Spirit Realty Capital, Inc.

Good day and welcome to the Spirit Realty Capital second quarter 2023 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Pierre Raval, Senior Vice President of Corporate Finance and Investor Relations. Please go ahead.

Thank you, Operator, and thanks, everyone, for joining us for SPIRIT's second quarter 2023 earnings call. Presenting in today's call will be President and Chief Executive Officer Jackson Shea and Chief Financial Officer Michael Hughes. Our Chief Investment Officer, Ken Heimlich, will be available for Q&A. Before we start, I want to remind everyone that this presentation contains forward-looking statements. Although we believe these forward-looking statements are based on reasonable assumptions, they are subject to known and unknown risks and insurgencies that can cause actual results to differ materially from those currently anticipated due to a number of factors. I refer you to the safe harbor statement in our most recent filing with the SEC for a detailed discussion of risk factors relating to these four looking statements. This presentation also contains certain non-GAAP measures. Reconciliation of non-GAAP financial measures to most directly comparable GAAP measures are included in the exhibits furnished to the SEC under Form 8K, which include our earnings release and supplemental investor presentation. These materials are also available for, on the investor relations page of our website. For prepared remarks, I'm now pleased to introduce Jackson Chey. Jackson.

Thanks, Pierre. And thanks, everyone, for joining our call this morning. At the beginning of this year, we outlined a plan for 2023 consisting of two primary objectives. First, implement a capital deployment strategy that utilizes free cash flow, asset dispositions, and existing debt to yield favorable investment spreads without issuing new capital. Second, demonstrate the strength and diversification of our portfolio through consistent operating performance. Halfway through the year, we are on track to meet our goals with our second quarter results building on what we accomplished in the first quarter. During the quarter, we acquired 138 million in assets comprised of 11 properties across five transactions at a cash cap rate of 7.63% and an economic yield of 8.88%. This is the highest cash cap rate and second highest economic yield we have achieved in the last eight quarters and higher than those achieved in the second quarter of 2022 by 129 and 180 basis points respectively. In addition, We invested $30 million in revenue-producing expenditures, primarily related to the development and tenant improvements, at a 9.87% cash cap rate, resulting in total capital deployment of $169 million at a cash cap rate of 8.03%, an increase of 166 basis points from the same period last year. We sold 18 occupied properties during the quarter for $41 million at a cash cap rate of 6.27%. The average size of these transactions was 2.3 million and consisted of QSRs, C-stores, drugstores, and Red Lobsters. We generated a 176 basis point spread between the cash cap rate on capital deployed and our occupied dispositions. We also sold 12 vacant properties for 26 million, resulting in total disposition proceeds of 67 million. Our capital deployment net of dispositions was 102 million. Excluding vacant sales, the net effective cap rate was 8.61%. Consistent with our 2023 plan, we didn't raise any equity this quarter. and funded our capital deployment with disposition proceeds, in-place debt, and free cash flow, with no change in our leverage. The strength and diversification of our tenants, the industries they operate in, and the quality of our real estate portfolio, combined with better than anticipated investment spreads, are allowing us to surpass our previous forecasts and revise our AFFO per share guidance upward for the second time this year. As we transition into the back half of the year, we remain dedicated to achieving our 2023 goals. We will maintain a disciplined approach to our investments, poised to seize the most favorable opportunities that will yield optimal returns for our shareholders.