Q4 2023 Essential Properties Realty Trust Inc Earnings Call
Participants
Connor Siversky; Analyst; Wells Fargo
Karen Greene; Analyst; BofA Securities
Eric Gordon; Analyst; BMO Capital Markets.
Nate CrossettAnalyst; Analyst; BNP Paribas Asset Management
Elmer Chang; Analyst; Scotiabank Global Banking and Markets
John Massocca; Analyst; B. Riley Securities
Presentation
Operator
Good morning, ladies and gentlemen, and welcome to the Essential Properties Realty Trust fourth quarter 2023 earnings conference call. (Operator Instructions) This conference call is being recorded and a replay of the call 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 yesterday's press. Additionally, there will be an audio webcast available on the central properties, www.essentialproperties.com, an archive of which will be available for 90 days. On the call this morning are Pete Mavoides, EPRT's President and Chief Executive Officer; Mark Patten, EPRT's Chief Financial Officer; and Rob Salisbury, EPRT's, Senior Vice President and Head of Capital Markets.
It is now my pleasure to turn the call over to Rob Salisbury.
Thank you, operator. Good morning, everyone, and thank you for joining us today for Essential Properties Fourth Quarter 2023 earnings conference call. During this conference call, we will make certain statements that 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 in yesterday's earnings press release.
With that, I'll turn the call over to Pete.
Thank you, Rob, and thank you to everyone joining us today for your interest in Essential Properties. We finished 2023 with a strong $315 million of investments in the fourth quarter and just over $1 billion invested for the full year. This translated to a FFO per share growth of 8% in 2023, which we are proud of given the industry backdrop of heightened volatility in the capital markets and wider bid-ask spreads in the transaction markets serving as a testament to the resilience of our differentiated investment strategy and durable portfolio.
As the fourth quarter results indicate, our portfolio continues to perform at a high level with unit-level rent coverage of 3.8 times, occupancy of 99.8 and same-store rent growth of 1.5%. The overall health of our portfolio is a result of our disciplined underwriting process, which focuses on growing operators in durable service and experience-based industries and owning granular and fungible properties that generate strong cash flow for these operators.
By underwriting and focusing on all three risk factors associated with net leased real estate, investing, corporate credit unit level performance in lease risks and real estate basis were able to construct and own an exceptionally durable portfolio of properties. Regarding our strong and consistent year of investments remained active in support of our long-standing tenant relationships as they increasingly turn to us as a valued and reliably consistent capital provider to grow their businesses, given the limited funding availability in the bank market and the continued dislocation in the credit markets.
And the diminished level of competition from other net lease investors with quarter end pro forma leverage of 4.0 times and liquidity of nearly $800 million. Our balance sheet continues to be well capitalized for continued investment activity as we look to aggressively capitalize on these trends that are creating the opportunity to generate historically wide risk-adjusted returns. We are affirming our 2024 AFFO per share guidance of $1.71 to $1.75, which implies year-over-year growth of 5% at the midpoint.
Turning to the portfolio. We ended the quarter with investments in 1,873 properties. It were 99.8% leased to 374 tenants operating in 16 industries. Our weighted average lease term stood at 14 years at year end, which is consistent year over year with only 4.7% of our ABR expiring through 2028.
From a tenant health perspective, our weighted average unit level rent coverage ratio was 3.8 times this quarter, down slightly from last quarter, driven in large part by investment activity. Our same-store rent growth in the fourth quarter was 1.5%, an improvement from 1.2% in the third quarter, driven primarily by positive leasing results and asset management activities, including at a gym operator that we discussed in our last earnings call.
During the fourth quarter, we invested $315 million through 43 separate transactions at a weighted average cash yield of 7.9%, representing a continued increase in pricing power for sale leasebacks. As we noted on the last earnings call. Our investment activity in the quarter was broad-based across most of our industries with no notable departures from our well-defined investment strategies.
The weighted average lease term of our investments this quarter was 17.6 years, and the weighted average annual risk escalation was 1.9%, generating an average GAAP yield of 9.1%. Our investments this quarter had a weighted average unit level rent coverage of 3.3 times and the average investment per property was $3.0 million.
Consistent with a key tenet of our investment strategy, 97% of our quarterly investments were originated through direct sale-leaseback transactions, which are subject to our lease form with ongoing financial reporting requirements. 72% contained master lease provisions and 96% were generated from existing relationships.
