Essential Properties Realty Trust, Inc. (EPRT) Q4 2022 Earnings Call Transcript

Essential Properties Realty Trust, Inc. (NYSE:EPRT) Q4 2022 Earnings Conference Call February 16, 2023 10:00 AM ET

Company Participants

Daniel Donlan - Senior Vice President and Head of Capital Markets

Peter Mavoides - President and Chief Executive Officer

Mark Patten - Executive Vice President and Chief Financial Officer

Conference Call Participants

Ravi Vaidya - Mizuho Securities

RJ Milligan - Raymond James & Associates

Joshua Dennerlein - Bank of America Merrill Lynch

Greg McGinniss - Scotiabank

Nick Kerr - Citigroup Inc.

John Massocca - Ladenburg Thalmann & Co.

Omotayo Okusanya - Credit Suisse AG

Operator

Good morning, ladies and gentlemen, and invited to nan Essential Properties Realty Trust Fourth Quarter 2022 Earnings Conference Call. At this time, each participants are successful a listen-only mode. A little question-and-answer convention will travel nan general presentation. [Operator Instructions]

This convention telephone is being recorded and a replay of nan telephone will beryllium disposable 2 hours aft nan completion of nan telephone for nan adjacent 2 weeks. The dial-in specifications for nan replay tin beryllium recovered successful yesterday's property release. Additionally, location will beryllium an audio webcast disposable connected Essential Properties website astatine www.essentialproperties.com. An archive of which will beryllium disposable for 90-days.

It is now my pleasance to move nan telephone complete to Dan Donlan, Senior Vice President and Head of Capital Markets and Portfolio Management astatine Essential Properties.

Daniel Donlan

Thank you, operator, and bully morning, everyone. We admit you joining america coming for Essential Properties 4th fourth 2022 convention call. Here pinch maine coming to talk our operating results are Pete Mavoides, our President and CEO and Mark Patten, our CFO.

During this convention call, we will make definite statements that whitethorn beryllium considered forward-looking statements connected our Federal Securities Law. The Company's existent early results whitethorn disagree importantly from nan matters discussed in these forward-looking statements. And we whitethorn not merchandise revisions to those forward-looking statements to bespeak changes aft nan statements were made. Factors and risks that could origin existent results to disagree materially from expectations are disclosed from clip to clip successful greater item successful nan Company's filings pinch nan SEC and successful yesterday's net release.

With that, Pete, please spell ahead.

Peter Mavoides

Thank you, Dan, and convey you to everyone who is joining america coming for your liking successful Essential Properties. We vanished 2022 connected a beardown statement pinch a grounds $328 cardinal of investments successful nan 4th fourth and $937 cardinal invested for nan full-year. This translated to year-over-year AFFO per stock maturation of 14% successful 2022, which we are highly proud of fixed nan unprecedented volatility successful nan superior markets and nan accelerated raise successful liking rates.

As our 4th fourth results indicate, our portfolio continues to execute astatine a precocious level pinch portion level sum of 4x, occupancy of 99.9%, and same-store rent maturation of 1.6%, which speaks to nan de minimis in installments losses that we knowledgeable successful 2022 arsenic our weighted mean contractual rent escalations are astir 1.6% per annum.

This beardown capacity is simply a testament to our granular and fungible properties, nan resiliency of our work oriented and experience-based tenancy, which represents 93% of our ABR and our proven expertise to accretively recycle retired of our weaker performing properties. On nan finance front, we remained progressive successful support of our long-standing tenant relationships, arsenic they are progressively turning to america arsenic a reliable superior supplier to turn their footprints fixed nan constricted backing disposable successful nan slope marketplace and backstage leverage buyers mostly being sidelined owed to nan dislocation successful nan indebtedness markets.

With quarter-end pro forma leverage of 4.5x and liquidity of astir $700 million, our equilibrium expanse continues to beryllium good capitalized for our finance activity. We are reaffirming our 2023 AFFO per stock guidance of $1.58 to $1.64, which implies year-over-year maturation of 5% astatine midpoint.

Turning to nan portfolio. We ended nan 4th pinch investments successful 1,653 properties that were 99.9% leased to 350 tenants operating successful 16 industries. Our weighted mean lease position stood astatine 13.9 years pinch only 6.1% of our ABR expiring done 2027.

