Essential Properties Realty Trust, Inc. Q1 FY2022 Earnings Call

Good morning, ladies and gentlemen, and welcome to Essential Properties Realty Trust's First Quarter 2022 Earnings Conference Call. The brief question and answer session will follow the formal presentation. This conference is being recorded, and a replay of the call will be available 2 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' website at www.essentialproperties.com, an archive of which will be available for 90 days. It is now my pleasure to turn the call over to Dan Donlan, Senior Vice President and Head of Capital Markets at Essential Properties. Thank you, Dan. You may go ahead.

Thank you, operator, and good morning, everyone. We appreciate you joining us today for Essential Properties' First Quarter 2021 Conference Call. Here with me today to discuss our operating results are Pete Mavoides, our President and CEO; Gregg Seibert, our COO; and Mark Patten, our CFO. During this conference call, we will make certain statements that may be considered forward-looking statements under federal securities laws. 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 in yesterday's earnings press release. With that, Pete, please go ahead.

Thank you, Dan. And thank you to everyone who's joining us today for your interest in Essential Properties. The first quarter was another strong quarter for the company as our portfolio experienced solid same-store rent growth, quarterly investment activity above our trailing eight-quarter average, and leverage moved down sequentially. In terms of portfolio, with no vacant properties at quarter end, and same-store rents growing 2% year-over-year, our granular portfolio of single-tenant net leased properties remained stable and our tenants are performing well. In terms of investments, during the quarter, we invested $238 million into 105 properties at a weighted average cash yield of 7%. More specifically, 100% of these investments were directly originated on our standard form, with 83% containing master lease provisions and 83% being sourced from prior relationships. These positive investment stats, in addition to the stability of our historical cap rates, are a testament to the strength of our relationships and the benefits that accrue to a long-tenured market participant and a reliable capital provider. This has become ever more apparent in the current environment as new market entrants have struggled to execute, given the volatility in the debt markets. With that in mind, while we had expected our investment pace to moderate this year, this has not come to pass for a number of reasons. One, there is a growing sense among owner/operators that now is a good time to monetize the real estate, given the lagging effect that interest rates have on historical cap rates. Two, sale-leaseback financing has become increasingly more attractive relative to alternative financing options. And three, competition for new investments has moderated in the recent months. In terms of the capital markets, similar to prior quarters, we remained active on the equity front with $158 million of net ATM issuance in the quarter, which helped to lower our leverage to 4.6 times. Coupled with our $200 million increase in our amended $600 million unsecured credit facility, we have ample liquidity and balance sheet flexibility to continue to execute on our investment pipeline. We ended the quarter with 1,545 properties that were 100% leased to 323 tenants operating in 16 industries. Our weighted average lease term stood at 13.9 years, with only 4.9% of our ABR expiring over the next five years. Our weighted average unit-level coverage ratio was 3.8 times, which improved versus last quarters coverage of 3.7 times. While our traditional credit statistics, which focuses on implied credit ratings and unit-level coverage, experience sequential improvements this quarter, these statistics are still negatively skewed by one, our trailing 12-month reporting convention, which lags our own reporting by one or two quarters. And two, the fact that certain industries like theaters, early childhood education, and health and fitness faced state-level shutdowns and capacity restrictions well into the spring of 2021 in certain areas of the country. With that in mind, we continue to expect these statistics to experience solid sequential improvements in the coming quarter. With that, I'd like to turn the call over to Gregg Seibert, our COO, who will take you through the portfolio and investment activity in greater detail. Gregg,

