Essential Properties Realty Trust Inc

NYSE:EPRT

Earnings Call Transcript 2020-Q3

[Operator]

Good morning ladies and gentlemen, and welcome to the Essential Properties Realty Trust Third Quarter 2020 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions] This call is recorded and a replay will be available two hours after the completion of the call for the next two weeks. The dial in details for the replay can be found in today's press release. Additionally, there will be an audio webcast available on essential properties webcast at www.essentialproperties.com. An archive of which will be available for 90 days. And it's now my pleasure to turn the call over to Dan Donlan, Senior Vice-President and Head of Capital Markets at Essential Properties. Thank you. You may begin.

[Dan Donlan, Senior Vice President of Capital Markets]

Thank you, operator and good morning everyone. We appreciate you joining us today for Essential Properties third quarter conference call. Here with me today to discuss our third quarter and full year results are Pete Mavoides, our President and CEO; Gregg Seibert, our COO; and Mark Patten, our CFO.

During this call, we will make certain statements that may be considered may be considered forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements. And we may not release revisions to those forward-looking statements to reflect changes after the statements were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and yesterday's earnings press release.

With that, Pete, please go ahead.

[Pete Mavoides, President and Chief Executive Officer]

Thank you, Dan. And thank you to everyone who is joining us today for your interest in Essential Properties. During the third quarter, we experienced a market improvement in rent collections as our tenants reopened their properties for business. In addition to this positive operating trend, we saw a stabilization in our cost of capital and a constructive capital markets environment that was conducive towards maintaining a conservative balance sheet.

As we stated on prior calls, we wanted to see these circumstances occur before deciding to resume our external growth plans. As such, we began looking for attractive investment opportunities early in the third quarter, which allowed us to invest $149 million this quarter and another $73 million to date in the fourth quarter.

Looking at our third quarter investments, 92% were direct sale lease backs and 98% were transactions that involve an existing relationship. We believe these direct opportunities were a tangible output of the accommodative and relationship based approach that we use to navigate the pandemic with our tenant base. While our short term collections may have been higher, had we taken a more aggressive posture, our delivered actions have strengthened our tenant relationships which should benefit the company over the longer term.

In order to maintain financial flexibility and appropriately fund our pipeline of opportunities. We raised $210 million of net equity in the quarter, including our overnight offering that raised $184 million of net proceeds in mid-September. We would like to thank those existing and new investors that just demonstrated continued confidence in our company for supporting us.

In terms of portfolio stabilization, approximately 99% of our portfolio as a percent of ABR is opened and operating today, which compares to 93% back in early August, and just 66% in mid-April.

In terms of recollections, we collected approximately 90% of contractual cash rent owed to us in the third quarter, including 88% in July, 91% in August, and 91% in September. For October, we collected 91% of contractual cash rent and have another 3% attributable to recognize rental deferrals which are scheduled to end after December.

The remaining 6% of contractual cash rent is allocated as follows; 2.5% is non-recognized rent deferrals, which is mostly attributable to our five movie theaters that are leased to AMC theaters. 2.5% is unresolved, which is mostly attributable to town sports, and Ruby Tuesdays. In the case of town sports, the tenant rejected our master lease on September 29. All Ruby Tuesday's is currently in chapter 11 bankruptcy proceedings. The remaining 1% is attributable to lost or temporarily abated rent.

Turning to the portfolio, we ended the quarter with investments in 1096 properties that were 99.4% leased to 214 tenants operating in 16 different industries. We had seven vacant properties at quarter end, including the three fitness centers that were formerly leased to Town Sports International.

As we have stated before, the value of our company does not reside in our leases, it resides in our properties and our ability to keep them consistently leased. Therefore, we see high and stable occupancy as a key indicator of that value. More specifically, we have seen solid demand for our vacant properties, and we expect to find replacement tenants or come to an agreement with the current tenants in the near term.

Our weighted average lease term stood at 14.6 years at quarters end with only 0.1% of our ABR expiring over the next year and 3.5% expiring over the next five years. Our weighted average unit level coverage ratio was 2.8 times, which includes the full impact of second quarter tenant financials. We would expect our coverage ratio to continue to migrate lower, albeit at a moderating pace, as the pandemic continues to have lingering impacts on certain industries.