From a tenant wellness perspective, our weighted mean portion level sum ratio was 4x this quarter, which was expected fixed nan lagging effect of inflationary pressures flowing done our tenant financials. Our percent of ABR nether 1x sum proceed to mean from pandemic pressures knowledgeable during nan reporting period, and now stands astatine a much normalized level of 3% of ABR.

During nan 4th quarter, we invested $328 cardinal done 39 abstracted transactions astatine a weighted mean rate output of 7.5%, which was up 40 ground points versus nan anterior quarter. These investments were made successful 13 different industries pinch 75% of our activity coming from nan carwash, casual dining, car service, and intermezo industry.

The weighted mean lease word of our investments this 4th was 18.7 years. The weighted mean yearly rent escalation was 1.8%. The weighted mean portion level sum was 3.2x and nan mean finance per spot was $2.8 million. Consistent pinch our finance strategy, 99% of our quarterly investments were originated done nonstop waste leasebacks, which are taxable to our lease shape pinch ongoing financial reporting requirements, 90% contained maestro lease provisions and 95% were generated from existing relationships.

Looking up first 4th of 2023, we person closed $65.7 cardinal of investments to day astatine a 7.6 rate yield. Our finance pipeline remains robust arsenic an expanding number of mediate marketplace companies are seeking waste leaseback superior arsenic a financing alternative, arsenic different sources of superior person go unavailable aliases uneconomic. We spot this inclination continuing to use Essential Properties arsenic 97% of our 2022 investments were waste leaseback transactions and we stay good positioned to reliably present superior to our relationships.

From an manufacture perspective, carwashes are our largest manufacture astatine 13.2% of ABR, followed by early puerility acquisition astatine 12.8%, speedy work restaurants astatine 11.6% and aesculapian and dental astatine 11.1%. Of note, portion level sum for our early puerility acquisition portfolio continues to summation supra pre-pandemic levels arsenic our operators are seeing beardown pricing powerfulness and a amended labour environment, which has allowed our accommodation to further summation their enrollment.

From a tenant attraction perspective, our largest tenant represents 3.4% of ABR astatine 4th end, and our apical 10 tenants now relationship for only 18% of ABR. Tenant diverseness is an important consequence mitigation instrumentality and differentiator for america and it is simply a nonstop use of our attraction connected unrated tenants and mediate marketplace operators which offers an expansive opportunity set. In position of dispositions, we sold 26 properties this 4th for $75.5 cardinal successful nett proceeds astatine a 6.9% weighted mean rate output and a weighted mean portion level sum ratio of 2.1x.

As we person mentioned successful nan past, owning fungible and liquid properties is an important facet of our finance subject arsenic it allows america to proactively negociate industries, tenants and portion level risks wrong nan portfolio. This grounds level of disposition activity was successful consequence to nan superior markets volatility knowledgeable successful nan backmost half of 2022, and our desire to little our reliance connected raising caller capital. While we do not expect our elevated level of quarterly dispositions to persist, we do expect our disposition activity to stay good supra our trailing 8 4th mean of $27 cardinal done astatine slightest nan first half of 2023.

With that, I would for illustration to move it complete to Mark Patten, our CFO who will return you done nan financials and equilibrium expanse for nan 2nd quarter.

Mark Patten

Thanks, Pete, and bully morning, everyone. We had a awesome 4th fourth with, arsenic Pete noted, a grounds level of $328 cardinal successful caller investments, notably astatine a 7.5% rate headdress rate. Our portfolio continues to nutrient accordant soul rent maturation arsenic evidenced by our same-store rent maturation coming successful astatine 1.6% and our equilibrium expanse and liquidity stay highly supportive of our maturation for 2023.

Among nan headlines past nighttime was our AFFO per share, which connected a afloat diluted per stock ground reached $0.39 successful nan quarter. That's an summation of 5% versus nan 4th fourth of 2021. On a nominal basis, our AFFO totaled $55.8 cardinal for nan quarter, up $10.4 cardinal complete nan aforesaid play successful 2021. That's an summation of astir 23% and up complete 4% compared to nan 3rd 4th of 2022.

