Getty Realty Corp. (NYSE:GTY) Q1 2024 Earnings Call Transcript

Getty Realty Corp. (NYSE:GTY) Q1 2024 Earnings Call Transcript April 26, 2024

Getty Realty Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to Getty Realty’s First Quarter 2024 Earnings Call. This call is being recorded. After the presentation, there will be an opportunity to ask questions. Prior to the starting of the call, Joshua Dicker, Executive Vice President, General Counsel, and Secretary of the company, will read a Safe Harbor Statement and provide information about non-GAAP financial measures. Please go ahead, Mr. Dicker.

Joshua Dicker: Thank you. I would like to thank you all for joining us for Getty Realty’s First Quarter Earnings Conference Call. Yesterday afternoon, the company released its financial and operating results for the quarter ended March 31, 2024. Form 8-K and earnings release are available in the Investor Relations section of our website at gettyrealty.com. Certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements. These statements are based on management’s current expectations and beliefs and are subject to trends, events and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Examples of forward-looking statements include our 2024 guidance and may also include statements made by management including those regarding the company’s future company operations, future financial performance or investment plan and opportunities.

We caution you that such statements reflect our best judgment based on factors currently known to us and that actual events or results could differ materially. I refer you to the company’s annual report on Form 10-K for the year ended December 31, 2023, for a more detailed discussion of the risks and other factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. You should not place undue reliance on forward-looking statements, which reflect our view only as of the date hereof. The company undertakes no duty to update any forward-looking statements that may be made in the course of this call. Also, please refer to our earnings release for a discussion of our use of non-GAAP financial measures including our definition of adjusted funds from operations, or AFFO, and our reconciliation of those measures to net earnings.

With that, let me turn the call over to Christopher Constant, our Chief Executive Officer.

Christopher Constant: Thank you, Josh. Good morning, everyone, and welcome to our Earnings Call for the First Quarter of 2024. Joining us on the call today are Mark Olear, our Chief Operating Officer; and Brian Dickman, our Chief Financial Officer. I will lead off today’s call by summarizing our financial results and investment activities, and we’ll provide commentary on how we continue to execute on our overall strategy in a thoughtful and disciplined manner despite the headwinds impacting all net lease companies. Mark will then take you through our portfolio and Brian will further discuss our financial results and guidance. We had a productive start to 2024 building on our momentum from last year. The combination of the investments made in 2023 and our year-to-date activity, plus the successful capital markets activity that pre-funded these investments, positions us to deliver continued earnings growth in 2024, even as we remain patient in a still uncertain interest rate environment.

In the first quarter, we invested approximately $41 million across 35 properties. We also continue to diversify our business by investing across our four primary convenience and automotive retail asset classes, including convenience stores, express tunnel car washes, auto service centers, and drive-thru quick-serve restaurants. In addition, the team at Getty continued to actively manage our in-place portfolio by extending two material unitary leases with near-term maturities, which resulted in an uptick in our weighted average lease term at quarter end. The net result of our excellent performance from the last year and our strong start to this year was a quarterly base rental income increase of 13.1% and a 1.8% growth in our quarterly AFFO per share.

Looking ahead, Getty continues to be well-positioned to create value for shareholders in the current environment, both through the strength of our in-place portfolio and our ability to source and close investment opportunities, which will further advance our growth and portfolio diversification efforts. To that end, we currently have a committed investment pipeline of more than $44 million under contract at a blended cap rate in the high 7% area, which is fully funded from our prior capital markets transactions. In addition, thanks to the efforts of our investments team, we are evaluating a steady flow of potential acquisition and redevelopment opportunities. Our target retail sectors and institutional tenant base continue to perform well and maintain healthy profit margins and rent coverage ratios.

Specific to the C-Store sector, the National Association of Convenience Stores recently published a summary of their Annual State of the Industry report showing that 2023 was another record year of sales for the industry. We also continue to benefit from our focused strategy and direct relationships. Despite many operators in our target sectors prioritizing operations and or being more selective when it comes to growth, we’ve been steadily sourcing new opportunities to underwrite. Pricing these transactions remains a challenge as bid-ask spreads persist, but we’re pleased with the deal flow and trust that we’ll be able to execute as the transaction market continues to adjust. Overall, we expect 2024 to be a challenging year for acquisitions of net leased properties in our sectors.

However, we believe, we have a clear path to generate earnings growth from the rent escalators in our in-place portfolio, additional income from investments made in 2023 and those already completed in the first quarter, as well as closings from our committed pipeline which are expected to occur throughout 2024. With that, I will turn the call over to Mark to discuss our portfolio and investment activities.