Thanks, Pete. During the first quarter, we invested $238 million through 23 separate transactions at a weighted average cash yield of 7%. These investments were made in 12 different industries, with 70% of our activity coming from quick service restaurants, car washes, auto service, entertainment, and equipment rental and sales. The weighted average lease term of our investments this quarter was 15 years. The weighted average annual rent escalation was 1.4%. The weighted average unit-level coverage was 3.3 times and the average investment per property was $2.2 million. Consistent with our investment strategy, 100% of our quarterly investments were originated through direct sale leasebacks, which are subject to our lease form with ongoing financial reporting requirements, and 83% contain master lease provisions. From an industry perspective, early childhood education is our largest industry at 14.1% of ABR, followed by quick service at 12.9%, car washes at 11.5%, and medical/dental at 11.4%. We continue to view these four business sectors as Tier 1 industries for Essential Properties, and therefore they are likely to remain our highest concentration industries for the foreseeable future. From a tenant concentration perspective, no tenant represented more than 3.3% of our ABR at quarter end. And our top 10 tenants account for just 19.2% of ABR, which was down 50 basis points versus last quarter. Increased tenant diversity is an important risk mitigation tool and differentiator for us. And it is a direct benefit of our focus on middle-market operators, which offers an expansive opportunity set. In terms of dispositions, we sold six properties this quarter for $18.4 million in net proceeds. When excluding transaction costs and properties sold subject to tenant buyback options, we achieved a 7.1% weighted average cash yield on those dispositions. As we have mentioned in the past, owning liquid properties is an important aspect of our investment discipline, as it allows us to proactively manage industries, tenants, and unit-level risks within the portfolio. With that, I'd like to turn the call over to Mark Patten, our CFO, who will take you through the financials and balance sheet for the first quarter.

Thanks, Greg. And good morning, everyone. As Pete noted, the first quarter was another strong quarter for us. The notable elements of our reported operating results for the first quarter of 2022 are as follows. Total revenue was up $21.6 million, or 44.4% versus the same period in 2021, totaling $70.1 million for the quarter, which reflects the benefits of our 2021 investment activity, and nearly 85% of our $238 million of Q1 2022 investments closing before March. In addition, I'll note that we brought two additional tenants back to accrual status. While not a material impact to revenues, it did result in having no remaining tenants on non-accrual or cash basis accounting. Total G&A was just under $8.1 million in Q1 2022 versus $6.4 million for the same period in 2021, which really is the result of higher non-cash stock compensation expense, which for the first time included the vesting of the subjective portion of performance shares awarded in 2019. Cash G&A did move up sequentially from Q4 2021. But importantly, our cash basis G&A continues to scale favorably as a percentage of total revenue, coming in at just 7.5% for the first quarter of 2022 versus 10% for Q1 2021. Net income was $26.8 million in the quarter. Our FFO totaled $49.4 million for the quarter, or $0.39 per fully diluted share. That's a 30% increase over the same period in 2021. Our nominal AFFO totaled $48.9 million for the quarter, up $16.5 million over the same period in 2021, which on a fully diluted per share basis was $0.38, an increase of 27% versus Q1 2021. Turning to our balance sheet, I'll highlight the following. It was another great quarter of investments by our team. Our income-producing gross assets reached $3.6 billion at quarter end. From an equity perspective, I'll reiterate that we were active on our ATM program, generating approximately $158 million of net proceeds during the first quarter, which effectively utilized the remaining capacity on our $350 million program. As a result, our board approved a new $500 million ATM program, which we will launch shortly. As Pete also noted, our balance sheet remains strong with net debt to adjusted EBITDAre at 4.6 times at quarter end and total liquidity of $467 million. As a result, our balance sheet and liquidity position continue to provide a strong foundation from which to support our investment pipeline and future growth aspirations. Lastly, I’ll also reiterate Pete's important note that our current investment pipeline outlook for the core portfolio and strong performance this quarter has provided us with the basis to increase our 2022 AFFO per share guidance range to $1.50 to $1.53, which implies a 13% year-over-year growth at the midpoint. With that, I’ll turn the call back over to Pete.

Thanks, Mark. Before I open the call to questions, I wanted to mention that Gregg Seibert, the company's COO, and my longtime business partner and close friend has notified the company that after 25 years of net lease investing, he plans to retire and therefore will not renew his employment contract that expires near the end of June of this year. Gregg has agreed to consult for the company at least through the end of the year to help us manage through this transition. Gregg has been instrumental in crafting our investment strategy, mentoring our credit closing, underwriting and asset management teams, and helping to develop strong relationships between industry participants and our team. Gregg will be sorely missed around the office. But we have an incredibly strong bench of professionals that he helped to develop and that are ready to assume his many roles. With that operator, let's please open the call for questions.

Thank you. We will now be conducting a question-and-answer session. First question comes from the line of Greg McGinniss with Scotiabank. Please proceed with your question.

Hey, good morning. So, Pete, the cost of capital has changed fairly dramatically over the last six months. But given acquisition cap rates were in line with the historical average, is there any expectation for expansion there that we start to see at this point? How do you expect the cap rate to kind of trend for the balance of this year?