Turning to the balance sheet, we finished the quarter with leverage of four times net debt to annualized adjusted EBITDAre, an excellent liquidity of nearly $600 million. Looking forward, with the pandemic causing a more negative impact on smaller tenants, many of our experienced middle market operators are seeing opportunities to purchase smaller operators and increase market share. This is generating an attractive opportunity set and growing investment pipeline for our company. While we are confident in our future prospects as we look to grow alongside these operators, we recognize that the pandemic is by no means beyond us behind us.

As such, we remain diligent in our underwriting and highly focused on industries that have experienced minimal to no impact from the current pandemic. With that, I'd like to turn the call over to Mark Patton, our CFO, who will take you through the balance sheet and financials for the quarter. Mark?

[Mark Patten, CFO]

Thanks, Pete. Before I get into my prepared remarks, I'd like to say thank you to Pete and the board for the opportunity to be a part of EPRT. It's a privilege to be a part of the terrific team Pete and Greg have assembled and to participate in the opportunity of helping to maximize value for our shareholders.

As we reported in our earnings release last night, we're pleased with our third quarter results, particularly given the significant challenges presented by the on-going pandemic. Our operating results for the third quarter of 2020 compared to the same period of 2019 included total revenue for Q3 2020 increased by approximately $6.6 million, or 18.2%, totaling $42.9 million. We also saw our recurring Q3 G&A as a percentage of total revenue trend down sequentially to approximately 13.5%. This is improved from both Q2 2020 and Q3 of 2019. We recognize approximately $3.2 million in impairment charges in Q3, which was not associated with any impact from the pandemic, but was related to our on-going efforts to selectively recycle capital, including adjusting the basis of eight investments we expect to monetize in the near term.

Net income as you can see from the release was $12.3 million in the quarter. Our FFO was up $7.3 million, a 35% increase, totaling over $28 million, with our FFO per share reaching $0.30, up from $0.27 per share in the same period in 2019.

Our core FFO was up $4.7 million, that's an increase of nearly 20%, totaling $28.6 million, which equates to $0.30 per share, a decrease of a penny per share compared to 2019. Our AFFO was up $3.6 million, that’s a 16% increase totaling approximately $26.3 million with our AFFO per share equaling $0.28 per share, that’s also down a penny per share compared to 2019.

Our per share metrics for core FFO and AFFO were obviously impacted adversely by the adjustments we made to revenues in connection with the pandemic. In addition, the increase in our share count of approximately 10.1 million shares from our completed overnight offering in late September also had a marginal impact on these per share metrics, while the numerator in these calculations don't reflect the deployment of that capital in the yielding net lease investments.

Picking up on Pete's remarks regarding our collection levels, I wanted to mention that we had no additional tenants move into nonaccrual status in the third quarter, meaning no additional tenants are being accounted for on a cash basis. And importantly, we collected effectively 100% of the $1.3 million in deferred rent we were owed in the third quarter from those tenants we accounted for on an accrual basis.

Regarding our balance sheet, I'll highlight just a few points. With the addition of the nearly $150 million of investments we completed during the quarter. Our total assets at September 30 stood at nearly $2.5 billion. Our unrestricted cash totaled nearly $184 million. Our long term debt remained consistent with the prior quarter totaling approximately $804 million on a gross basis.

In addition to our oversubscribed overnight offering that generated approximately $184 million of net proceeds, we also generated over $27 million of net proceeds from our ATM program, selling just over 1.5 million shares at a weighted average price of $17.88 per share.

Our net debt to annualized adjusted EBITDAre, which as Pete mentioned, was four times at quarter end continues to be well within our target range, providing ample runway for continued investment growth. We believe this provides us with a strategic advantage, especially given the challenging macroeconomic environment created by the pandemic.

Our return to growth is supported by our significant liquidity position, which totaled approximately $580 million at quarter end, including $189 million of available cash and the $400 million of available capacity on our unsecured line of credit. That excludes the $200 million accordion feature that we have on the credit facility and an additional $70 million of borrowing capacity via an accordion feature on one of our seven year unsecured term loans.

