© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, ladies and gentlemen, and welcome to Essential Properties Realty Trust's Second Quarter 2021 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] This conference 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 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. You may begin.
Thank you, operator, and good morning everyone. We appreciate you joining us today for Essential Properties' Second Quarter 2021 Conference Call. Here with me today to discuss our operating results are Pete Mavoides, our President, CEO; Gregg Seibert, our COO; and Mark Patten, our CFO.
During this conference call, we'll 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 are made. Factors and risks that could cause actual results to differ materially from our expectations are disclosed from time-to-time in greater detail in the company's filings with the SEC and in yesterday's earnings release.
With that, Pete, please go ahead.
Thank you, Dan, and thank you to everyone who is joining us today for your interest in Essential Properties. The second quarter was another strong quarter for us on all fronts.
Starting with the portfolio. With collections at 99% in the second quarter and July collections at 100%, our portfolio has returned to pre-pandemic levels. While we continue to monitor how COVID could potentially impact our portfolio, our tenants have largely adapted to the current realities of the pandemic and emerged as stronger operators. With just two vacant properties at quarter end and one vacant property as of today, we have effectively repositioned all properties previously leased to tenants that did not survive the pandemic. With that in mind, over the trailing 12 months ended June 30th, we experienced recoveries of 87% on all re-leasing activity which is a strong indicator of not only the quality of our real estate, but our disciplined focus on owning fungible single-tenant properties at an appropriate basis.
In terms of investments, our industry relationships which we work to cultivate and strengthen during the pandemic drove the bulk of our growth this quarter, as 98% of our investments being relationship business and we continue to deploy capital at high levels relative to our historical pace. During the quarter we invested $223 million into 94 properties at a weighted average cash cap rate of 7.1% with 88% of investments being originated through direct sale-leasebacks and 83% containing master lease provisions.
On the capital markets. With the second quarter marking the third anniversary of our IPO, we achieved several milestones including the receipt of two investment-grade issue ratings from S&P and Moody's, the completion of our $400 million inaugural 10-year unsecured public bond offering and our asset base becoming 100% unencumbered with the full payoff and retirement of our ABS notes.
As a net lease REIT that intends to build and maintain a portfolio of long-dated leases, we are thrilled to have access to the public unsecured bond market, as we can now better match fund our debt obligations with our lease maturity schedule. Additionally, we remained active on the equity issuance front with a $193 million follow-on offering in April and $15 million of gross ATM issuance. With quarter end, net debt to annualized adjusted EBITDAre of 4.6 times, we have ample capacity to continue to capitalize on our robust investment pipeline.
Turning to the portfolio more specifically. We ended the quarter with investments in 1,325 properties that were 99.8% leased to 281 tenants, operating in 17 industries. Our weighted average lease term stood at 14 years with 4.1% of our ABR expiring over the next five years. Our weighted average unit level coverage ratio was 3.2 times, which improved versus last quarter's coverage of 3.0 times.
As we have previously mentioned, our traditional credit statistics which focus on implied credit ratings and unit level coverage remain negatively skewed by the pandemic related shutdowns that occurred last year. However, with most of our tenants reporting trailing 12 months financials to us with a one quarter lag, we expect these statistics to experience solid improvement next quarter when the depths of the pandemic in the second quarter of 2020 are no longer in the reporting period.
Looking up to the balance of the year. We anticipate our portfolio to remain highly occupied and our focused and growing pipeline to generate accretive and attractive investment opportunities. When coupling this positive outlook for the back half of 2021 with our strong second quarter performance and our current capital position, we are raising our 2021 guidance range for AFFO per share to $1.30 to $1.32. This compares to $1.24 to $1.28 previously.
We continue to believe our strong AFFO growth combined with our well-covered dividend of 3.4% and our commitment to prudently manage our balance sheet and portfolio risk offers investors a compelling total return opportunity.
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 second quarter, we invested $223 million into 94 properties through 34 separate transactions at a weighted average cash cap rate of 7.1%. These investments were made in 11 different industries with over 65% of our activity coming from quick-service restaurants, medical dental, early childhood education, and casual dining.