Mark Olear: Thank you, Chris. As of the end of the quarter, our lease portfolio included 1,103 net lease properties and two active redevelopment sites. Excluding the active redevelopments, occupancy was at 99.7% and our weighted average lease term increased to 9.2 years due to both our new investments and the early renewal of selected leases. Our portfolio spans 42 states plus Washington DC, with 60% of our annualized base rent coming from the top 50 MSAs and 77% coming from the top 100 MSAs. Our rents are well covered with a trailing 12-month tenant rent coverage ratio of 2.6 times, which has generally been consistent over the last four years, demonstrating the resiliency of our tenant’s businesses despite macroeconomic uncertainty.

Turning to our investment activities. We had a productive start to the year as we invested approximately $41 million in the first quarter. Highlights of this quarter’s investment include the acquisition of one new to industry convenience store located in Florida for $7.6 million, two drive-thru QSRs for $3 million, seven auto service center properties located throughout the Southeastern US for $13.7 million, of which $12.6 million was funded in the first quarter, 12 express tunnel car washes located in various market with concentrations in Virginia and North Carolina for $61 million, of which $9.9 million was funded in the first quarter. We also advanced incremental development funding in the amount of $7.8 million for the construction of 13 new to industry convenience stores, express tunnel car washes and auto service centers.

These assets are either already owned by the company and are under construction or will be acquired via sale-leaseback transactions at the end of the project’s respective construction periods. For the quarter, the aggregate initial cash yield on our investment activity was 7.7% and the weighted average lease term for acquired properties was more than 16 years. Subsequent to the quarter end, we invested $7.2 million for the development and/or acquisition of one convenience store and two express tunnel car washes. We currently have more than $44 million of commitments to fund acquisitions and developments. The majority of which we expect to deploy over the next six months at average initial yields that are consistent with our first quarter performance.

Pipeline yields continue to reflect some older vintage transactions as well as current pricing for our new originations, which is generally north of 8%. Moving to our redevelopment platform. During the quarter, we invested approximately $500,000 in projects which is – which are in various stages in our pipeline. We ended the quarter with three signed leases for redevelopment and are seeing renewed interest from retailers whose expansion plans overlap with the footprint of our portfolio. We expect to continuously complete projects over the next few years. Turning to asset management activities. We sold one property in the first quarter for $1.2 million. As we look ahead, overall transaction market conditions are largely unchanged from the prior quarter as sellers are electing to hold assets with the hope that pricing improves later this year.

However, we believe our focused strategy will afford us the opportunity to work on transaction opportunities with both our existing tenant partners as well as several new relationships as we move throughout the year. With that, I’ll turn the call over to Brian.

Brian Dickman: Thanks, Mark. Morning everyone. Last night, we reported AFFO per share of $0.57 for Q1 2024, representing an increase of 1.8% versus the $0.56 per share we reported in Q1 2023. FFO and net income for the quarter were $0.53 and $0.30 per share, respectively. Our total revenues for the quarter were $49 million, representing year-over-year growth of 14% versus the first quarter of 2023. Base rental income, which excludes tenant reimbursements, GAAP revenue adjustments, and any additional rent, increased by 13.1% to $43.9 million. This growth was driven primarily by our recent acquisition activity as well as recurring rent escalators in our leases and rent commencements at completed redevelopment projects. On the expense side, total G&A was $6.7 million in the first quarter compared to $6.3 million in the prior year period.

Excluding noncash stock-based compensation, G&A was $5.3 million compared to $5 million in Q1 2023. The increase in G&A was primarily due to employee-related expenses, professional legal fees, and information technology expenses. We continue to anticipate that G&A increases will moderate and G&A as a percentage of our revenue and asset base will decrease as we continue to scale the company. Property costs were $3.7 million for the quarter, compared to $4.7 million in the prior year period, due primarily to lower reimbursable expenses, rent expense, and demolition costs for redevelopment projects. Environmental expenses, which are highly variable due to a number of estimates and noncash adjustments, were a credit of $17,000 in the quarter as compared to an expense of $321,000 in the first quarter of 2023.