For nan full-year ended 12/31/22, our AFFO per stock totaled a $1.53 per stock connected a afloat diluted per stock basis, which is simply a 14% summation complete 2021. On a nominal basis, our full-year 2022 AFFO accrued by 32% complete 2021 aliases $50.8 cardinal totaling $208.8 million. Total G&A was conscionable $6.5 cardinal successful Q4 2022 versus $5.8 cardinal for nan same-period successful 2021 pinch nan mostly of nan summation relating to an summation successful non-cash banal compensation expense.

Our Q4 2022 rate G&A was astir $4.3 cardinal and was sequentially little to Q3 2022 by astir $1.3 million, which was impacted by nan absence of nan 250 expansive we expensed successful Q3, representing nan costs we incurred to amend our 2027 word indebtedness to trim nan complaint grid connected that borrowing and our simplification of our 2022 prize accrual successful nan 4th quarter.

Our rate G&A arsenic a percent of full gross was 5.8% for nan 4th and 7% for nan full-year 2022, which compares favorably to nan 9% and 10.6%, respectively for nan 4th and full-year of 2021. On an yearly basis, we proceed to expect our rate G&A arsenic a percent of full gross to rationalize successful 2023.

Turning to our equilibrium sheet, I'll item nan following. With our $328 cardinal successful 4Q 2022 investments, our income producing gross assets reached $4.1 cardinal astatine year-end. From a superior markets position successful nan 4th quarter, we completed nan waste of astir $22.2 cardinal of banal each connected a guardant ground connected our ATM program. We settled that guardant successful early January 2023 on pinch nan shares we sold successful January 2023, generating full nett proceeds of astir $39.2 million.

From a indebtedness perspective, I'll reaffirm that during nan quarter, we swapped to hole each of nan remaining $150 cardinal that we drew successful October nether nan $400 cardinal 2028 word loan. Our nett indebtedness to annualized adjusted EBITDAre was 4.6x astatine 4th end. Adjusting for nan proceeds from nan guardant sale, we completed successful nan 4th our nett indebtedness to annualized adjusted EBITDAre was 4.5x. We are committed to maintaining a blimpish equilibrium expanse and investors should expect america to stay good wrong our humanities leverage scope of 4.5x to 5.5x.

At 4th end, our full liquidity stood astatine astir $700 million. Our blimpish leverage position, beardown equilibrium sheet, and important liquidity position continues to beryllium supportive of our existent finance pipeline and capable to money our maturation plans successful 2023.

Lastly, I'll mention that our existent finance pipeline, nan outlook for our halfway portfolio and our continued beardown capacity astatine nan extremity of 2022 provided america pinch nan ground to support our 2023 AFFO per stock guidance scope of $1.58 to $1.64, which arsenic Pete mentioned, implies a much than 5% year-over-year maturation astatine nan midpoint.

With that, I'll move nan telephone backmost complete to Pete.

Peter Mavoides

Thanks, Mark. Operator, please unfastened nan telephone for questions.

Question-and-Answer Session

Operator

Thank you. We will now beryllium conducting a question-and-answer session. [Operator Instructions] Thank you. And our first mobility is from Haendel St. Juste pinch Mizuho. Please proceed pinch your question.

Ravi Vaidya

Hi. Good morning. This is Ravi Vaidya connected nan statement for Haendel. Hope you guys are doing well. Understanding that 1Q, nan transaction activity that's occurred successful 1Q truthful acold is not needfully nan tally complaint for nan full year. Can you talk astir your cognition of nan transaction marketplace coming and really that feels compared to anterior years successful nan first quarter?

Peter Mavoides

Yes. I think, listen, I wouldn't publication excessively overmuch into nan quarter-to-date activity. Normally, nan cadence successful nan first 4th is simply a slow January, fixed benignant of nan hangover effect from what you typically is simply a very progressive 4th quarter. But nan transaction marketplace is beautiful absorbing successful that. There is simply a somewhat diminished level of transaction activity fixed what's going connected successful nan superior markets. But that's besides offset by a severely diminished group of competitory set. And truthful specified that – those balancing factors make america consciousness really bully astir nan pipeline we're seeing and nan opportunities that we're moving on.