The weighted average lease term of our investments this quarter was 13.5 years. The weighted average annual rent escalation was 1.4%. The weighted average unit level coverage was 2.7 times, with the average investment per property being $2.4 million.
Consistent with our investment strategy, 88% of our second quarter 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.
Looking ahead, we are seeing increased competition from existing and new market participants as there is a growing appreciation for the durability of our focused industries at middle market tenancy. As a result, we are experiencing cap rate compression as we seek to protect and service our relationships.
From an industry perspective, quick-service restaurants are our largest industry at nearly 14% of ABR, closely followed by carwashes at 13.8%, early childhood education at 13.6%, and medical dental at 12.5%. We continue to view these four business segments as Tier 1 industries for Essential Properties and therefore, they are likely to remain our highest concentration industries for the foreseeable future.
Of note while much of our investment activity over the last 12 months has been focused on more pandemic resistant industries, we have started to selectively invest in proven operators of profitable locations in both the entertainment and casual dining industries, which continue to experience strong rebounds in revenues and profits.
From a tenant concentration perspective, no tenant represented more than 2.5% of our ABR at quarter end and our top 10 tenants account for just 19.5% of ABR, which was down 70 basis points versus last quarter.
Increasing tenant diversity is an important risk mitigation tool and a differentiator for Essential Properties and it is a direct benefit of our middle market focus which offers a significantly more expansive opportunity set that is strategy concentrated on publicly traded companies and investment-grade rated credits.
In terms of dispositions, we sold nine properties this quarter for $19.6 million in net proceeds. When excluding vacant properties and transaction costs, we achieved a 7.1% weighted average cash yield on these dispositions which had a weighted average unit coverage ratio of 1.8 times.
As we 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 risk within the portfolio.
With that I'd like to turn the call over to Mark Patten, our CFO who will take you through the balance sheet and financials for the fourth [ph] quarter. Mark?
Thanks Gregg and good morning everyone. We certainly did have a strong second quarter. The notable elements of our reported operating results for the second quarter of 2021 are as follows; total revenue was up $18.6 million or 48.2% versus the same period in 2020, totaling $57.1 million for Q2 2021, which reflects the benefits of a full quarter of our $198 million of investments in Q1 2021.
And more broadly, our total investment activity since we restarted our external growth in Q3 2020, which totaled $814 million at a weighted average cash cap rate of 7.1%.
In addition our total revenues reflected approximately $3.1 million in revenue from our determination to move the number of tenants back to an accrual basis. The one-time adjustment, which was largely related to our five properties leased to AMC, resulted in the recognition of approximately $2.1 million of base rent revenue that was owed but not recognized in prior periods as well as another $1 million of related straight-line rent. In total, this adjustment added nearly $0.03 per share to FFO and just under $0.02 per share to AFFO.
I'll note that this adjustment was based on our assessment regarding the probability of each tenant's performance pursuant to their lease both current and future rent payments including any deferral arrangements and was further supported by our evaluation of the tenant's operations and financial condition as of quarter end and an assessment of operating dynamics in their industries.
Total G&A was $6.5 million in Q2 2021 versus $6.3 million for the same period in 2020. That's a 3.5% increase, which was largely due to an increase in non-cash stock compensation expense, offset by increased efficiencies related to cash components of G&A including amounts incurred for professional services as well as certain outsourced services. More importantly, our G&A continues to scale as our cash basis G&A as a percentage of total revenue was 11% for Q2 2021 versus 15% for Q2 2020.
Net income was $23.4 million in the quarter, that's up 124% from Q2 2020. Our FFO totaled $37.2 million for the quarter or $0.32 per fully diluted share, a 23% increase over the same period in 2020. Our AFFO was up $14.6 million or $0.34 per fully diluted share, that's an increase of 26% versus Q2 2020.
As Pete mentioned, our collection levels were nearly 100% in Q2 2021 and hit 100% in July 2021. So the impact of the pandemic gray fleet should be largely behind us. With regard to our recognized deferred rent, we collected substantially all of the $1.3 million that was owed in the second quarter and our total collections of agreed upon deferred rent stands at roughly 50% of the total amount deferred and recognized in our results.