Our balance sheet continues to be well positioned and we ended the quarter with $800 million of total debt outstanding. This consisted primarily of $675 million of senior unsecured notes with a weighted average interest rate of 3.9% and a weighted average maturity of 6.2 years. We also had a $75 million unsecured term loan outstanding at a 6.1% interest rate and $50 million drawn on our $300 million unsecured revolving credit facility. As of March 31st, net debt to EBITDA was 5.1 times and total debt to total capitalization was 37%, while total indebtedness to total asset value as calculated pursuant to our credit agreement was 36%. Taking into account unsettled forward equity, net debt to EBITDA would be approximately 4.9 times. Subsequent to quarter end, we drew down the remaining $75 million available under our delayed draw term loan and used the proceeds to repay all amounts outstanding on the revolving credit facility.

The balance will be used for general corporate purposes, including to partially fund our investment pipeline. There was no new equity capital markets activity in the first quarter and we currently have approximately 1 million shares of common stock subject to outstanding forward sales agreements. Upon settlement, these shares are anticipated to raise gross proceeds of approximately $32 million. Returning to our committed investment pipeline. As Chris mentioned, these transactions are fully funded through a combination of cash on the balance sheet, proceeds from the recent term loan draw, and proceeds from our outstanding forward equity agreements. Pro forma for these investments and capital activity, we expect our balance sheet to remain well-positioned to support continued growth and to maintain leverage near the midpoint of our target range of 4.5 times to 5.5 times net debt to EBITDA.

As our investment pipeline evolves, we will continue to evaluate all capital sources to ensure that we’re funding transactions in an accretive manner while continuing to maintain our investment-grade credit profile. With respect to our environmental liability, we ended the quarter at approximately $21.7 million, which was a reduction of approximately $700,000 since the end of 2023. Our net environmental remediation spending for the first quarter was approximately $1.1 million. Finally, we are reaffirming our 2024 AFFO guidance of $2.29 to $2.31 per share. As a reminder, our outlook includes transaction and capital markets activity to date, including the recent $75 million term loan draw, but does not otherwise assume any potential acquisitions, dispositions or capital markets activities for the remainder of the year.

Primary factors impacting our AFFO guidance include variability with respect to certain operating expenses, deal pursuit costs, and the timing of anticipated demolition costs for redevelopment projects, which run through property costs on our P&L. With that, I’ll ask the operator to open the call for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question is from Joshua Dennerlein with Bank of America. Please proceed.

Farrell Granath: Hi, this is Farrell Granath on behalf of Josh. Good morning. I wanted to ask if you could make a few comments on the sale-leaseback market set where you’re seeing opportunity.

Mark Olear: Yes, this is Mark. So the opportunity coming in the first part of the year, it remains — the opportunities remain active. We’re seeing a lot of product maybe at a more moderate pace than we had coming out of last year. That activity is around continuing to work the relationships with our existing long-term partners to try and match their underwriting expectations and pricings on growth, and also a mix of new relationships and new opportunities that might not have previously considered sale-leaseback as a source of capital. So there is activity in the pipeline. We’re pretty encouraged by what we’re seeing, and it’s just a matter of buyer and seller expectations coming into line.

Farrell Granath: Great. And when thinking about investment pacing for the rest of the year, do you think that it may be even more back-half weighted as people start figuring out the macro?

Christopher Constant: Yes. I mean, we’ve said for a while when there’s some better certainty or clarity around where the economy is headed, we do think the transaction market will open back up. So I think you could certainly make an argument that towards the back half of this year, we do expect to see more opportunities.

Farrell Granath: Great. Thank you so much.

Operator: Our next question is from Todd Thomas with KeyBanc Capital Markets. Please proceed.

Todd Thomas: Hi, thanks. Good morning, Mark. Maybe, Brian can weigh in too. You talked about the yield on investments being 7.7% in the quarter but indicated that the yield on deals in the pipeline is, I think 8%, you said. Does 8% get you a little bit more active again on capital deployment, or do you see investment yields increasing — or do you need to see investment yields increasing further relative to your current cost of capital? And then, do you see potential upside to those yields just based on current conversations that you’re having with sellers and tenants regarding sale-leasebacks, just given where interest rates are and expectation for rate cuts being priced out of the market a little bit more recently.

Mark Olear: Well, yes, so I could talk about the high 7%. There is a little bit of weight there to vintage deals from last year that where the development funding is a longer time horizon. So we’ll cycle through those as this year progresses. The pipeline is weighted both with opportunities that we priced closer to the 8% range. And I would say that in the most current vintage deals in the underwriting, we’re in and around that 8% — above the 8% generally in those conversations. Again, the total volume of that might be more moderate than it had been previously, but where we can match up valuation of new opportunities with our tenant partners, both, as you said, existing relationships, new relationships, we expect to be able to transact on those opportunities.