Sure. And as I always say, our cap rates are really driven by our perception of the appropriate risk-adjusted return for the individual investments that we make, and not really driven by our underlying cost of capital. We were able to hold our cap rates relatively steady as our cost of capital and rates moved down. I don't expect us to materially change the REIT parameters of our underlying investments, and so, we're unlikely to see cap rates move materially up. I would also note that cap rates are generally sticky and trail movements in interest rates. All that said, we are seeing a bit less competition and having a little bit more pricing power on the deals we are doing, but I wouldn't anticipate a material move in our cap rates.

Okay. Thanks. And I just kind of along those same lines regarding cost of capital, do you anticipate needing to raise debt this year? And what rate is achievable?

Okay. Yes. I think, Greg, we've consistently held that a major component of our business thesis is to match fund or leverage to our long-dated leases. Since we got our investment-grade rating last year and access to public markets for the first time, our mindset was that this was going to be a good way to turn out the revolver balance. But public unsecured debt markets right now seem a little dislocated. Although, I'd say, if we were to access that market, it might be in the high fours, low fives, possibly. But given that dynamic, we'll continue to evaluate all our leverage options, including using the $70 million revolver we have on the 2027 term loan and maybe looking at the term loan market generally.

Was there any expectation for an unsecured debt raise, or should we assume it's mainly the term loan and revolver use?

I mean, I guess what I'd say is, the way we think about our investment activity is that if you are going to term that, the revolver would be something we could use, given the rate on it. But our expectations have been and we've constantly communicated that we would execute a leverage issuance sometime maybe in the back half of the year.

Hey. It's actually Michael Bilerman here with Nick. Good thing you guys done in Florida a couple of months ago. Pete, I was wondering if you can sort of outline a little bit the change in guidance, which went up $0.03 at the midpoint. I assume as you outlined in your release, the investment activity is a big driver of that. And I wonder if you can unpack a little bit how much of it is due to volume, where you talked a little bit about how the pipeline is robust, and you thought it would moderate but it hasn't. How much of it is timing? And I think Gregg talked about 85% of the deals closing by the beginning of March. And then how much of it is rate because you talked a little bit about sort of pricing power, even though cost of capital and rates have moved up. So each of those seems like it's higher than where it probably wasn't your guidance, but not knowing what was in your guidance for the three items. I don't know how those three items have changed relative to your new guidance, and I don't want to jump to any conclusions. So maybe can you outline those three for us, please?

Yes. I would say, the biggest change in guidance is going to be past events. I would say, clearly, the first quarter was strong for us. Also, between the initially issued guidance, we closed the books and finalized the fourth quarter. And so, as we look at full year guidance, and we look at our first quarter, clearly we're off to a strong start for the year. In the back half of the year, I would say our volume expectations have not changed. And as I said earlier in the call, our cap rate expectations have not changed materially. And that, I think, also impacts guidance or capital market assumptions, and clearly those have changed as the markets have changed materially, both on the debt and equity side as we think about the back half of this year. So there's a lot of puts and takes in the business model, and I don’t pack it all in. Clearly, having one quarter of the year done and pretty good visibility into a second quarter gives us the confidence to move guidance up.

Yes, I was hoping for more specific details. You reported earnings in mid-February, and it seemed like most deals for the quarter were already in progress with many closing by the end of that month. Therefore, I wouldn't expect your average quarter to be $200 million. I would assume that, from a modeling perspective, with a mid-quarter convention in mind, a deal worth $238 million wouldn’t lead to a $0.03 positive impact, especially considering the negatives you mentioned, such as rising debt rates and higher equity costs, which all affect your future in the second half related to acquisition volume. I would guess that your volumes and guidance are up, or that the timing has shifted earlier. The first quarter wouldn’t contribute much based on your previous comments to look at your eight-quarter running average of $200 million and apply mid-quarter convention for modeling.

Yes. Listen, I would say, we've never really given mid-quarter convention as a guidepost. And quite frankly, we have a more conservative internal modeling convention here. And we beat that materially, and you're also ignoring the base capital assumptions that we had embedded in that initial guidance as well. So, as I said, Michael, there's a lot of puts and takes. And as we look at the back half of the year, our expectations are pretty consistent with what we expected in the first quarter.