With that, I'll turn the call over to Gregg Seibert, our COO.

[Gregg Seibert, Chief Operating Officer]

Thanks Mark. I want to start with the on-going impact of the pandemic on our portfolio, which we have summarized on pages 15 and 16 of our Supplemental. As of late October 87% of our portfolio, ABR was open, 12% was open on a limited operating basis and 1% was closed, which is largely concentrated in our properties leased to entertainment and casual and family dining operators.

In terms of rent deferrals, we have granted rent deferral requests to tenants representing approximately $18 million in rent. As of the third quarter, and we had approximately $3.9 million of deferred rent remaining for future periods, of which we only expect to recognize $1.1 million in future revenues. So the vast majority of deferrals are behind us, and we have begun to collect repayment of these short term concessions.

Moving on to investments. During the third quarter, we invested $149 million into 19 transactions, and 50 properties at a weighted average cash cap rate of 7.1%. These investments were made within seven different industries, with over 85% of our activity coming from four industries; auto service at 36%, carwashes at 28%, Grocery at 10% and quick service restaurants at 10%. The weighted average lease term of our third quarter investments was 17.6 years, the weighted average annual rent escalation was 1.5%, the weighted average unit level coverage was 2.8 times and our average investment per property was 2.9 million.

Consistent with our investment strategy 92% of our third quarter investments were originated through direct sale lease backs, which are subject to our lease form with on-going financial reporting requirements, and 79% contained master lease provisions. From an industry perspective, quick service restaurants remain our largest industry at 14.1% of ABR, followed by carwashes at 13.3%, Early Childhood Education at 13.3%, medical dental at 10.7% and convenience stores at 9.8%. We continue to view these business segments as tier one industries for central properties. And going forward we see our concentration of properties increasing in auto service, equipment rental and sales, pet care services, building materials and grocery.

Conversely, we expect our concentration in the casual and family dining, home furnishings, health and fitness and movie theaters continuing to decline. In aggregate, these five industries now represent 17.3% of our ABR which compares to 31.7% in the second quarter of 2018, which was our first quarter as a Publicly Traded Reit.

From a tenant concentrations perspective, no tenant represented more than 3% of our ABR at quarter end, with our top 10 representing 22.6% of ABR. In terms of dispositions this quarter, we sold 14 properties, including three vacant properties for $19.6 million in net proceeds. When excluding vacant properties and transaction costs, we achieve the 7% weighted average cash cap rate on our dispositions in the quarter.

As we have mentioned in the past, owning properties that are highly liquid is an important aspect of our investment discipline, as it allows us to proactively manage industries, tenants and unit level risk within the portfolio.

With that, I will turn it back to Pete for his concluding remarks.

[Pete Mavoides, President and Chief Executive Officer]

Thanks, Gregg. We are excited that the operating environment and capital markets have a lot of -- from managing through the pandemic with our tenants and properties and may move forward with capitalizing on our robust pipeline of accretive investment opportunities in order to drive earnings growth.

We look forward to the balance of the year and continuing to put pandemic related issues behind us as we continue to accretively build our portfolio of granular net lease properties. With that operator, please open the call for questions.

[Operator]

Thank you. [Operator Instructions] Our first question comes from the line of Haendel St. Juste with Mizuho. Please proceed with your question.

[Haendel St. Juste, Mizuho]

So, morning -- would you please? Hey, there. So a question on I guess the portfolio. About a quarter of your revenue is tied to travel attenders movies, gyms entertainment. So curious on perhaps, where you'd like to get that over time. In your prepared remarks I think you mentioned reducing movies, and gyms but not childhood center. So maybe you could discuss some of these, as well as potential portfolio shifts, post-COVID, post-vaccine a bit more? Thank you.

[Pete Mavoides, President and Chief Executive Officer]

Sure. And thanks for that. And I think, Gregg gave you some stats in the prepared remarks. And we've very deliberately been focusing our investments in industries that we that we saw as durable and, and had real estate characteristics that we liked. And you saw that trend, really, since pre-pandemic. And taking those five industries down from 37 to 17, was material. And quite frankly we haven't invested in a movie theater. Since coming public, or gyms have been growing at a much slower rate, as has our casual and family dining. We've been lighting up both through growth as well as disposition. Notably, our kind of generic retail exposure has been coming down dramatically, as well, which is largely concentrated in furniture.