Brian Dickman: Hey, Todd, it’s Brian. With respect to spreads, I think no different than a lot of the sector. We’d love to be closer to that 150 basis point area. Candidly, in the current market and for the, probably last year and change, it’s really been trying to get spreads closer to 100 basis points and north of that. And I think if you look at current cost of capital and where we’re putting out paper today, I think that’s something we can achieve. The deals that are under contract, the deals that Mark has been quoting, those are really matched against the capital we have in hand, right? That’s at a lower cost. So we think we’re achieving that spread when you match that funding against those deals. And as we look at putting out new paper and we’re looking at spot cost to capital, we want to be north of 8% certainly on a blended basis, maybe into the low, if not mid-8s to really achieve that spread.

But we also try not to put any bright red lines that’ll inhibit us from doing otherwise quality deals that make sense for the portfolio, as long as they’re accretive directionally. So hopefully, that helps provide a little bit of color. But yeah, to achieve the spreads we’re looking for, which is generally around that 100 basis points area in this market, we’re going to want to be north of 8%.

Todd Thomas: Okay, yes, that’s helpful. And then I think you mentioned that there are some new tenants that you’re talking to that you had — that had not previously considered sale-leasebacks, is that sort of a new category or just new tenants, new credits within the C-Store and automotive services segment?

Brian Dickman: It’s not new categories. I’d say it’s tenants that previously had either been forgetting on their balance sheet or just hadn’t really entertained sale-leaseback conversations in the past. So it’s folks that we’ve known for a long time who are certainly looking at how they can continue to manage their balance sheet and finance their growth. And we’re certainly thrilled to have those conversations and would love to bring those types of tenants into the portfolio.

Todd Thomas: Okay. And then just lastly. Chris, you touched on the extension of two unitary leases, which bumped out the portfolio’s wall. It looked like those leases might have been in ’25 and ’27 that you extended. But can you provide a little bit more detail there? Whether there were any sort of changes to economic or non-economic terms pertaining to the lease, annual escalators, for example. And then looking out. I know it’s a little early, but expirations do bump up quite a bit to 8% and 12% in ’26 and ’27, which is rather meaningful. Any early thoughts on those expirations?

Christopher Constant: Sure. Yes. So it was two leases, one that had an initial maturity in 2025. That — in that particular instance, the tenant was looking to make some investments in those properties and wanted a much longer term. So they exercised an early option. That lease has been out 10 years. We get some additional rent bumps as part of that and so we’re really happy with that lease. And then one was the ’27 expiration of just an early contractual renewal. There are standard bumps in that renewal, so that was really just pushing out term by 10 years. We do have maturities. I’ll focus mostly on ’27 because that — there’s a lot of leases that make up the ’27 maturity. Those are leases that came from the old Getty Petroleum marketing assets.

And so we are going to continue to work through those. Those are healthy performing leases. And, we have an active dialogue with those tenants as we get closer to their renewal notice date. We’re certainly — we expect those to renew and to have those properties in the portfolio long term.

Todd Thomas: Okay, great. Thank you.

Operator: Our next question is from Anthony Paolone with J.P. Morgan. Please proceed.

Anthony Paolone: Thanks. Good morning. Just going back to cap rates and these numbers that at the margin seem to be in the 8s. Is it like-for-like quality with what you were doing historically, or do you have to go up or down the quality spectrum to kind of get into that zip code? I’m just trying to understand, how to think about an eight today versus what that had been, say, two, three years ago.

Christopher Constant: Yes, I’m actually glad you asked that question. We are buying the same assets that we’ve been buying for the my entire time with this company. Right. Convenience stores, car washes, auto service, same quality tenant, same quality assets in attractive markets, right, real estate valuations for our properties have changed. We’re not pushing rents. We’re underwriting to the same coverages. These are tenants that have the ability to continue to grow their business. They need to finance that growth and we’re there to provide that financing for them.

Anthony Paolone: So is it — so basically this implies about 100 bps of cap rate backup in terms of what you’ve seen at this point in the market.

Brian Dickman: Yes, I mean, you could argue from the trough, it’s actually probably a little more than that, but probably 100 to 125 basis points.

Anthony Paolone: Okay. And then just on the credit side, the 2.6 coverage you talked about. But can you dig in a bit further there, are there any pockets where you feel like it warrants some concern or anything on your watch list? And then also along the same lines, can you maybe talk to how areas like car washes are doing, particularly the new builds versus kind of what you underwrote?