Turning to our balance sheet, the elements, I'd like to highlight are the following; you really have to start with another great quarter of investments by our team, totaling $223.2 million of investments in 94 properties, which contributed to our gross income producing assets reaching $2.9 billion at quarter end.
As Pete noted, we are very pleased to be in a position to access the public unsecured debt markets for the first time, having obtained investment-grade ratings from Moody's and S&P. This is certainly a significant milestone for our company. Our upsized $400 million unsecured notes issuance allowed us to pay off the approximately $171 million outstanding on our secured ABS notes and pay down $138 million outstanding on the revolver.
Worth repeating, that the result of the public unsecured bond issuance our debt position is 100% unsecured and our asset base is 100% unencumbered. We were also certainly pleased to pay off the ABS notes, which carried a 4.19% coupon with our public unsecured bonds that have a coupon of 2.95% at an effective rate of approximately 3.1% when taking into account the settlement of a forward rate lock agreement we entered into when we decided to issue these bonds.
From an equity perspective Pete noted, the primary activity for the quarter was the overnight offering we did in early April, which generated net proceeds of $185 million and our ATM program, which generated $15 million of net proceeds in the latter part of the quarter.
As Pete also noted, our net debt to annualized adjusted EBITDAre was 4.6 times at quarter end. In addition, our total liquidity stood at a strong $530 million. As a result, our balance sheet remains well positioned to support our investment pipeline and future growth goals.
Lastly, I'll reiterate Pete's important note that the current pipeline for the third quarter. Our outlook for portfolio performance in the back half of 2021 and our strong outperformance this quarter provided us with the basis for our decision to raise 2021 AFFO per share guidance to a range of $1.30 to $1.32, which is a 4% increase at the midpoint from our prior increased guidance.
With that I'll turn the call back over to Pete.
Thanks, Mark. We're excited that the operating environment and capital markets have allowed us to return to pre-pandemic levels and move forward with capitalizing on our robust pipeline of accretive investment opportunities in order to drive attractive earnings growth.
More importantly, we believe our disciplined and differentiated investment strategy has created an incredibly resilient net lease portfolio that should continue to generate attractive risk-adjusted returns as we grow into the future.
With that operator, let's please open the call for questions.
Thank you. We will now be conducting a question-and-answer session [Operator Instructions] Our first question comes from the line of Nate Crossett with Berenberg. Please proceed with your question.
Hey, good morning. Thanks for taking the question. Just on the pipeline, I was wondering if you could characterize the deal flow a bit. You mentioned heightened competition. How should we be viewing this in terms of the amount of deal flow you can execute on? What's the size of the pipeline right now? And what's kind of the outlook that we should be baking in for pricing, kind of, it going into the back half of the year? Are we still looking at over 7%, or where do you kind of see that trending?
Yes. Thanks. Thanks, Nate for your question and good morning. Listen we -- as I often say, we never really have more than a 90-day visibility on our forward pipeline, as our transactions tend to have that 90-day transaction cycle. But, obviously, we had a strong quarter and we feel good about what we're seeing into the third quarter. So the pipeline remains robust.
We tend not to give investment guidance and really point people to our historical average as an indicator of what we're likely to do. And I think, clearly, if you look back, we've been pretty consistent in that regard. That said, it's been elevated over the last couple of quarters, as we've seen good opportunities to transact and that remains our position.
In terms of cap rate, we tend to transact maybe a low of 6 and the high of the 7.50 and kind of where that blends out to in any given quarter, is really an output of selection of deals and industries the size of the credits and a lot of factors. We have been guiding people with the expectation in the low 7s. I wouldn't expect a material deviation from that.
Okay. That's helpful. What about just the lease escalation that you're able to underwrite in these sale-leasebacks and acquisitions? Is the heightened competition making it harder to get higher escalation in those contracts? Or how do you see that kind of playing out over time?
Yes. The escalations are really just one part of the economics of the investments and that - to the extent that we're having competition, it's impacting the overall economics, which flows into the initial cap rate as well as the bumps in the out years.
