us, and we would execute at those rates today. But it's hard to predict, of course, what would occur in the future, you know, a year and a half, two years. Does that answer your question?

Yeah, that's perfect. Thank you. And then I'm going to come back to another question that was asked about the steward property. You know, you kind of alluded to a lot of the details about, you know, exploring multifamily use and all of that. Could you maybe just be specific about, you know, why did that sale fall through? And are you owed any compensation for that? Or was that the right under the agreement? And then, you know, can you share what it was under contract for, what the price was?

Michael, we can't share what it's under, what was under contract for. I can only tell you why the buyer told us it fell through. You know, people may have other objectives, but the buyer was in their due diligence period. So they had a refundable deposit up. So it was within their right to terminate that contract during that period of time. They didn't notify us within that period of time. So, see, let's not do any compensation, other compensation. What I would tell you is that it was our understanding that property was going to be some kind of lower income type housing of some kind. And we don't know exactly the programming for their facility that they were putting there. We're not entirely sure if it was a renovation and an expansion of the existing building because, you know, they had spent 60 days or whatever the period of time was on it, 60 to 90 days or so on it. So I don't know how far they got. They obviously had taken their architects through and their engineers and the like. But we did have different types of buyers interested before from the residential spectrum. And we've also had some interest from the health care spectrum based upon the initial broker feedback and the outreach that a broker that we've just hired has made so far. So our impression that the site is valuable, that it's going to be an opportunity, of course, for someone. If it's us to lease it, great. If it's for somebody else to do something else with it, so be it.

OK, great. And then lastly from me, are you able to share the cap rate on the Arkansas acquisition?

We don't disclose cap rates on our acquisitions, but it does fit within the range of what we just described.

All right, fair. Thank

you. Great. Thank you for joining, Michael.

And it appears that we have no further questions at this time. I will now turn the program back over to our presenters for any additional or closing remarks.

Thank you, operator. Once again, thank you to our shareholders and members of the research community. We appreciate your interest in CELA and look forward to speaking with you again. Have a great rest of the day.

That concludes today's teleconference. Thank you for your participation. You may now disconnect.