Looking ahead to the first quarter of 2024, we have closed $40.9 million of investments to date at an a cash yield of slightly above eight, and our pipeline remains robust as an increasing number of middle market companies are seeking sale leaseback capital as a financing alternative as other sources of capital have become unavailable or uneconomic.
While we have capitalized on the dislocation in private credit markets, generating heightened pricing power with favorable lease terms, we are cognizant of the potential for easing in monetary policy over the course of 2024, which could alleviate financial conditions bringing with it a lower cap rate environment should our pricing power diminish later this year, we would hope to benefit from a commensurate reduction in our cost of debt capital such that our net investment spread is maintained.
As a value added capital provider we are able to dynamically price our sale leaseback transactions, which over time has afforded us the ability to generate investment returns in excess of market pricing. That being said, our current pipeline today suggests that our investment cap rates should be stable in the near term.
From a tenant concentration perspective, our largest tenant represents 3.8% of ABR at quarter end and our top 10 tenants now account for only 18.1% of ABR. A tenant diversity is an important risk mitigation tool and a differentiator for us. And it is a direct benefit of our focus on unrated tenants and middle market operators, which offers an expansive opportunity set.
In terms of dispositions, we sold nine properties this quarter for $30.6 million in net proceeds at a 6.6% weighted average cash yield with a weighted average unit-level coverage ratio of 3.5 times. As we have mentioned in the past, owning fungible and liquid properties is an important aspect of our investment discipline as it allows us to proactively manage industry tenant unit-level risks within the portfolio going forward, we expect our disposition activity over the near term to remain relatively in line with our trailing eight-quarter average driven by opportunistic asset sales and ongoing portfolio management activity.
With that I'd like to turn the call over to Mark Patten, our CFO. Mark?
Thanks, Pete, and good morning, everyone. As Pete noted, we had a great fourth quarter, which was punctuated by a strong level of $315 million of investments at a 7.9% cash cap rate among the headlines from the quarter was our AFFO per share, which reached $0.42. That's an increase of 8% versus Q4 of 2022. On a nominal basis, our AFFO totaled $67 million for the quarter.
That's up $11.1 million over the same period in 2022, an increase of nearly 20%. The AFFO performance was in line with our expectations when we updated our guidance last quarter. For the full year ended December 31, 2023, our AFFO per share totaled $1.65 per share, which is an increase of 8% over 2022. On a nominal basis, our full year 2023 AFFO increased by 21% over 2022, totaling $253.4 million.
Total G&A was $7.3 million in Q4 of 2023 versus $6.5 million for the same period in 2022, with the majority of the increase relating to an increase in compensation expense. Our recurring cash G&A as a percentage of total revenue was 5.2% for the quarter and 5.9% for the full year of 2023, which compares favorably to the 5.8% and 7% respectively for the quarter and full year of 2022. We continue to expect that on an annual basis, our cash G&A as a percentage of total revenue will decline in 2024 as our platform generates operating leverage over a scaling asset base.
Turning to our balance sheet, I'll highlight the following. With our $350 million of investments in Q4 of 2023, our income-producing gross assets reached $4.9 billion at year end.
From a capital markets perspective, in the fourth quarter, we completed the sale of approximately $47.9 million of stock, all on a forward basis on our ATM program. Additionally, during the quarter, we settled $190.6 million of the forward equity we raised in September at year end, our balance of unsettled forward equity totaled $130.6 million.
Our pro forma net debt to annualized adjusted EBITDA [RE] adjusted for unsettled forward equity, it was 4.0 times at year end, we are committed to maintaining a conservative balance sheet with best-in-class leverage and liquidity. At year end, our total liquidity stood at nearly $800 million. Our conservative leverage, robust balance sheet and significant liquidity positions the company well to fund our growth plans for 2024 based on the pipeline we see today.
Finally, the strong performance to end the year in 2023, our conservatively capitalized balance sheet and the investment pipeline we're seeing all support. Our previously issued 2024 AFFO per share guidance range of $1.71 to $1.75, which implies a 5% growth rate at the midpoint. It's also important to note that with the ATM equity issuance achieved this quarter, we do not require additional external equity capital to achieve our 2024 guidance.
With that, I'll turn the call back over to Pete.
Thanks, Mark. In summary, we are quite pleased with our fourth quarter and full year results and remain excited about the prospects for the business. Operator, please open the call for questions.
Question and Answer Session
Operator
We will now be conducting a question-and-answer session. (Operator Instructions)
Connor Superscape, Wells Fargo.