Even though your pipeline is more robust, and things are, I mean, it just sounds like the transaction activity, and our back and forth, when you say, oh, you're more conservative, but we beat that regularly. To me, putting out the actual guidance, what you're expecting? Hey, we're like, why not put that out rather than us going back and forth and trying to hone in on what the changes of your guidance? What's the hesitation?

Yes. As I said, and we made this painfully clear on the last call, we rarely have visibility beyond 90 to 180 days on our pipeline. And so, the commentary we give on a quarterly basis is what we're seeing out in front of us. And you're asking for guidance that goes out for a full year and really ignores the kind of independent quarters. And so, we think we have a convention that allows investors to have good visibility and what to expect, and it matches the visibility that we have, without going out beyond that. And so, on the call is that we've got a good pipe, right, looks good relative to what we're seeing. But I don’t know what's going to happen in the fourth quarter.

No matter what, but I just want to know what's in your assumptions, right? So it sounds like the assumptions are beginning of end of quarter close for your volumes, rather than mid-quarter close? I'm just trying to get understand what's embedded so that when you change your guidance, I know what the benchmark is to, you know. If you don't tell us what was in there, when you say you've updated it, we have to know what changed. And obviously, there’s a lot of levers that you can pull to change. So anyways, I'll yield the floor. Thank you.

And we gave you very specific metrics around the near term. So hopefully, that’s clear for you.

Thank you. Our next question comes from the line of Sheila McGrath with Evercore. Please proceed with your question.

Good morning. You have two new tenants in the Top 10, Festival Food and Track Fun Park. Just wondered if you could tell us a little bit about those tenants? And my second question is how much of your potentially increasing opportunity set is from existing customers versus new tenant opportunities?

Great. Thank you, Sheila. I would say both of those tenants have been tenants we've been dealing with for quite some time now. And they were in our portfolio and moved into our Top 10 through follow-on acquisition activities and repeat business. To go into your second question, Track is a well-capitalized consolidator in the family entertainment centers space with about 13 locations, and as they roll up, we're able to help finance their consolidation through sale-leasebacks, and I’ve been able to continue to invest with them. Festival Foods is a 39-unit grocery chain that operates predominantly in the state of Wisconsin, a third-generation family-owned ESOP company that's been in business for about 75 years. They're great operators, have strong credit, and I'm sure anyone up in the Wisconsin markets knows them well and thinks highly of them. In terms of existing versus new, I think the 80-20, 85-15 mix continues to represent our portfolio. We continue to invest with existing relationships, and we continue to work hard to source new relationships that will bring deals down the road. And so, I wouldn't expect a material change in that blend field.

And one more question. You mentioned that the last two tenants that were on cash accounting went to accrual. Maybe you could comment on the health of your tenants or if most are back to pre-pandemic levels, and maybe who are the laggards. And looking back at the crisis, maybe you could comment on how your portfolio held up?

Yes. Those last two tenants were the last two cash accounting tenants as a result of the COVID pandemic. In general, I always start that question by saying the portfolio is 100% occupied and our collections are 100%, and the deferrals are pretty far in our rearview mirror at this point. As you see in our coverage reporting, there are some operators that are still kind of on a trailing 12-month basis recovering, and as we said on the call, as Gregg mentioned, that's particularly in the fitness, early childhood education, and movie theater space, where they kind of had a little bit of a lagging effect from COVID. But overall, the health of the portfolio continues to improve. It's in a great spot. And I think we are very proud of how our operators came out of COVID. The modest rent deferrals that we granted as accommodations to help them through were well received and have been largely paid back. I think our portfolio performance is really something to be proud of and really a testament to great underwriting, but more importantly, just great operators who were able to navigate through that period.

Thanks. And congrats, Gregg, on your retirement.

Thank you.

Thanks, Sheila.

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

Hey, good morning. Yes, and congrats on the retirement. Maybe just a question on the disposition side and the sales side. There's less relevant players in the market, fewer bidders for things. Does that maybe make you more reluctant to do sales? Or as cap rates are going up, does that make you more reluctant? Or how should we be thinking about that side of the equation?