Ravi Vaidya

Great. That's helpful. Just 1 much here. Given nan portfolio mix, a number of backstage equity backed tenants, tin you remark connected your watch database correct now and how's that changed complete nan past fewer quarters? Are you noticing immoderate separator thinning for immoderate of nan companies arsenic labour gets much costly aliases has request travel successful from galore retailers from consumers arsenic well?

Peter Mavoides

Yes. I would – our watch database isn't related to backstage equity ownership successful immoderate way. The immense mostly of our portfolio is privately held and that could beryllium backstage equity owned aliases individual – backstage individuals. But wide nan watch database is, is we specify it, which is nan intersection of azygous B minus in installments and sum little than 1.5x is astatine 50 ground points, which is arsenic debased arsenic it's been. And overall, nan portfolio is successful awesome health, you spot that successful our same-store income number that we reported arsenic good arsenic our occupancy, which, astatine 99% and 1.6% are beautiful healthy. So portfolio is successful awesome shape, sum moderated a small bit, arsenic I said successful nan prepared remarks, which we deliberation is simply a consequence of benignant of nan inflationary pressures and nan lagging effect of our tenant's expertise to push that through, but astatine 4x it's really thing that gives america concern.

Ravi Vaidya

Got it. Thank you, guys.

Peter Mavoides

Thank you.

Operator

Thank you. And our adjacent mobility is from RJ Milligan pinch Raymond James. Please proceed pinch your question.

RJ Milligan

Hey, bully morning. A mates of questions. My first is it looked like, 5-Star became a apical tenant this quarter, and I'm conscionable funny because it does look for illustration a flimsy deviation from buying fungible boxes. Curious if you could springiness immoderate much colour connected that incremental investment. How overmuch was it and benignant of nan thought process there?

Peter Mavoides

Yes. So 5-Star really had been successful our portfolio for a while and they were formerly [TRAX] and they rebranded arsenic they did different add-on investment. We deliberation those assets are beautiful fungible and respective of them are benignant of successful nan family intermezo space, pinch precocious onshore worth and agelong operating history of awesome portion level economical and sum and a awesome usability pinch awesome assets and we're happy to person them successful nan apical 10.

RJ Milligan

Okay. And past mobility for Mark. Most of nan forwards present person been utilized up, and I'm conscionable funny successful nan short-term, really do you expect backing maturation conscionable opportunity complete nan adjacent 2 quarters? Do you expect utilizing nan statement for that aliases could we expect further imaginable forwards coming?

Mark Patten

I admit that question. I deliberation what you could expect is that benignant of embedded successful our guidance is not needing to entree incremental debt, but alternatively usage nan revolver. In position of equity, I think, if it was ATM, if it was equity activity mostly, it would astir apt beryllium opportunistic nether nan ATM, but we really don't request to do thing of a worldly quality to deed our midpoint. So successful nan adjacent 2 quarters surely thing of significance.

RJ Milligan

Great. That's it for me. Thanks guys.

Peter Mavoides

Thanks, RJ. We admit it.

Operator

Thank you. And our adjacent mobility is from Josh Dennerlein pinch Bank of America. Please proceed pinch your question.

Joshua Dennerlein

Yes. Hey, guys. I americium conscionable funny if you're nether your ain underwriting aliases if you're seeing benignant of competitors for assets benignant of changing their IRR hurdles astatine all, conscionable fixed nan changes successful nan costs of capital?

Peter Mavoides

Yes. Listen, I can't really speak to what different group are doing. Obviously, I deliberation nan leverage purchaser who's seen indebtedness costs emergence materially and person severely are challenged successful nan existent marketplace situation pinch nan existent readiness and costs of underlying financing. As we look astatine opportunities, you tin spot our headdress rates person moved 40 ground points sequentially successful nan quarter. And we consciousness bully astir nan opportunities we're seeing and our expertise to benignant of move rates.

I'd besides constituent retired successful nan 4th are – lease tenor was higher astatine 18.7 years versus 16.5 years successful nan 3rd quarter, and our escalations were higher. So overall, we're getting a much favorable economical package successful nan deals we're doing. The deals successful nan 4th were 95% repetition business. So guys that we person dealt pinch successful nan past, and truthful that would intelligibly bespeak higher embedded IRS inherent successful those deals which benignant of goes on pinch nan costs of capital.