We still expect to kind of be in that, call it, 1.4, 1.6, so I think that's pretty center mass of market. But again, that's going to vary, given the selection of deals and the nature of deals in any given quarter. But we get bumps in the majority of the deals we do and we will work hard to get the best bonds that we can.
Okay. Thanks, guys.
Thanks, Nate. Appreciate the questions.
Thank you. Our next question comes from the line of Katy McConnell with Citi. Please proceed with your question.
Hey, guys. This is Parker Decraene actually on for Katy. Just a couple of quick ones from me. First off, I think, last quarter you guys discussed seven auto service vacancies that it came off or that came back to you through termination.
I was just wondering, at this point, I think, you leased eight or nine assets this quarter. Were all of those seven assets included in that nine and just maybe, you can give some color on sort of the resolution of that?
Yes. Listen, we give plenty of color on the resolutions of our re-tenanting activity in our re-leasing stats at 87%. The one vacancy we have is not related to an auto service operator. So you can infer that, we got all of those sites re-leased. And given that, we've re-leased nine and seven of them were related to that 10 and I think, that's pretty darn good clarity of what happened there.
Okay. And then, secondly, I guess, I just want to understand from, sort of, the cash accounting basis, if there's any other tenants that you guys still have under a cash accounting, sort of, revenue basis and what the total accrued rent balance might be for some of those in aggregate?
Mark, why don't you answer that?
Yes. I appreciate that question. It's just a handful of tenants. It represents maybe a little bit more than $0.01 of AFFO recognized, deferred not recognized, that has the potential to be reversed sometime in the future.
Okay. Thanks. That’s all for me.
Thank you.
Thank you. Our next question comes from the line of Greg McGinniss with Scotiabank. Please proceed with your question.
Hey, good morning. So, Gregg, you're now averaging, looks like, $200 million of acquisitions a quarter for the last year. Does that feel like a sustainable level? And then, also does the increased market participation impact volumes, or should we just maybe cap rates to compress a bit? How should we think about that?
Yes. Listen, as I've said, we always point to the trailing indicator -- the trailing eight-quarter indicator average, is an indicator of what to expect. And I stopped short of setting expectation that we're going to transact to $800 million a year. That is elevated. We certainly have said that we're leaning into acquisitions, given the current market. But I stopped short of setting that as the go-forward expectation.
The increase in competition, it doesn't really create -- necessarily create deal flow for us in that it really just, deal flows created by the overall economic environment, and the M&A environment and how our relationships are growing, but it does manifest itself in terms of cap rate. And I think you've seen our cap rates kind of drift down over the last couple of years, and we're fighting hard to stop that drift. But I would say, our cost of capital fortunately has improved along with that such that the spreads we're investing at remain pretty attractive.
Okay. Thanks. And then on the acquisitions, how much of what was closed for last quarter or the last year were driven by prior relationships versus new tenants?
Listen, we provide that on a quarterly basis. And generally, just looking at page 8 of our sub, and then we define prior relationships as guys that we've done deals with in the past and that tends to be in the mid to high 80s.
Okay. Yeah, I recall, you guys used to provide it. I guess, I just missed it this time around. But thank you.
I think that's in our investor presentation.
Yeah, I am sorry.
But anyhow listen in this quarter, it was 98%. And so it remains a main driver of our investment activity our relationships and our ability to kind of work with those guys reliably.
Okay. And just a quick follow-up on that point. It looks like new top tenants got Spare Time and Harps looks, like you own about 20% of their total stores. I'm just curious, how that 20% number maybe compares to the average tenant in your portfolio? Just to try and get some sense for how much more you can mine those relationships or if it's really just based on the growth of those tenants having new stores?
Yeah. Listen it's – I would say, the percent of stores we own from any one tenant, it can range from 5% to 100%. And I'll stop short of giving you an average there. As it relates to Spare Time and Harps, we've – they've been existing relationships with ours, and we've been able to add units, and over time and populate them into our top 10. But obviously, it's a consideration as we manage our overall exposure both with individual names and our top 10, where unfortunately at times we become full with tenants.
