Operator: The next question comes from Haendel St. Juste with Mizuho Securities.
Haendel St. Juste: Hey, there. First a follow-up on Greg’s question. Curious how much more exposure you’d be comfortable with in casual dining? I think you’re up to about 7.5% and also in the C-store side you’re about 5%. Thanks.
Peter Mavoides: Yeah, we’re comfortable in all our industries. We’re in 16 focused industries and generally have a soft ceiling of 15% for industries. Given my commentary around our credit experience in the casual dining space, we would certainly feel comfortable taking that exposure up. I don’t know that would go double to 15, but there’s certainly room to grow there. And C-stores is a similar sort of narrative where we’ve had positive credit experience and we like the space. You know, really the ultimately it depends on the opportunities that we’re able to source and whether or not those opportunities are priced at a rate that is attractive to us. And I guess from an overall perspective, I would expect those industries to grow ratably.
Haendel St. Juste: Okay. And then I guess going back to the first quarter volume, you highlighted the news release that it’s your busiest first quarter ever. I guess I’m curious and stepping back, is this the function if you’re seeing more assets that fit your buybacks, is it less competition, a greater desire for tenants to transact, given lack of the alternative decided or maybe all of the above? And what does that suggest the opportunity to deploy capital this year? Is the first quarter a good run rate to think about for the rest of the year? Thanks.
Peter Mavoides: Yeah, the first quarter is not a great quarter to run rate. Generally, I would think look toward our eight-quarter average more as an indicator of what to expect. The first quarter is a little slower historically as there’s a year-end push for deals and in the year starts off pretty slow as January and people get back to focus to doing deals. And if you’ve followed our incremental disclosures throughout the quarter, you’ll see that. Generally, our posture has been we’re transacting as much as we can. We have a great opportunity set. Our opportunity set was up in ’23 over ’22 at 20%, and I would expect it to be up again this year. And really that opportunity set — the growth in the opportunity set is driven by an increasing demand for sale leaseback capital as the pricing of it is more compelling than some of the financing alternatives that these middle market operator have as well as a diminished competition, going back to some of my earlier comments.
We’re working hard to buy assets and put the capital that we have raised and have raised to deploy to work. But it takes a lot of work, and a lot of negotiation, and a lot of underwriting, a lot of diligence to put the capital out, but we’re working hard to do that.
Haendel St. Juste: And one last one, if I could just on the pipeline. You mentioned that cap rates in the pipeline were fairly stable. I’m curious on what your expectation for cap rates are in the near term. We’ve seen some of your peers have larger increases in sequential cap rates to yours versus last quarter. I think yours were only up about 20 basis points. I’m curious on where you think cap rates are today, where they’re heading the opportunity to see a bit more yield in this higher rate environment? Thanks.
Peter Mavoides: Yeah, I would set that the expectations for cap rates to be flat. We haven’t seen the ability to push them up much higher. And ultimately, we would expect cap rates to gravitate down. As the capital markets to normalize and competition returns, that dynamic is not priced into our current pipeline. That current pipeline would suggest a flat trend. But later in the year, if things were to improve on the capital market side, we would expect a bit of a downward pressure.
Operator: The next question comes from John Massocca with B. Riley Securities.
John Massocca: Maybe kind of digging in a little more on the Red Robin transaction? I mean, I guess how did the coverage in cap rate on those deals compare to maybe the average for the quarter just roughly?
Peter Mavoides: They would have been accretive to the coverage dilutive to the cap rate.
John Massocca: Okay. That’s helpful. And then kind of bigger picture, particularly, as you look at pipeline today, what’s the mix of kind of private equity sponsored tenants in the pipeline? I guess how does that compare to historical levels, particularly maybe before when some interest rates increase year over the last couple of years?
Peter Mavoides: You know, John, the vast, vast majority of our tenants and our operators are private equity backed. We have very few publicly traded companies. Red Robin certainly is one of the exceptions in that regard. And so, I would speculate on a historical basis, it’s in the high-90s. And that private equity backing takes many different forms from family offices to family founders to big private equity shops. And so, that really hasn’t changed private equity. And some of the people that use their assets to leverage their business and one of the reasons why sale leaseback transactions are compelling to them.
John Massocca: My guess is that dynamic has been the same for maybe a bigger regional private equity backed companies versus maybe some of the more mom-and-pops or in MBO type of run operators?
Peter Mavoides: Yeah, listen, capital market behavior is really doesn’t matter. It doesn’t matter how big you are. You’re going to try to find the most efficient sources of capital to capitalize your business. Inherently, back to the Red Robin, if you’re public and you’re using your assets to finance your business, it’s because your cost of capital in the public market is impaired and not attractive and inherently you’re looking for other sources of capital. So capitalism is pretty efficient and people are trying to find the most efficient capital to capitalize their business, whether it’s a $3 billion, $6 billion enterprise or a $ 50 million enterprise.