Brian Dickman: [Multiple Speakers] Yes, so Anthony, it’s Brian. So your specific to the coverage ratio and watch list, the short answer is no. There’s no real tenants on the watch list. I mean, in general, just given macro environment, consumer environment, where we’re engaged with our tenants, making sure that we’re understanding, how they’re operating their business, we are definitely hearing a lot of our tenants focused on operational excellence, cost savings, margin expansion, things like that. Just as growth, broadly speaking, as we’ve been talking about as well, has slowed down a little bit. So no particular tenants, though, beyond just that regular way kind of diligence, I would say. You may have noticed in the distribution of rent coverage in our deck, we did have two leases with not an immaterial amount of ABR moved from one strata to the other.

But that was really right around the 2 times coverage, moving from one side of that to the other. And as you see from the total, did not have a material impact on the 2.6 times. So that explains that. And then just within the different sectors, obviously, we have a lot more data, a lot more history with the C-Stores and the tenants there, and their performance. Car washes are a little bit new, I’d say, if there’s any trends, and this may be moderating again, given some of the economic backdrop. But I’d say, the car washes probably on average, have ramped up a little faster than our initial underwriting. And so we’re seeing some good profitability there in the years one and two time-frame versus typically, our tenants look to year three for stabilization, again, whether that’s a trend that continues or not, we’ll see, but I’d say net-net, that’s a positive.

Anthony Paolone: Okay, thanks. And if I could just sneak one more in, just following up, I think on Todd’s question, your answer, around the 27 lease expirations, any sense as to whether those sit above or below market as of today.

Brian Dickman: Well, from a rent perspective. So they have contractual rent — they have contractual renewal options, excuse me. So regardless of where rents are compared to markets, it’s not really relevant to the renewal decision. So what we’re really focused on there is the profitability of the portfolios. Again, these are unitary leases. And that was really Chris’s comment that, as we look at them today and given their contribution to the tenants, overall profitability would be our expectation that they would renew and those would be at rents pursuant to the existing leases.

Anthony Paolone: Okay, got it. Thank you.

Operator: Our next question is from Alex Saigon with Baird. Please proceed.

Alex Saigon: Hi, thank you for taking my question. First one is, are you seeing any more opportunities for developer take-outs and if so, in which categories?

Mark Olear: So we have gotten some opportunities come our way. If you’re asking about tenants that had previously used development services, that has been a difficult business. So if you were a tenant growing through like a merchant developer program. The total port — the total pro forma for that type of business has been really difficult to continue to deliver on. So we have tenants that had previously used other types of services to grow, have come to us to explore our development funding and our sale leaseback product. If the question is about from developers who had previously been in the midst of other entitlement and development process, we’ve had some conversations where they’ve come to us, looking to us as a partner or a source of capital. Again, within our targeted asset classes, if they had intended to develop for a tenant we’d eventually like to have in our portfolio, we do have some of those conversations going on too. I hope that answers the question.

Alex Saigon: Yes, it does. Thank you. And I guess second one for me is in Getty’s diversification effort, what kind of upper bound, if any, of the portfolio would car washes get to kind of notice, I think at 18.9% now.

Mark Olear: Yes. I think our ultimate goal with the diversification strategy has just become a more balanced portfolio. So given the history of the business, where at one point C-stores and gas stations made up 100% of rents, or 99% of rents, certainly we’re looking to balance that out more. I think what you saw with our activity over 2023 and in the first quarter ’24, we’re investing across all of the asset classes. And to Brian’s earlier point, we’re seeing now as operators, specifically in carwash, maybe more focused on operations and ramping up some of these new store developments that we funded. So we expect to see, what I’ll call more balanced underwriting and balanced closings across opportunities as we move through 2024.

Alex Saigon: Got it. That’s it for me. Thank you.

Operator: Our next question is from Mitch Germain with Citizens JMP. Please proceed.

Mitch Germain: Thank you. I’m just curious. I know a lot of emphasis on leasing this call. Is the lease structure changed at all in terms of maybe, financial reporting requirements or rent bumps, and kind of maybe are you pushing those at all in terms of some of the new leases that you’re signing?

Mark Olear: Generally, lease terms haven’t changed over the last several months. I think when we started to see cap rates move, started to see inflation, one of the first things to move probably 15 or 18 months ago, were rent bumps. So our rent bumps today, that we’re putting on paper on are 2% plus, as opposed to maybe in the trough of — they were sort of bottomed out at 1.5%. But other lease terms specially — really aren’t changing.