Joshua Dennerlein

Yes. I admit that. That's bully color. And past wrong for illustration nan manufacture verticals that you for illustration to acquire, are location benignant of amended opportunities retired there, for illustration arsenic acold arsenic for illustration wherever you're seeing nan astir woody measurement coming through?

Peter Mavoides

Yes. We thin to put and we thin to show group that we will put radically, mostly because that's wherever our relationships reside and that's wherever our sourcing activity is conducted and crossed those 16 verticals and it whitethorn ebb and flow, immoderate fixed quarter, nan 4th fourth was very dense successful carwash activity for us. Quite frankly for nan first mates quarters of nan years that assemblage was beautiful basking from a headdress position and galore deals were pricing distant from america and we are choosing to transact successful different sectors. But for immoderate reason, those operators didn't person arsenic galore superior opportunities successful nan 4th fourth and we were capable to onslaught immoderate bully equilibrium there. But overall, complete a longer play of time, Josh, I would expect nan portfolio to turn ratably.

Joshua Dennerlein

Thank you.

Operator

Thank you. And our adjacent mobility is from Greg McGinniss pinch Deutsche Bank. Please proceed pinch your question.

Greg McGinniss

Hey. Good morning, pinch Scotiabank. I'm trying to reconcile betwixt comments made past 4th regarding perchance moderating acquisitions and maintaining guidance this 4th contempt grounds Q4 connected transactions, important liquidity and patient waste leaseback environment. Is guidance being maintained owed to nan level of anticipated dispositions successful nan first half of nan year? Or immoderate colour you tin supply connected nan puts and takes would beryllium appreciated. Also, astir what headdress rates do you expect connected those plus sales?

Peter Mavoides

Yes. Listen, I deliberation successful nan plus sales, conscionable tackle that one. I would expect thing successful nan mid to high-6s and if you're a blimpish underwrite 7, but intelligibly we deliberation there's bully liquidity for our properties connected an individual ground and we'll proceed to waste into that market. As it relates to guidance, it's early successful nan twelvemonth and location remains a batch of turmoil successful nan superior markets. And we consciousness – I would opportunity we consciousness incrementally overmuch amended coming than we did erstwhile we first issued guidance based upon immoderate of nan factors you mentioned, our execution successful nan 4th quarter, nan dynamics successful nan waste leaseback market, and rather frankly, nan first 4th pipeline that we see, but it's still early successful nan twelvemonth and we'll surely proceed to measure guidance and arsenic nan twelvemonth progresses, but astatine this constituent we're conscionable affirming our guidance.

Greg McGinniss

Okay. Thank you. And connected dispositions, are location any, I mean, what types of assets are you looking to offload? Are those successful a peculiar industry, peculiar tenants? Are you conscionable benignant of uncovering nan ones wherever you tin get this bully headdress complaint to thief money early growth?

Peter Mavoides

Yes. It's surely not that, we're not cherry picking and trying to waste nan assets that garner nan astir charismatic headdress rates. If that were nan case, I would expect our champion assets to waste successful nan 5s. We're really looking astatine assets pinch sum levels aliases trends astatine nan portion level that would bespeak it's not going to beryllium nan healthiest plus complete a agelong play of time. And oftentimes, we're trading assets retired of a maestro lease, truthful that we tin amended our full position. So by and large, it's de-risking income getting free assets that conscionable we don't deliberation are going to beryllium arsenic durable for nan 20-year play arsenic we would like.

Greg McGinniss

Okay. Thank you.

Peter Mavoides

Thank you.

Operator

[Operator Instructions] Our adjacent mobility is from Nick Joseph pinch Citi. Please proceed pinch your question.

Nick Kerr

Hey, bully morning. It's Nick Kerr connected for Nick Joseph. So a spot of a follow-up, but you each decided nan $228 cardinal finance activity per 4th erstwhile presentations and evidently Q4 is supra that. So conscionable funny really we should benignant of tally complaint that arsenic a baseline going guardant that it's going to beryllium northbound of that $228 cardinal aliases similar?