Yes. I think, in terms of sales, there are a couple of buckets to our sales; the opportunistic sales, where we see a buyer that offers a price reflective of the underlying of that particular investment. And then there's de-risking sales, where we're looking to get out of a potential problem down the road. I think as the market cools, you'll see us do less opportunistic, and continue to focus on the de-risking sales. And really just getting at assets that we think present potential long-term issues for the portfolio and managing exposure. All that said, I wouldn't expect our disposition activity to deviate materially from what we've done in the past; kind of that $15 million to $20 million quarterly average would be a good barometer there.

Yes, that's helpful. And then, I think last quarter, there was some discussion about loan payoffs. I'm curious if there’s any update there? And if rates have gone up, does that make people less likely to kind of repay?

Yes. I think our loan book is very small. And there will be periodic repayments from that loan book. Literally the fourth quarter was kind of an outlier in that regard with bigger loans coming in. I do think, with capital markets rates higher and the availability of alternative financing being more expensive, it would create a little more stickiness in our loan book.

Okay. That's helpful. I'll leave it there. Thank you.

Thank you, Nathan.

Thank you. Our next question comes from line of Caitlin Burrows with Goldman Sachs. Please proceed with your question.

Hi, good morning. I had a couple of model ones. First, it looked like operating expenses were particularly low in the quarter, so I was wondering if you could go through what drove that, and to what extent we should expect your NOI margin to remain in the mid-97% range, like 2019 to 2021 versus, I think, it was above 98% this quarter?

Sorry, go ahead, Pete.

I was just going to say, when you take those tenants off of accrual and put them on cash, you start accruing for their property costs. Also, we had 100% occupancy, so we had no vacancies during the quarter. Go ahead, Mark.

That's exactly right. Those two factors were pretty significant.

Okay. So it sounds like that could be sustainable. Is that fair?

That's very fair.

Okay. And then you mentioned briefly in the prepared remarks, but G&A was up meaningfully in the quarter on an absolute basis. So could you go through whether there was something in particular that drove that? Or is that just the reality of a growing business, maybe plus some inflation?

I mean, look, I guess the one thing I'd say is, we had in the first quarter, we pulled forward a little bit more of the 401-K match and the social security taxes that would have been a little bit more leveled out in the second quarter, given the size of the difference between, really probably incentive comp quarter-over-quarter. So it was really almost seasonality if you will.

Okay. Got it. And then maybe bigger picture. The company's obviously grown significantly in the past few years. I was wondering if you could comment on the strategy of granular relationships based acquisitions? And how long do you think that could work for? Like, if you end up targeting $1 billion to $1.5 billion of acquisitions in the future, do you think anything has to change with how you guys run your business? Or could you just do more of what you're doing today?

Yes. I think it's more the latter. I think the way we invest is really driven by where we see, in our view, the best risk-adjusted returns in the net lease market by investing in very granular transactions with growing middle market operators through direct sale leasebacks. We feel we're able to compete as a capital provider, provide value to those tenants, and get outside risk-adjusted returns. That middle market for us is very expensive. An important part of what we do is continuing to grow our relationships and expand our network to provide ever-increasing investment opportunities to grow with. We've grown our quarterly investment activity from $125 million to close to $200 million a quarter since coming public back in 2018, and there's nothing that would indicate that we can't do that going to whatever your scenario is, three or $400 million. Specifically, in the fourth quarter, last year, we did 340 plus million. So, we need to continue to grow our team. We need to continue to grow our relationships and make investments in both, and that's what we're doing.

Okay. Thanks.

Thank you.

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

Good morning. To start off, congratulations on your retirement, Gregg.

Thank you very much.

And then, if my back of the envelope math was kind of correct, it seems like you've done about $50 million of acquisitions to date since the start of March. And I guess maybe what kind of caused, if you will, just kind of air pocket an acquisition activity given you seem very positive on the pipeline for the remainder of the year and even maybe in the somewhat near term?

Yes. We have control over the timing of our deals. When supporting the sale-leaseback transaction, it's driven by the operator, and there are natural fluctuations; there is pressure around quarter ends where deals often get grouped together, and we don’t have control over that. Additionally, with an average deal size of $6 million to $9 million, having a larger deal of $40 million to $50 million can create variability. So, don’t read too much into it; these are just the nuances of the business that are beyond our control.

Got it. That makes sense. And then, does the change in the competitive environment, you alluded to in the prepared remarks, change the dynamics of the acquisitions you're targeting at all? I guess specifically, could you see more attractive opportunities with sale leaseback transactions that are not on your lease form?