That tends to get offset by a growing denominator that allows us to do deals down the road. But when you're doing 98% of your business with people you've transacted with in the past that – you want to continue to serve those relationships and take advantage of being the embedded capital provider, because that provides synergies cost effectiveness and ultimately better economics both for us and the tenant.
All right. Okay. Thanks so much, Pete.
You got it. Thank you.
Thank you. Our next question comes from the line of Sheila McGrath with Evercore. Please proceed with your question.
Yes. Good morning. G&A as a percent of revenue was just over 11% as you highlighted that's the best read since the IPO. Just what is your target to that metric? Is second quarter G&A a good run rate or do you envision having to add meaningfully to personnel?
Yeah. Thanks, Sheila. I guess, what I'd say look we've achieved some pretty good efficiencies in our cash G&A. So I think the back half of the year though as conferences and travel starts to pick up we might see a slight increase in the back half on the cash G&A. But I think as a percentage of revenue it's going to continue to trend down. But I think in terms of headcount I think we're pretty well staffed for handling the business that we see ahead of us.
Okay. Great. And then you guys have the benefit of looking at rent coverage metrics for your tenants. Just – are there any businesses worth noting that have already returned to pre-pandemic levels? Which sectors have had the quickest recovery and which sectors have been kind of the laggard?
Yeah, Sheila, I'll tackle that. There's certainly – some of our sectors were barely impacted by the pandemic. And I would say, our quick service operators, our car washes auto service convenience stores probably had the lowest level of impact. The greatest level of impact and most – and longest level impact, I would say, clearly, in the movie theaters which everyone knows and understand. But also the gyms have been slow, but have recovered. And then the early childhood education guys are still kind of ramping back up to pre-pandemic levels as the country isn't at a full return to work status, which we hope to see in September. So certainly, there's been a wide dispersion of performance, but we feel good that collecting our cents on the dollar and they're all open and operating.
Okay, great. Last question. On AFFO guidance you moved it higher. Can you remind us your thoughts on the dividend? Is -- are you managing to a certain payout ratio? Just your thoughts on the dividend outlook?
Yeah. So we've said we like to maintain -- or the Board would like to maintain a payout ratio in the 70% range. And that I think historically we've been growing the dividend rationally alongside our AFFO per share growth and the Board looks at that every quarter and we'll continue to do with that.
Thanks a lot.
Sure. Thank you.
Thank you. Our next question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your question.
Hi, good morning. I was wondering maybe if we could talk about the watch list. It seems like the portion of the portfolio under one-time coverage is larger than it's been in the past but the total coverage is actually higher than in the past over three times now. So could you go through what this means for your watch list? And how much is the end of 2020 still dragging down those coverage levels? And have you already seen some improvement in the first half of 2021? Or are those tenants that may continue to struggle?
Yeah. Caitlin as we said on the call that those statistics really have -- are -- it severely impacted by COVID, obviously, with the second quarter of last year being all the shut down for many of our tenants. And those numbers are not adjusted for any rent deferral. So what you see in the trailing 12 numbers is one-quarter of essentially no revenue burdened with full rent. So we think those numbers are materially going to improve as those periods burn off. And I would say that our watch list is much more refined than just coverage and we're looking at these guys on a quarter-over-quarter basis and a capitalization basis and our real estate. And so our overall watch list is in a very good spot and we feel good about where our tenants are and that those statistics are really just a legacy of the COVID pandemic.
Got it. And just to clarify I mean it seems like with the overall coverage level of 3.2 times then that -- that there are others that are just doing really well. Is that fair?
Yeah. There's others that are doing really well and you also have significant investment activity being added to those statistics so -- and which is influenced by the selection of industries that we do but there are people that are doing very well and have emerged from the pandemic as really strong operators.
Got it. And then maybe just -- it looks like the line for interest income on loans and direct financing leases has been increasing and I think that's the result of the loan receivable portfolio growing, so just wondering if you could go through some of the details of that. And is it just a nuance of certain acquisitions and investments that makes them get classified a certain way versus regular NOI or is that interest income incremental to NOI?