And so we've had a very deliberate, slow shift in our industry mix. The one outlier to that, that you pointed to is child care. We like child care, we think that industry has as a good place in our portfolio and has good operating fundamentals. Obviously, it was impacted pretty significantly by the pandemic, but our operators in that space in has have been recovering nicely, and performing, and performing well. And so you should expect to see us continue to invest in childcare. We have not been investing in a material way in any of those other industries, and you should expect to see that continue.

[Haendel St. Juste, Mizuho]

Thank you. Thank you. That's helpful. And maybe you can discuss a bit more of the investments in the quarter cap rate. Here in the low sevens. We've heard some peers discuss higher cap rates, and I've even seen some investment yield north of 8%. So maybe you could discuss some of the pricing trends you're seeing in the asset that interest you. Is this low seven, seven, rate that we actually expect to continue near term and is the hundred and 50 millionish you acquired in the quarter a good run rate to think about near term. Thanks.

[Pete Mavoides, President and Chief Executive Officer]

Sure. And so, in terms of volume and cap rate, generally our, our discussion around that has been pointing to our trailing quarterly average, which, is pretty consistent with this quarter. So, I think that's a good indicator of where we're set up to transact. In terms of cap rates, we generally have been telling people to expect us to transact and kind of the low to mid sevens range, and clearly this quarter at seven one is towards the low end of that range. And I think what you see there is we are deliberately focusing in industries that had relatively deminimis impact from the pandemic, notably, Auto Service QSRs, and carwashes. And really staying away from some of the higher cap industries that were adversely impacted, such as, movie theaters and gyms and furniture.

And so I think driving that cap rate down a little bit is the industry mix and the select, the selection of tenants that we did during the quarter. But from a going forward perspective, you should continue to see us transact in the low to mid 70s range at a pace that's relatively consistent with our past practice.

[Haendel St. Juste, Mizuho]

Got it? Thank you.

[Operator]

Thank you. Our next question comes from the line of Nathan Crossett with Berenberg. Please proceed with your question.

[Nate Crossett]

Hey, good morning, guys. Just wanted to get your thoughts on if we went back into a potential lockdown, how that may affect your pipeline. And also whether it was there any kind of elevated deal activity from people trying to get things done before the election?

[Pete Mavoides, President and Chief Executive Officer]

Sure, I would say there's elevated deal activity really, from what we saw as kind of a backlog of six months’ worth of deals, a lot of our relationships and operators put, M&A, and development and other expansion on hold, while they focus on grappling with the pandemic. And as we come out of the back side, I think they've, restarted those growth plans, and that has created a backlog of opportunity. We have not seen a lot of election related sales. And there may be some here in the late, late in the fourth quarter, but we have not seen that to date.

In terms of, in terms of shutdowns and a potential impact to the pipeline. I would say, we're making 20-year investments and industries that we think to be durable, and lasting. And so, I think temporary shutdown, really aren't going to weigh heavily on that. In our view, shutdowns would be very localized and temporary and shouldn't have a massive impact on our pipeline. It may have some impact on the portfolio. But we'll monitor that and obviously continue to work with our tenants as we navigate through this pandemic.

[Nate Crossett]

Okay, thank you. And then I was going to ask one on the theater asset, and I only have five AMCs. But for your properties specifically, are there any potential other use cases? I guess, in a worst case scenario for them?

[Pete Mavoides, President and Chief Executive Officer]

Yes, I think we have six theaters, buy them with AMC. On average, they're 50,000 square foot boxes with contractual random about $14, $15 a square foot. They're just generic real estate. And to the extent that they're, I think the first course of action to the extent that one of our operators were to go out would be a re-let to another theater operator. And, they are theaters and we believe firmly that theaters will survive and have a role and continue to exist, but to the extent that we had [Indiscernible] and reposition them into you know other uses. At the end of the day, they're 50,000 square foot boxes, with a very reasonable rent per square foot.