Connor Siversky
Good morning out there and thank you for the time. A quick question on the liquidity profile, understanding that a chunk of that $800 million in liquidity is really predicated on the revolver. And I'm curious, with the robust pipeline you meant you mentioned how comfortable would you be how comfortable would you be letting leverage run towards the end of this year?
And then what is the desired funding mix for each incremental acquisition between free cash flow capacity on the forward and the revolver?
Mark (inaudible)
you got it right, a couple of things, some in terms of just kind of funding mix. Generally speaking, we had been largely probably 60 40 in terms of equity and debt, but now with almost (inaudible) of free cash flow, that's probably more like 60 pay equity, 30 debt and 10 is kind of your free cash flow. So that's kind of how we think about.
I'm looking at liquidity in terms of running leverage up. I guess what I'd say is we've said pretty consistently that if we were to choose a range that we thought was reasonable in terms of leverage, it would be 4.5 to 5.5 times so if you think about that and we're sitting at four times now, we've got a fair amount of runway to go before we ever even kind of step into that range. (technical difficulty)
Next question, operator?
Operator
And our next question is from the Holon Operator, are we good?
Yes.
No, I'm glad I think the line cut out for a second, but I'll leave it there for now.
Operator
Thank you and was interested in your line just cut out at the very end there.
Our next question, please, operator.
Operator
Josh Dennerlein with Bank of America.
Karen Greene
Hi, good morning. This is [Karen Greene] with on behalf of Josh of my first question, I wanted to ask if you can go into a little bit more detail on the unit level, rent coverage and the slight downtick or how that was attributed to reconnect?
Yeah. I mean, listen, we provide pretty granular detailed supplemental on the unit level rent coverage, clearly the headline number decreasing from, you know, down 20 basis points. Some of that is attributable to the acquisitions in the fourth quarter as well as the acquisitions in the third quarter, both of which were at 3.3 times that there's always some ebbs and flows with different operators and different reporting periods. And the like. But overall, the portfolio is in a great spot and we're not seeing any concerns that term give us pause.
Karen Greene
And I guess on the flip side of that, the increase in your same-store rent growth is being driven off of either different lease terms, higher escalators or what type of driver that's selling into?
Yes. I mean that's just going to be the rent escalations built into our contracts. Generally, they range from anywhere between one and a quarter on up to two. On average, it's one seven, I believe there's different compounding periods. And clearly at one five that represents a pretty solid flow through of those escalations for us. That's going to kind of ebb and flow as we've disclosed.
Karen Greene
Okay, great. Thank you so much.
Thank you.
Operator
[Smedes Rose] (technical difficulty) .
Thank you. And I just wanted to ask you a little bit. You talked about some of the more traditional sources of capital either not available or just becoming too expensive. So are you are you seeing them what other kind of competitors come to the market or do you have sort of a relative advantage at this point as you as you look for new acquisition opportunities in this environment?
Yes. Thanks, Mays. And I think that's a great question, and I appreciate you asking it from a we have a relative advantage to alternative sources of capital. Currently, unlike the bank market and the high-yield market and leveraged loans and private credit. A lot of those traditional sources of capital has been have been priced inside of sale leaseback capital. In the current environment, we're able to compete pretty competitively with those sources.
And then secondarily, in the traditional sale leaseback market participants are somewhat limited, particularly from the private buyers who are more reliant on debt financing and accessing the ABS market. A lot of those guys are a little more conservative in the current environment. So um, you know, both from an alternative capital perspective and from a competitor perspective, we're finding a nice upward opportunity to put capital to work.
Okay. And then just you mentioned you have a lot of room to draw on the you have the revolver. If you were going to just issue kind of 10-year unsecured debt today. Can you just give a sense of where you think it would price?
Yes. I think the best mark would be our current bonds which are out there trading and they're kind of in the mid sixes. I would think that, you know, hopefully a new issuance out the yield curve, good price inside of that. So call it low to mid six.
Thank you. Appreciate it.
Thank you.
Operator
[Eric Gordon, BMO Capital Markets].
Eric Gordon
Hey, good morning out there. I'm just understand that the majority of the acquisitions completed in the fourth quarter was heavily driven by existing relationships. But looking ahead and given the limited access to the bank markets for some of your potential tenants, are you seeing an uptick in new potential partners in the pipeline?