Well, I mean, listen, the sale leaseback is, by definition, you're writing the lease at the close, and we're generally going to start with our lease form. I think that remains our preference. I think the bigger point is, in the context of the sale leaseback, you're acting as a capital provider and competing against other providers, and based upon your reliability and certainty of execution, you're not competing against a broad audience of investors purely on cap rate and price and proceeds. So, we prefer to compete on the strength of our execution and not on cap rates, and that's going to be the way we continue to invest.

But I mean, I guess does some of the more maybe broadly marketed sale leaseback, portfolio transactions are going to have more bidders per se, right, it would be a little less kind of middle-market nature. They become more attractive, because some of these competitors have been kind of priced out of the market given what's happened with interest rates?

Yes. I mean, for those bigger, more high-profile deals, it's really not going to impact us. If it goes from 10 to 15 bidders to five to eight, it's still competitive, and you're still, it's still likely to be a bloodbath, and where you're not getting appropriate risk-adjusted returns. If you're talking about bigger, more broadly marketed, higher-profile transactions, we prefer avoiding those situations and finding opportunities that just present better risk-adjusted returns in our view. That said, we see him, we're an active market participant; if the pricing comes in line that makes sense for us, we'd certainly be willing to participate.

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

Thanks, John.

Thank you. Our next question comes from the line of Joshua Dennerlein with Bank of America. Please proceed with your question.

Good morning, everyone. Pete, wanted to touch base, I think it was something you mentioned about maybe the buyer pool seems to be thinning out a little bit. Curious just what your thoughts are on what’s driving that?

Yes. I think it's just the volatility in the debt markets, right? Debt rates, both underlying treasury rates as well as debt spreads have moved pretty rapidly and the availability of that capital is less certain. And so, buyers who were participating based upon a levered bid are less certain in the current environment.

Okay. That makes sense, appreciate that. And then, are you seeing market participants maybe changing kind of the terms they might want to put in a sale leaseback in response to the rising inflation? Are people trying to push for more kind of inflation-like bonds or just trying to get higher fixed rent bonds?

Yes. Listen, I think we all try to get the best terms we can and the best economic package that we can. And escalations certainly are part of that. I think some buyers are particularly sensitive to that. But it's not going to come without a cost and/or a lower cap rate or clearly sellers and sales leasebacks are sophisticated and they're looking at the total economic package that we offer. And so the market is pretty efficient. And we've been pretty consistent with our escalations, and I don't expect the market to change materially.

Got it. Thanks.

Thank you. Our next question comes from line of Ki Bin Kim with Truist Securities. Please proceed with your question.

Thank you. Congrats, Gregg. Sorry, I jumped on the call a little bit late here. But going back to your credit metrics, it was good to see some improvement quarter over quarter. But you still have 8% below one times coverage. You mentioned it was fitness, childhood education, movie theater. But my question is, if you looked at more real-time data, not just trailing 12 months, what's your best indication of what that coverage looks like?

Yes. I guess the most real-time data, Ki Bin, is affected to paying rent, and the leases are being honored. We would expect that bucket to normalize back to the historical level, which is close to around 2%. The current data that we have suggests that that's the trend these guys are on. That said, a big chunk of that and movie theaters and/or AMCs, anyone's guess on where those things shake out. But clearly, that company has ample liquidity to manage there.

Same-store NOI and same-store rent increased by 2%. The outlier was exponential. What do you think this could look like for the rest of the year regarding same-store rent?

Yes. I mean, our contracts are generally written to get 1.6%. And it could be to be annual or every five years, so that creates some lumpiness there. What you see happening there, Ki Bin, is we had some experiential tenants that went through a COVID-related bankruptcy restructuring, where there was a discounted rent period that's burning off, and those sites are coming back on, more at full rent. That's kind of driven that outsize increase there.

Okay. And just going back to the G&A, can you just give a card number guidance for 2022 G&A? Mark?

Yes. I mean, look, we don't really guide to a G&A number. I think what we've consistently held is, right now, we're at 7.5% cash G&A to revenue. We think that's going to continue to go down. But I think if you started there and work your way down, you probably have a pretty good reference point.