[Nate Crossett]

Okay, thank you.

[Operator]

Thank you. Our next question comes from Linus Sheila McGrath with Evercore. Please proceed with your question.

[Sheila McGrath]

Good morning, Peter. I was wondering if you could comment if there's any evidence that your target tenant base may be more prone to seek out raising capital via sale leaseback given the pressure from COVID that might bode well for more acquisition opportunities, as you look ahead into 2021.

[Pete Mavoides, President and Chief Executive Officer]

We haven't seen that Sheila. Generally our middle market tenant base. One of the reasons they're in our in our tenant base is that they see the benefits of sale leaseback transactions and, and view the weighted average cost of capital of our capital, as favorable to their own weighted average cost of capital. And the margin, the pandemic hasn't shifted that mind-set. But I think there, there will be some of that, as you know, alternative sources of capital become more expensive, kind of against that is, rates are really low and borrowings really cheap to the people that can get it. I would say that the people that the universe of people that can access, traditional bank financing is probably a bit more limited as a result of the pandemic. So, I guess that's, that's a long way of saying we haven't seen it, we would expect to see some of it at the margin. But regardless, we have, plenty of opportunities and a robust pipeline.

[Sheila McGrath]

Okay, great. One more. I'm just I missed what you said on town sports, they rejected the lease, but did you say you already have a tenant?

[Pete Mavoides, President and Chief Executive Officer]

I did not. But what I've said in the past. No worries. Listen, we saw that bankruptcy coming for a long time, and we've engaged with the market to find tenants, and we have robust demand in those properties and those gyms, and we would expect to have them re-let in short order, which is kind of what we said on the call that there's good demand, and we have a number of discussions going on. And those sites will be hopefully be productive here shortly.

[Sheila McGrath]

Okay, great. And one last quick one on Ruby Tuesday's. How many units do you have there? And do you have any visibility on their path forward? Do you expect to get those buildings back vacant? Or what is your expectation?

[Pete Mavoides, President and Chief Executive Officer]

Yes, I would, listen, that's an on-going negotiation with that tenant. What I would say -- we have seven sites leased to them and a master lease. And I would say, just generically, we're confident in the basis in our assets, and that, they have, good reuse potential. And, to the extent that, we don't come to a favorable outcome with Ruby Tuesdays through this process, much like town sports, we're confident that, there'll be another user that would pay us similar levels of rent in those sites.

[Sheila McGrath]

Okay, thank you.

[Pete Mavoides, President and Chief Executive Officer]

Thank you, Sheila.

[Operator]

Thank you. Our next question comes from line of Katy McConnell with Citi Group. Please proceed with your question.

[Katy McConnell, Citi Group]

Hey, thanks and good morning. So based on the occupancy fallout that you've already seen today, can you elaborate on the demand that you're seeing to really set vacant space today? And based on any progress, you've made so far, what do you expect it to trend?

[Pete Mavoides, President and Chief Executive Officer]

Yes, listen, I would argue that we haven't seen a vacancy fallout. At quarter end, we're over 99%, leased and we were had seven vacant properties, three of which came to us on the last day of the quarter. And so I think, and we tried to say this in our prepared remarks, that there's good demand for our properties, and we have a very robust ability to keep these properties leased and occupied, as evidenced by our very high occupancy. So it's important part of our underwriting is to have, fungible assets that have ready reuses and have the ability to return sites when they do become vacant. And I think our team has done an excellent job of maintaining a very high occupancy in our properties.

[Katy McConnell, Citi Group]

Okay, thanks. And then can you provide some more color on your strategic plan for the 15% of 10 exposure where you expect the floor the covering. And for those categories, how much of the uncollected 3Q rents have you deferred at this point versus have left unresolved where we could potentially see fallout [Indiscernible]?