You know that that's a great question. I generally am I tell people we like to see a 80 20 or 75, 25% mix where we're 75% existing relationships, 25% new relationships because it's important for us to continually source new relationships because, you know, eventually some relationships outgrow us clearly in the fourth quarter at 96, it's more skewed towards existing relationships in the current environment.
You know, we tried to maintain our most profitable relationships and service, some of the relationships that generate the best risk-adjusted returns and take care of the good clients and the reliable clients. And that's kind of what we're doing. I think in a more normalized environment, we would add back down to that 75, 25 or 80 20. But clearly and partnering with long term relationships is bringing value to us and we're bringing value to them. And it's a dynamic market them, you know, we're happy to have those relationships
Eric Gordon
Okay, that's helpful. And then maybe on the disposition front, just given the potential for lower yields in the back half of the year, is there potential for that, that quantum of total dispositions to rise above your four-quarter trailing average, just given the benefits there?
Yes, I think the expectation should be it's going to be more towards our eight-quarter average. Clearly, the current market for dispositions is a bit challenged. We have a very granular and fungible portfolio, but the lack of financing out there is making you a little more difficult to sell assets than in a normalized volume environment. And then we will focus on kind of managing individual tenant industry exposures and getting out of the, you know, any risky assets that we see, but I would expect it to be closer to the eight-quarter average. And really, we don't even need to we don't see the need to lean into dispositions to generate accretive capital given where we are from a balance sheet perspective.
Eric Gordon
But sounds great. I'll leave it there. Thanks, guys.
Great.
Thank you very much.
Operator
Nate Crossett, BNP Paribas Asset Management.
Nate CrossettAnalyst
(technical difficulty)
I tell you it and you came through broken up. I didn't catch that question. I don't know if you're on a handset or not.
You might come back at when we just and then yes, please.
Operator
Greg McGinniss, Scotiabank.
Elmer Chang
Hi, good morning. This is Elmer Chang on with Greg. Just on tenants, is there more conservatism on bad debt expense or credit losses baked into 2024 guidance versus the, say 25 to 40 basis points you've experienced historically and given uncertainty with the consumer and then how much of that is tied to experiential operators, feeling demand pressures from consumers either returning to work or still feeling the effects of inflation?
Yes, listen, we have some conservative rent loss assumption and credit loss assumptions built into our guidance. As we always do, we take a very close look at our portfolio and look at individual exposures to include the credits, the unit-level coverage and our rent basis to trying to anticipate where we might take any rent loss.
And there's a wide range of assumptions baked into guidance around that. As we said in the past, generally, when you see us rising raising guidance throughout the year, it tends to be some it's partially driven by the fact that those credit losses aren't really coming to play. So the 40 to 50 basis points, you know, we don't give specific guidance numbers in there, but certainly we the range of guidance has a range around that.
I think it's fair to say we really don't have specific concerns about the consumer and specifically as it relates to the service and experience-based industries that we're in and our experiential tenants are doing great and continue to. We continue to see good sales trends there and coverage improvements. And, you know, our credit loss assumptions are going to be much more specific to individual situations and investments, but done that baked into guidance. And we feel good about the guidance that we've reiterated today.
Elmer Chang
Okay, thank you. You mentioned not you mentioned those experiential consumers not in not being concerned about them, but within the portfolio of early childhood and casual dining operators, how would you characterize their ability to pass through higher costs to consumers. Now that it seems inflation has been easing a bit. And you've given you've talked about these types of businesses, not being able to raise rates in the past several quarters?
Yes. Listen, I think early childhood is going to be much different than casual dining or our early childhood education providers have done a good job of passing through increases. It tends to be lumpy around semesters and new students, but we've seen increasing trends there. I think the casual dining sector is the price is a little more a competitive, be less discretionary.
And certainly those guys are going to have less ability to drive through inflationary pressures. And we are seeing some margin compression there. And but ultimately on both of those industries, those end up being an equity owner risk that landlord risks. And we don't see any outsized losses flowing through the portfolio in general and then in specific neither one of those industries.
Elmer Chang
Okay, great. Thank you.
Thank you.
Operator
(technical difficulty)
Hey, good morning. Hope you can hear me guys. I first question is on I guess there's a new tenant. You're top your top tenant this year, tidal wave auto sponsor. Maybe can you spend a moment talking about them the opportunity to do more with them and your overall exposure to kind of a car wash car care vertical, I think about 15% here. And last that's it. Thanks.