That interest income is incremental to NOI. There are certain circumstances where we may invest loans. We loan against assets that we would otherwise want to own in our portfolio but for whatever reason seller motivation, tax concerns, or structuring reasons we can't get fee ownership. And we will make a loan and that loan tends to be a great investment for us and that it's -- at a loan-to-value that's less than our traditional sale-leaseback but at economics that are generally similar. And so the loan book has been a modest part of our investment activity. It should continue to be a modest part. But fortunately we've seen some good opportunities to make some loans over the past year and we've done that.
Got it. Okay, thanks.
Thank you.
Thank you. [Operator Instructions] Our next question comes from the line of John Massocca with Ladenburg. Please proceed with your question.
Good morning.
Hi John.
Maybe just going back to the two new additions to the top tenant list. I mean specifically with kind of Spare Time, can you maybe give a little color on the underwriting for that tenant? What got you comfortable with more bowling alley focused, family entertainment center and how they've bounced back given similar companies were hit pretty hard by the initial wave of the pandemic?
Sure. Listen John I think our underwriting for that individual tenant is going to be consistent with our underwriting for any tenant, which is taking a look at the corporate credit, taking a look at the operations, taking a look at the units, how they perform and valuing the real estate at a point that we think is fair. Spare Time was -- is a great tenant. It's a great company, a great family-owned company that we've been doing business with for a while, and have great comfort in their ability as an operator. And there the sites that we own and the sites that we invested in during the quarter have rebounded and are doing really well and really benefiting from some pent-up demand for people wanting to get out and be entertained and do things. And we like the family entertainment business and we think Spare Time is a great operator in that space.
You had maybe Spare Time assets in the portfolio pre-pandemic though is it -- that a fair assumption based on what you said?
I think I said that, yes.
And then with Harps, maybe just any color there, I guess, given just what's kind of the financial outlook for them kind of the financial backing for that tenant particularly given kind of the competitiveness of the grocery space?
Yes. So Harps is I believe like 112 unit regional grocer that is well capitalized with a strong balance sheet. And the sites we purchased are well-located sites with strong sales and strong profitability. And I know it's a competitive industry, but when you're doing a sale-leaseback you're buying sites that are existing and have long track records that we can underwrite and that was the case with the sites we bought with Harps.
Okay. Those questions I had that's been covered. So thanks very much for the time.
Thank you, John. Appreciate the questions.
Thank you. Our next question comes from the line of Chris Lucas with Capital One Securities. Please proceed with your question.
Hi, Pete. Hi, guys. Just following up on a couple of questions. Maybe if we could go back to the less than one-time unit level coverage. Pete I appreciate the sort of trailing 12-month issue. I guess if you looked at it on a annualized most recent quarter basis, do you guys have that number as to what it looks like less than one-time? Just kind of trying to figure out what the sort of current status really is.
Yes. We do and that's not a number we disclosed or not a number we're going to disclose. It's largely varied across industries, I gave some commentary on how those industries are performing. But as we said, we think that will trend back to a normalized level and it's not something concerning to us. And the fact that everyone's paying currently gives us good comfort that the sites are recovered and the tenants are committed to the sites that we own.
Okay. And then as it relates to sort of the transactions that you have completed kind of curious as to whether or not you have insight into what I would call the source of that? In other words, is it related to M&A that the tenant has gone through that is creating an opportunity? Or is it more just sort of their organic unit growth or legacy portfolio that they are disposing of and entering into sale-leasebacks? And how does that compare to sort of the pre-pandemic?
Yes. Yes. I would say both -- the organic growth tends not to be a big driver of investment activity for us. They tend to be one and two units over time. So the two sources of business for us are going to be M&A where an operator is buying a competitor or rolling up and that is a big driver of business for us.
The other is where an operator is harvesting assets on their balance sheet, harvesting doing sale-leaseback or real estate assets to meet another capital need. And I haven't broken down the source or the motivation, the seller motivation for the recent quarter activity. But I would say, it's probably skewed 60-40 towards M&A.
Okay. Thank you. That's all I have this morning.
Great. Thank you very much, Chris. Appreciate it.
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. Well we're really excited to report this quarter. It was a strong quarter for us and we have great momentum going into the third. So thank you all for your participation today and your questions. Have a great day. Thank you.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.