[Pete Mavoides, President and Chief Executive Officer]

Sure, so the slower recovery industries, the casual dining, the health and fitness, entertainment, I would say the gyms. They're open, operating and returning to profitability, our entertainment sector has, which is largely trampoline parks and bowling alleys. We've seen them rebound very nicely and return to profitability. And our restaurants are doing well in both the casual and dining where the slowest recovery at 2.5% of our ABR really is in the movie theaters. And I think, everyone can draw their own conclusion on that. Our view is, the recovery there is not necessarily pandemic related, it's more related to, release the release of content. And it seems like that is on the horizon, which should bring those sites back, open and operating.

And so, we have very little left to be deferred. We had some commentary on the call that gets, about $3 million, and only one 1 million of that one point, something is going to be recognized into revenue. The vast majority of the balance of that is largely attributable to our theatres, which is AMC.

[Operator]

Thank you. [Operator Instructions] Our next question comes from the line of Greg McGinniss with Scotia Bank. Please proceed with your question.

[Greg McGinniss]

Hey, good morning. Greg, just to make sure I heard correctly collections have held consistent 91% for the last few months. It sounds like deferrals are starting to be repaid. Does that mean we could see collections number tick up closer to 94% in November, given those repayments?

[Gregg Seibert, Chief Operating Officer]

Well, the repayments aren't going really, that's not ABR. The repayments really is prior periods rent that was recognized, not collected. So that's really just the cash flow number. The paid taking up from 90 to 94 is really going to be the burn off of the wreck of the recognized deferrals and which is 3%. And that will happen I think most of those deferrals probably go through the end of the year. So our return to that 94, it's going to be slower because those deferrals are in place. That said, we're recognizing revenue, we think their money good, and those tenants are going to pay us as contracted. So in our view, there's not a big differential between, the 91 and the 94 reckon in those 3% recognized deferrals.

[Greg McGinniss]

Right, okay. So it's basically just reflecting different deferral agreements that were may be in place for Q2, but not Q3 and vice versa. That's why we're seeing that.

[Gregg Seibert, Chief Operating Officer]

Yes, there's the same deferral agreements that were in place, they just span through the end of the year.

[Greg McGinniss]

Okay. And then Pete on the acquisitions front, I have to imagine that they kind of weren't up to full speed this quarter given pandemic uncertainty. But obviously balancing that against your comments on the backlog, backlog of opportunities and the return to kind of pre pandemic level acquisitions. Just curious how we should be thinking about kind of that level of acquisitions into 4Q and obviously not guidance on 2021. But how you're feeling about it?

[Pete Mavoides, President and Chief Executive Officer]

Yes, listen I think you're right. We got started in the quarter late, largely, as a result of kind of working through August wanting to see sustained collections and stabilization in the cost of capital. But, I think if you look at the 149 in the quarter is kind of right on or a trailing a quarter run rate. It's pretty, it's pretty indicative of our ability to scale the pipeline. We feel good about the pipeline. If you look in our queue that we filed last night, subsequent to quarter end, we've closed about 75 million. And so and we feel good kind of looking at the back half of the year, the back quarter, excuse me, almost there.

[Greg McGinniss]

All right, thank you very much. Thank you.

[Operator]

Thank you. Our next question comes from the line of Alexander Perkinokis [ph] with Bank of America. Please proceed with your question.

[Unidentified Analyst]

Hey, guys, thanks for taking questions. I'm sorry if I missed this, but how much quarterly revenue is on a cash basis and is town sports included in that?

[Dan Donlan, Senior Vice President of Capital Markets]

Yes, so town sports is, is on a non-accrual basis. This is Dan Donlan. So you should look at the disclosure on page 15. You should assume that everybody in their non-recognized unresolved last debated bucket, so it all on the 6% give or take is all on non-accrual status. So they're all on cash accounting.

[Unidentified Analyst]

Okay. Great, thank you. And then give your outlook for bankruptcies over kind of the next 12 months. And how's your tenant watchlist changed over the course of the pandemic?

[Pete Mavoides, President and Chief Executive Officer]

Yes, I would say, at the onset of the pandemic, our tenant watch list was comprised of all of our tenants and really focused on the industries and the sectors that we felt to be most impacted. And I think we give good disclosure around that on page 16. As we sit here today, I would say our main focus is on the 6%, that's on cash accrual guys that are either not paying us rent that they owe us, or this deferral that we were not sure we're going to get down the road. And so I think that is really what is where our focus is. And that, as you would imagine is really in the sectors that have been most impacted and are the slowest to recover. But I think we see a path or most of those operators, and we'll continue to monitor them and work with them as hopefully we put the put this pandemic behind us.