Yes. So tidal wave is a is a tenant that dumb we've been doing business with for a number of years, a number of them, you know, a number of deals over the years, and they've of up it actually moved into our top 10. It's about a 200 plus unit chain. It's currently led by its founder and the company was founded back in 1999.
So in oh eight, well-run company has been in business for a long time and we're happy to have him in our top 10 generally, you know, we are, as we said in the past, very comfortable with car washes, given the trends in the industry and the stability of the cash flows and the high margins and the solid rent coverage. And that's why you see it as one of our top industries. The exposure kind of came back a little bit in the last quarter, but we continue to see good opportunities to invest in that space and them and we like it. So we'll continue to do so.
Great. And then maybe I think you made a comment on your pipeline saying that cap rates in there suggest that cap should be stable near term. So can you spend a moment or two on talking about the pipeline? What's in there any new categories and broadly your expectation for cap rates given the choppiness in the capital markets?
Yes. As we said on the prepared remarks, the pipeline's full and you know when you run the business, that's in a nearly 100% sale leaseback and nearly 100% of follow-on business and your new pipe, if our pipeline is going to look a whole lot like your portfolio and that's you know what it looks like.
So really nothing new. We're investing across all our industries and largely with existing relationships in terms of cap rates as the commentary around the competitive landscape would suggest they're remaining stable and, you know, clearly, you know, I think around an eight, you know, as I said on the prepared remarks, we would expect once the market normalizes and competition, you know, comes back in a more normalized fashion, we would expect some downward pressure on cap rates I'm clearly if there's some if interest rates trend down, we would expect some downward pressure on cap rates. But and we're just not seeing that as we sit here in the first quarter.
Appreciate that. And maybe on the terms that you're getting is a given the lack of alternative that a lot of these tenants have you been able to get longer walls, better bumps. I'm curious if you're able to I'm getting any pushback from those folks. And could we see those turns get even better near term? Thanks.
Yes, listen, with it. Every transaction we negotiate is a negotiated transaction. We've negotiated deals with these people in the past. So there's a lease in place and the terms of the prior transaction tend to buys the new transaction. Our investment team has done a great job improving the overall terms.
If I look back in the first quarter of 2022 or average rent escalation was 1.4, and you know, last quarter it was one nine in the quarter before that it was too low on plywood and really for the whole year to oh nine to 0 nine, I would not set the expectation that that's going higher, but we continue to negotiate the best terms that we can from these relationships and we'll see what the market bears.
I did make I would point out on the OEM prepared remarks. You know, our weighted average lease term at 14 years is the same as it was a year ago, which would speak to the benefit of the long-duration leases that we add. And we added this past year, which is which is a good spot to be.
Appreciate the color.
Thanks.
Operator
John Massocca, B. Riley Securities. Please proceed.
John Massocca
Good morning. Larger omnichannel fleets. Because the pipeline, do you have kind of like a rough number of brackets around the gross size of that today and you kind of mentioned it's full.
Just maybe number-wise, what you would be thinking it typically we point people two or a quarter average as a good indicator of what to expect. And I don't know that exact number is, but and yes, somewhere between [250 and 300].
John Massocca
It's helpful. And then in terms of volumes, have you seen any maybe reluctance on the part of sale leaseback partners to kind of come to that come to market or close deals, just given some of the interest rate volatility, we essentially are partners on the on the selling of the property side, maybe holding out for better cap rates or lower cost of alternative financing?
Yes, there's some of that. There's clearly overall transaction volume in the single-tenant lease. Single-tenant net lease market is down 40%. And I think a lot of that are people not Mizuno choosing not to transact in the current market environment.
But the flipside of that is these operators are running their businesses and they have the opportunity to grow their footprints by buying smaller competitors are opening new units and rent is, you know, a small part of that overall investment decision for them and you know, they're aggressively growing and choosing to use us as a capital partner to do that. So while there is muted volume across the board, we still see an ample opportunity set to transact.
John Massocca
And then maybe in terms of the competitive environment for sale leaseback, particularly, I mean, how does that look today setting aside kind of the bank financing market or any kind of other types of financing you compete with, I mean and how many competitors are there out there today, roughly? And how does that compare to this time last year, maybe even a couple of years ago?
Yes. Listen, I don't think it's materially different from where we were a year ago because, you know, it feels like the overall capital market environment is about the same, if not improve slightly. But two years ago, there was no half-dozen to and 10 kind of new private capital back buyers who were coming to the market trying to, you know, build funds and platforms.