Peter Mavoides

Yes. Well, listen, arsenic we ever do, benignant of guideline group towards nan 8 4th mean is simply a bully parameter of what to expect as, but we really person visibility connected our pipeline retired past 90 days specified that we're uncomfortable giving much precise finance guidance astir that. Historically, and 1 of nan reasons we supply humanities quarter-over-quarter guidance aliases quarter-over-quarter activity, nan 4th fourth is dense and I deliberation this 4th fourth is accordant pinch that. And I deliberation nan first – arsenic we look astatine nan first quarter, we consciousness beautiful bully astir what we see. But I deliberation arsenic we said successful nan discourse of providing guidance, we would expect a much moderated level successful nan backmost half of this year. And that whitethorn alteration arsenic nan twelvemonth plays out. But arsenic we said today, we consciousness bully astir nan first half and we'll spot what comes successful nan 2nd half.

Nick Kerr

That's really helpful. Thank you. And past connected guidance, truthful really do you spot nan economical situation affecting nan tenant guidelines and really overmuch in installments loss, if any, is taken to those numbers correct now?

Mark Patten

Yes. Actually, truthful what I'd show you conscionable from a modeling standpoint, if you look astatine nan range, you could conscionable presume that there's a patient level of in installments nonaccomplishment astatine nan bottommost extremity of nan range. So we've incorporated that and efficaciously arsenic you move up that range, you're really moving up towards our much humanities nonaccomplishment experience, which is astir apt 30 ground points. But candidly, arsenic you discovered successful 2022, surely arsenic you saw successful our same-store growth, we had constricted in installments loss. And truthful oftentimes that tin beryllium a beautiful bully tailwind for america arsenic we move done nan twelvemonth to benignant of get expertise to set our guidance.

Nick Kerr

Awesome. Thank you. And looking guardant to spot you guys astatine nan conference.

Mark Patten

Yes.

Peter Mavoides

Thanks for hosting. We're looking guardant to it.

Operator

Thank you. And our adjacent mobility is from John Massocca pinch Ladenburg Thalmann. Please proceed pinch your question.

John Massocca

Good morning.

Peter Mavoides

Good morning, John.

Mark Patten

Hey, John.

John Massocca

So possibly going backmost to dispositions a small bit. As we deliberation astir indebtedness repayments from nan indebtedness book, is that thing that could mean complete nan people of 2023 versus what was done successful 2022 fixed nan headdress complaint situation that's retired location for those tenants and – aliases was benignant of 4Q – 3Q to 4Q shift, conscionable benignant of nan inherent lumpiness successful repayments?

Peter Mavoides

Yes. I deliberation it's good. That's conscionable nan inherent lumpiness of repayments. I would – nan indebtedness book is beautiful mini and it's not material, portion of our plus base. And those repayments thin to beryllium episodic. I would suggest, we person immoderate indebtedness that are repaid done nan waste of individual assets and that benignant of tends to dribble in. And truthful I would expect that dribble successful benignant of repayment to persist passim nan twelvemonth because that marketplace remains unfastened and charismatic pinch 10/31 buyers continuing to transact and waste and which results successful those loans being repaid to us.

On juncture those loans are refinanced retired and that becomes a small much chunky. I would expect that to beryllium a small much challenged successful nan existent marketplace situation wherever nan large chunks of repayment coming backmost to america are a small little probable. But again, it's not a large portion of our book and I wouldn't expect it to person a worldly effect connected our numbers.

John Massocca

As we deliberation astir nan effect connected NOI, are those typically repaid correct astatine nan aforesaid complaint that they were issued at? Or is location immoderate benignant of, I guess, economical use that accrues to EPRT connected nan waste successful position of prize aliases further punishment stuff?

Peter Mavoides

Yes. I mean, connected occasion, we person prepayment penalties and you spot that that travel done our numbers connected erstwhile it happens, that's not connected each of nan loans and it tends not to beryllium material. We've ever said that our indebtedness book tends to transportation nan aforesaid complaint arsenic our investments. So that money astir apt went retired nan door, for illustration our finance capital, telephone it successful nan low-7s. And if we're getting it backmost today, we're capable to redeploy that benignant of successful nan mid to high-7s, truthful location could beryllium immoderate economical effect there.

John Massocca

Okay. And past apologies if I missed this earlier connected nan call, but person you seen, arsenic you look astatine nan pipeline, you gave nan headdress complaint connected acquisitions closed to-date, but looking retired connected nan pipeline, possibly what's nether LOI arsenic well. Are you seeing benignant of further headdress complaint description versus what was seen successful 4Q aliases is are things stabilizing a small spot fixed possibly nan liking complaint environment?