Okay. But just to clarify, going back to Caitlin's question, you mentioned, I mean, you had $8 million G&A on a GAAP basis this quarter. You said there were some expense pull forward. So should we expect that absolute number to move lower for the remainder of the year?

Well, sequentially it's not a whole lot, I think. And I think the GAAP G&A is really a function of, as I mentioned in the prepared remarks, we had our 2019 awards that have a subjective component in the TSR. They were granted and therefore vested in January. That was kind of a unique, well, I shouldn't say unique now, but it was outsized for a year-over-year comparison; that 25% is actually included in each grant that's occurred since 2019. So, that's going to start happening every first quarter from here on out to the extent that there's an award and vesting. But in terms of this year, I guess what I'd say is cash G&A should normalize through the next three quarters because, like I said, there was a little bit of pull forward in the first quarter.

Okay. Thank you.

Thanks, Ki Bin.

Thank you. Our next question is a follow-up question from the line of Nicholas Joseph with Citi. Please proceed with your question.

Hey. It's Bilerman again. I think the follow-up on John's question just on the pace. So I think Gregg and congratulations on your retirement are very jealous. But I think you said 85% was done by the beginning of March, which would have left about $35 million in the month of March. And I was wondering if you can share how much has closed in the month of April already? And then separately, how much you have under contract and under LOI, just to really understand going back to Pete, where you've talked about just not having clarity in the future, which I get. So maybe you can share with us a little bit more details about the here on now size of the overall pipeline, how much is under contract, how much is under LOI? And how much is closed so far in the quarter already?

Well, we'll say the subsequent events in our Q would have what's causing the number down to $17 million. So we got $17 million. And I won't break out PSA or LOI, because it's not really relevant to the pipeline. But our current pipeline, yes, it's around $200 million.

And does that include the stuff that the $17 million that was closed in the first month of the quarter? Or should I separate?

On that, that'd be material is $17 million. Certainly, with the variability, because all that may or may not close, as, again, to that timing question, we don't control the timing and our sellers do. But that's exclusive of the coordinate activity.

Michael, if you dug deep into the queue, you discover that we've got about $25 million under PSA right now.

Okay. So I hadn't been able to review the queue as of yet, given all the earnings overnight. But in that case, I guess, $55 million in two months relative to what had been much more aggressive. And Pete, I take your comments about average size of $6 million, $7 million and you do a portfolio deal, and it dramatically increases that. But I'm just trying to reconcile some of the robustness and real confidence in a growing pipeline, but yet the last two months has been well below what that pace would have been previously, right? You'd been on, call it a $70 million to $80 million monthly pace. And now that's down pretty meaningfully in March and April?

Yes, Mike, I think you're focusing too closely on a business that's not a precise science. I'm providing a broad overview of the market and our pipeline, along with a specific number and insights into our ongoing discussions with operators and their perspectives on their businesses and future prospects. This business doesn't operate on a simple month-to-month model with predictable outcomes. It's not like manufacturing where we can quantify outputs. We're engaging in deals with middle market operators at a rate of 20 to 40 each quarter that may or may not materialize. These deals involve negotiations, due diligence, and environmental considerations, so I believe our pipeline is solid and aligns well with our previous quarters, and we're optimistic about our situation. Delving deeper is attempting to achieve a level of accuracy that's simply not possible.

Yes. I'm not trying to get to that. It obviously external growth is a key component for the net lease REITs. And obviously, there's two sides to it; your own cost of capital, and then the deal that you're able to complete in terms of volumes, right? The core businesses are pretty stable. Net Lease businesses that we can model pretty well. These questions are not to get precision on estimates; they are questions about the direction overall of growth of your cash flow driven by the key part of your business, which is to go out and acquire assets. So that's the reason, Pete for the questions. Just looking at the numbers, there appear to be a pretty material decline in volume in March and April. I was just trying to dig in a little bit deeper to understand some of the variables that may be impacting that and your views going forward. That the intent.

And we gave you very specific metrics around the near term. So hopefully, that's clear for you.

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

Great. Thank you all for your time today and more importantly, Gregg, thanks, thanks for being my partner for the past 10 plus years. I want to wish you the best going forward. Certainly, I know you'll be around with us for the coming months as we navigate through this transition. But this is a very appropriate forum to thank you for all you've done for this company. Thank you and thanks everyone. Have a great day.

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