And by and large, a lot of those guys are kind of not currently investing at the levels that they would have hoped and so that private buyer is greatly diminished. And we also on occasion to compete with the 1031 buyers people coming in with large exchanges who are looking to place tax-deferred capital. And there's not a lot of people who are generating gains from the sale of real estate assets.
And that source of capital has largely dried up and not competing and there's plenty of public market participants. You guys follow them and know kind of where they are and what their appetites are. And so we certainly see some competition here and there, but overall, a diminished level of competition that we're benefiting from.
John Massocca
Okay. That's helpful. And that's it for me. Thank you very much.
Thanks, John. Appreciate it.
Operator
(Operator Instructions)
Ki Bin Kim, Truist Securities.
Hey, good morning. You have Kyle on for Kennen. I think on the second quarter call, you guys mentioned approximately 90 basis points, maybe are in watch list with more than half of that in theaters. So on you just provide an update on how that's trended recently?
Yes. So our current watch list, which I'll remind you, we define as the intersection of credit risk as the single B minus or below and coverage risk as one, five or below, it's currently 70 basis points down. So 20 basis points inside of where it was in the second quarter and is still there you have 50% theaters.
Got it. Thank you.
Thank you. Operator, we've got any more questions?
Operator
(technical difficulty)
(multiple speakers) good morning. Thank you, Pete, you and your team have worked with these middle market credits for a long time, obviously and seems like the business is pretty well set up with the unit and the parent entity financial reporting requirements. But what are some of the flash points that you monitor or set off sort of warning signs in your mind?
That something that the problem might be a foot with a given credit? I mean, is it and coverage declines from the original [three, 5 to two five] or they even had to round them up and collect the rent three months in a row tardy. I'm just trying to see here. I'm curious, what are those for some of those markets historically have help you monitor and proactively kind of engage with those tenants?
Yes. Listen, I think come in I wouldn't even call it an early warning sign. But you know, late payers are guys who aren't paying timely or certainly on top of the list, you know, guys who are late on their rent, I would say generally that tends to be less than a handful of actors. And historically, it's the same guys that you're arm wrestling with. But and currently, that's not a material amount, but more importantly, it's monitored monitoring the trends at the unit level because that's ultimately our collateral.
And our first form of payments is solid cash flow at the unit level. One of the reasons we provide such to quote disclosure around where our rents are covered and how they're covered and know from our analysis, it's more just tracking trends and anything that that's falling off or below sector averages when you have the amount of data that we have for each of these given industries and, you know, average sales per site margin per site, rent growth per site sales growth, all of that trying to see outliers as to performance at the unit and understand that.
And to the extent that something arises that's concerning, then you're taking a deeper dive into the corporate credit to understand E&O, if our asset sales as a source of rent payment, how solid is the corporate credit that's backing that lease and understanding the risk there and then ultimately making a sell decision on assets that you don't think have the durability that you want and expect in the portfolio.
It seems logical. And just one follow-up to that. Do you have like substitution rights in your master leases that were not I mean, you said you might obviously for healing assets, maybe look to sell them, but you have other protections where you could either add other collateral or maybe work with the retailer to you to put a performing asset in and take that list before lower-performing asset out?
Yes, many of our leases do have substitution rights where the tenant would be incented to take us, take an exit a base of performing asset and substituted in, I would say, E&O. More importantly, it's really just having good relationships and working with these tenants because our interests are aligned and not keeping a site that doesn't work online and operating.
And so we made retenanting the site and the tenant makes us whole for the contract rent that was that was in the leases and the delta between that and the underlying subtenant rent, you know, so there's a lot of ways to work through it. I would say one of the benefits of being as granular. We are as we are at the asset level, it's pretty easy and painless store through individual site level issues.
Great. Appreciate the update. Thank you.
Great. Thank you.
Operator
No further questions at this time. I would now like to turn the floor back over to Pete for his closing comments.
Great. Well, Nate, we're sorry, we get your question and if you want to follow up with Mark or Rob afterwards, we'd gladly kind of answer any questions that you might have had. But generally, you know, congrats to the team for an excellent quarter and excellent year, and we feel pretty proud about the results we past posted last year, and we're excited about this year at the start, we're off to a great start.
So thank you all for your participation today, and we look forward to engaging with you all at the upcoming conferences and have a great weekend. Thanks, guys.
Operator
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