[Unidentified Analyst]

Great, thank you. Thank you.

[Operator]

Thank you. Our next question comes from the line of John Massocca with Ladenburg Thalmann. Please proceed with your question.

[John Massocca, Ladenburg Thalmann]

Good morning.

[Pete Mavoides, President and Chief Executive Officer]

Hey, good morning, John.

[John Massocca, Ladenburg Thalmann]

I'm sorry, if I missed this earlier, but what drove the big decline in industrial same store rents?

[Dan Donlan, Senior Vice President of Capital Markets]

Yes, hey John, this is Dan. That was a typo, that's my fault. You should just switch around the retail and the industrial was updated on the website. So that's really the retail is actually down that amount related to...

[John Massocca, Ladenburg Thalmann]

Okay, that makes sense. And then as I think about dispositions, there kind of appears to be strong bait out there for restaurant properties. Could that drive acceleration in capital recycling on your end? And assuming you are seeing that kind of same strong bid? Are you seeing an extended kind of family dining and casual dining assets as well as QSR?

[Pete Mavoides, President and Chief Executive Officer]

Yes, listen, the QSRs are clearly there's a stronger bid for QSR. Our disposition activity has been focused on kind of de risking the portfolio, and as a result has been largely focused in the casual and family dining sectors. We feel pretty good about our QSR exposure and our 10s there. And so you don't feel the need to sell to recycle capital. I think, we have great capital position and good access to capital. And so really, our sales of assets, kind of just moving risk out of the portfolio, and that'll be in the casual and family dining sectors.

[John Massocca, Ladenburg Thalmann]

Okay, but those would be I mean, potentially as kind of a thesis in how you launch a portfolio, maybe that over time could be something that comes out of the portfolio via dispositions, or partially out of the portfolio by dispositions?

[Pete Mavoides, President and Chief Executive Officer]

Yes, I think that's been the thesis since day one. And I think you've seen a, kind of regular disposition activity and we disclose kind of where the industries are, we're selling. Gregg gave you the commentary bringing down those five industries from 37 to 17. And a lot of that is through strategic asset disposition. John, as we've discussed, a very important part of our portfolio construction is having asset level liquidity and owning assets that are granular in bite size and where there exists a good bid on an individual asset basis. And so we think for the most part, the vast majority of our assets have strong bids. And, that allows us to sell, and manage industry exposures where we think appropriate,

[John Massocca, Ladenburg Thalmann]

Now I guess just generally I mean what is kind of the spread and the bid out there. I know it’s still generic, so it’s kind of tough to know of an asset, but its spread out there between kind of casual and family dining versus kind of QSR?

[Pete Mavoides, President and Chief Executive Officer]

I think QSR new deals they could be 5.5 to 6.5 casual dining could be 7 to 8 to no bid, right. And so that’s pretty a wide range, but there’s not a lot of demand for casual diners and I think a lot of the bankruptcies were focused in the casual dining. On the flip side, the QSR guys are doing great.

[John Massocca, Ladenburg Thalmann]

Okay, that’s it from me.

[Pete Mavoides, President and Chief Executive Officer]

So Carrols was in our top 10 last quarter. We really liked them as a QSR operator. They dropped out this quarter and replaced by a [Indiscernible] franchisee, again a great QSR operator that you can see them replacing names like Perkins and Ruby Tuesday. So that’s been underway for a long time now.

[John Massocca, Ladenburg Thalmann]

Thanks for the color. That’s very helpful. That’s it from me.

[Pete Mavoides, President and Chief Executive Officer]

Thanks John.

[Operator]

Thank you. There are no further questions at this time. I’d like to turn the floor back over to management for closing comments.

[Pete Mavoides, President and Chief Executive Officer]

Great. Well thank you all for your time today. Hopefully this has been helpful, and we look forward to engaging with you all in the coming Nareit Conference. Thank you. Have a great day.

[Operator]

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.