STORE Capital Corporation

Good day and welcome to the STOR Capital first quarter 2022 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 Megan McGrath, Investor Relations for Store Capital. Please go ahead.

Thank you, Operator, and thank you all for joining us today to discuss Store Capital's first quarter 2022 financial results. We issued our earnings release along with a newly reintroduced earnings supplement, as well as our quarterly investor presentation after the market closed yesterday. These documents are available in the investor relations section of our website at ir.storecapitals.com under news and results, quarterly results. I'm here today with Mary Fila, President and Chief Executive Officer of Store, Sherry Rexrose, Chief Financial Officer, Craig Barnett, EVP of Underwriting and Portfolio Management, and Tyler Merck, EVP of Acquisitions. On today's call, management will provide prepared remarks. and then we will open up the call for your questions. In order to maximize participation while keeping our call to an hour, we will be observing a two-question limit during the Q&A portion of the call. Participants can then re-enter the queue if you have follow-up 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, see, intend, believe, expect, anticipate, or other comparable words and phrases. Statements that are not historical facts, such as statements about our expected acquisitions, dispositions, or our ASFO per share of guidance for 2022, are also forward-looking statements. Our actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SAC filings, including our reports on Form 10-K and Form 10-Q. With that, I would now like to turn the call over to Mary Fedewa, STOR's Chief Executive Officer. Mary, please go ahead.

Thank you, Megan. Good morning, everyone. Welcome, and thank you for joining us today. I'll begin the call with an overview of our first quarter performance and some thoughts on the current market environment. Craig will provide an update on the additions we made to the portfolio and our portfolio management activities. And then, Sherry will review our financial results. I'd like to quickly mention we have reinstated a financial supplement to our earnings release, which we hope will provide an efficient presentation of our financials. We look forward to your feedback. In light of our first quarter performance, we are raising our acquisition and ASFO guidance for the year. Sherry will provide this updated guidance for 2022 in her remarks. We will then open the call to questions. Our momentum from 2021 has continued through the first quarter of 2022. We acquired $513 million in profit center real estate, the highest first quarter volume in stores history. These acquisitions were at an initial cap rate of 7.1% with weighted average annual lease escalations of 1.8%. Cap rates were right in line with our guidance and our investment spread for the quarter was robust at approximately 340 basis points above our recent debt issuance. This activity, along with the strong performance of our portfolio, resulted in solid AFFO of $158 million and AFFO per share of 57 cents for the quarter. Both were the highest in our history and have had a consistent upward trend for the past four quarters. Given the recent sea change in interest rates and inflation, I'd like to address STOR's ability to continue to drive growth and attractive spreads in the current environment. Our total addressable market is estimated to be nearly $4 trillion and over 2 million properties. Within that total addressable market, we are focused on an estimated 200,000 companies that are in vital, sustainable, and growing industries. These are regional and national companies that benefit from the long-term real estate financing solutions we provide. Given such a large market opportunity, we have a very long runway to grow, and we can be very selective in the investments we make. One of STOR's strategic advantages has always been our ability to identify and successfully acquire a large volume of granular transactions through our direct origination approach. This has been our consistent strategy since inception. This approach allows us to price new leases from both a cap rate and rent escalation perspective that reflect the current economic environment, which today is one of inflation and rising interest rates. With pricing power on the front end and our disciplined underwriting process, which includes a deep dive into both the credit of the customer as well as the value of the real estate, we are able to make accretive acquisitions with wide spreads resulting in attractive risk-adjusted returns. We also have strong internal growth of 5% between our annual rent escalations, which average 1.8% on the portfolio, our retained cash flow from our low dividend payout ratio, which was 67.5% this quarter, and proceeds from dispositions. The financing flexibility that we have built over the last decade positions us well to fund our growing pipeline of acquisitions with both debt and equity options, which allow us to optimize our cost of capital to generate attractive spreads. We have three primary sources of debt financing, our store master funding facility, investment grade unsecured debt, and unsecured bank debt, as well as access to the equity market, usually through our ATM program. While interest rates are rising, just last week we were able to issue term debt financing at an attractive fixed rate of 3.68%. Sherry will provide more details in her remarks, but we are extremely pleased with this execution and the broad participation from all 13 banks in our bank group. In light of these key differentiators, we feel STOR is well positioned to execute on our objectives for the year. Now I'd like to provide a current market update. First, we are seeing a lot of activity and demand for our financing solutions. We have a strong, diverse pipeline of over $13 billion and growing. We believe cap rates have bottomed, and we are currently seeing upward movement of approximately 25 basis points, which we should see the benefit of in the second half of the year. Second, we are currently negotiating rent escalations on new opportunities in the range of 2.25 to 2.5% a year, up from about 2%. We anticipate seeing this in the contracts we fund in the second half of the year. Third, given the volatility of financing conditions, stores' proven track record for timely execution has become a major consideration for our customers and an important advantage. As we have mentioned before, we really believe periods of uncertainty and complexity in the capital markets can create opportunities for us as our customers will need our unique financing solutions and partnership more than ever. Finally, STOR currently has an attractive dividend yield of about 5.5%, and historically we have been able to grow our dividend annually by more than 6% on average. In summary, it was an excellent quarter, and we expect the momentum to continue throughout this year. We believe these results directly reflect the fundamental strength of STOR's differentiated business model, which was built to deliver growth and attractive returns in a variety of economic environments, including the volatile and complex markets we are experiencing today. Now I'll turn the call over to Craig.