Mitch Germain: Great. And then is there any potential emphasis, given where your cost of equity is today, to maybe consider some asset sales, I know that you are still — you own a bunch of legacy assets that may not be — that I know they’re performing well, but may not be completely aligned with the type of assets that you would buy today. So could you be pursuing any additional dispositions down the road?

Mark Olear: We certainly, entertain that type of thought all the time. Several quarters ago, we sold a portfolio in upstate New York and reinvested that into assets in Austin, Texas. And should that align — that type of transaction align in the future, we would consider it. We’re fortunate today that being 99.7% occupied and having leases with healthy rent coverages and tenants that are performing well, right, we’re not forced to look at asset sales. So it’d be really maybe, more of an opportunistic transaction where we could maybe divest a portfolio and reinvest in a new set of assets. But we look at the portfolio all the time, Mitch, for value and certainly, would expect to continue to do so. And if that works — if the numbers work, we would transact on them.

Mitch Germain: Great. Thanks so much.

Operator: [Operator Instructions] Our next question is from Michael Gorman with BTIG. Please proceed.

Michael Gorman: Yes, thanks. Good morning. Chris. I was wondering if you could talk a little bit about some of the new tenants or new relationships that you’re looking at from the sale-leaseback perspective and just the expectation side? If they’re new to the market, are you finding that these are deals that take a longer time to get through to close? Are there expectations further off or kind of what the negotiation process is like there versus the existing market and what their alternatives look like in the current financing environment?

Christopher Constant: Yes, I think with some of the newer conversations, you’re often — our process and the way we like to transact being a portfolio, unitary master lease as opposed to one-off transactions, the first obstacle is always the conversation on pricing, what people could get on the one-off basis in the 1031 market, versus where we think value is for a portfolio. So our number in the first quarter was 7.7%. Mark talked about putting deals out today that are 8% plus. There are still one-off transactions that are happening, probably that start with a 6% range if somebody’s willing to transact one asset at a time. So I think that’s where we need to educate what a portfolio sale-leaseback looks like to an institutional buyer as opposed to a retail transaction.

So that does take some time. That is part of our process in terms of educating someone and hasn’t been through a sale-leaseback before. But I think our track record is such that we’ve been able to be there and provide that commitment to somebody, whether it’s a sale-leaseback or whether it’s through development funding, where it makes sense for them to transact in a portfolio, as opposed to taking the risk and the time that it takes to transact one-off. So it does take time, Mike. But I think we’ve been really successful at really kind of educating tenants that haven’t been through the sale-leaseback process before, and forming those new relationships and bringing those tenants into the portfolio.

Michael Gorman: That’s helpful. Thanks, Chris, And Brian, just quickly, on the coverage side of things, you mentioned the two leases. Can you just give us a little bit more color in that kind of one to two bucket? What the breakdown of the properties and the property types in that bucket are. And then just generally, when you think about the portfolio, where do you look for the coverages based on product type as you’re kind of thinking about the portfolio or thinking about underwriting?

Brian Dickman: Yes, happy to. I’ll work backwards there, Mike. We’ve been really consistent over the years with underwriting C-Stores to a 2 times coverage. Car washes we will push 2.5 times, maybe upwards of 3 times, depending on if it’s a new build and we’re looking off pro formas or whether there’s an operating history to look at. So that’s where the underwriting comes in. In terms of the actual performance, I’d say in that 1 times to 2 times a bucket would be a mix of some ramping car washes, which I think we referenced on the call last time. So as things are coming into our data set, which we bring in after 12 months, and I mentioned earlier that typically the car wash target for stabilization is more like 36 months. So that is some of the 1 times to 2 times.

And then there’s a couple C-Store portfolios that are definitely performing. They’ve been in the portfolio for a long time. As I mentioned, they were north of 2 times in our last data set, and they happened to drop, just south of 2 times for this data set, but not in such a material way that it changed the overall average. So think of it as a mix of ramping car washes and some older but very much performing C-Store portfolios that have been in our broader portfolio for a long period of time.

Michael Gorman: Great. Thanks for the color.

Operator: We have reached the end of our question and answer session. I would like to turn the conference back over to Chris for closing remarks.

Christopher Constant: Thank you, operator. Thank you, everyone, for being on the call this morning. We look forward to getting back on in July when we report our second quarter of 2024 results.

Operator: Thank you. This will conclude today’s conference. You may disconnect your lines at this time, and thank you for your participation.