Peter Mavoides

It feels for illustration they're stabilizing. And truthful our first 4th pipeline is not materially different than nan 4th quarter. And truthful it doesn't – our headdress rates aren't going to eight, but surely not backmost to seven. And truthful I deliberation that nan mid-7s is simply a bully indicator.

John Massocca

And past 1 past mobility connected acquisitions. The competitory set, you mentioned it was benignant of smaller than it had historically been. I conjecture possibly conscionable successful position of what you're seeing astatine nan array arsenic you benignant of look astatine deals and discuss pinch imaginable tenants. I mean, are group perchance drifting much into your abstraction that has historically played successful nan finance people aliases nan much benignant of publically traded names connected a waste leaseback basis? Or is that I conjecture not happening?

Peter Mavoides

Yes. I mean, I would first disconnected promote you to deliberation astir nan competitory group not only arsenic waste leaseback buyers, but replacement sources of capital. And that's nan overmuch bigger effect is that, slope financing, leveraged lenders and asset-backed lenders. They're each challenged and our tenants conscionable person less superior alternatives to capitalize their growth, which is making much and much of them move to opportunity a leaseback superior arsenic an alternative. And it's really a very unsocial model and clip wherever there's specified dislocation successful nan wide superior markets that let america to benignant of fastener successful these charismatic returns 20-plus years.

As it relates to waste leaseback, competitors clearly, arsenic I said successful nan prepared remarks, immoderate of nan leverage buyers are little fierce and we are seeing immoderate incremental title from immoderate of nan nationalist peers. But really that's astatine nan separator and nan bigger facet is that financing is challenging each complete nan spot and much and much group are forced to look, to opportunity leaseback superior arsenic a intends of financing their growth.

John Massocca

Okay. That's very helpful. And that's it for me. Thank you very much.

Mark Patten

Thank you, John.

Operator

Thank you. And our adjacent mobility is from Tayo Okusanya pinch Credit Suisse. Please proceed pinch your question.

Omotayo Okusanya

Yes. Good morning, everyone. I conscionable wanted to spell backmost to nan commentary you guys made astir still uncertainty successful nan in installments market. And specifically, I'm trying to understand what's happening pinch your mediate marketplace tenant guidelines arsenic it pertains to entree to superior whether that's causing immoderate benignant of financial distress which could person effect connected rents aliases whether, again, nan financial distress could perchance moreover create opportunities for you guys to do waste leaseback transactions pinch immoderate of these tenants connected a going guardant basis?

Peter Mavoides

Yes. Most of our tenants – nan immense mostly of our tenants person agelong superior that's locked in, successful shape of indebtedness equity and existent property capital. And really nan financial accent really comes from operating accent aliases operating nether performance, which we are not seeing. And truthful arsenic we said, our portfolios successful awesome shape, our tenant watch database is arsenic debased arsenic it's been successful a agelong time, our coverages are very precocious and our tenants are doing very good and we consciousness bully astir that.

To nan grade that location were immoderate issues arsenic Mark indicated, that would beryllium baked into our guidance. But overall, we consciousness really bully astir nan underlying credits successful nan portfolio and their operating performance, which successful owning their operating existent property is our superior concern. And you tin spot our coverages are very strong. Our occupancy is 99.9%, and our travel done of rent escalations successful 2022 was virtually a 100%, each bully indicators of coagulated in installments performance. The deficiency of superior readiness and nan superior markets much pertains to their incremental maturation and financing their M&A ability, which astatine nan separator is creating incrementally much opportunities for america to deploy superior astatine charismatic rates.

Omotayo Okusanya

Okay.

Operator

Thank you. As location are nary further questions astatine this time, I would for illustration to move nan level backmost complete to Mr. Pete Mavoides for closing comments.

Peter Mavoides

Great. Well, convey you each for your clip today. We look guardant to seeing everyone astatine nan upcoming conferences and please consciousness free to scope retired if you person immoderate questions. Have a awesome day.

Operator

Ladies and gentlemen, this concludes today's teleconference. You whitethorn disconnect your lines astatine this time. Thank you for your participation.