Q3 2019 Earnings Call

Greetings and welcome to Spirit Realty capital third quarter 2019 earnings call.

This time of day since your analyst only mode.

A brief question answer session will follow the formal presentation.

Anyone should require operate assistance during today's conference. Please press star zero from your telephone keypad.

Please note this conference is being recorded.

At this time I'll turn the conference over to peer referral senior Vice President strategic planning and Investor Relations.

Mr. If all you may now begin.

Thank you operator, and thank you everyone for joining us today.

Presenting on today's call will be President and Chief Executive Officer, Mr., Johnson, Chairman and Chief Financial Officer, Mr., Michael Hughes can highlight head of asset management will be available for Q.

Before we get started I would like to remind everyone that this presentation contains forward looking statements.

Although the company believes these forward looking statements are based upon reasonable assumptions.

Our subject to known and unknown risks and uncertainties. They can cause actual results to differ materially.

And those currently anticipated due to a number of doctors.

I refer you to the Safe Harbor statement in todays earnings release, and supplemental information as well that's I'm most recent filing with the FCC.

A detailed discussion of the risk factors relating to these forward looking statements.

This presentation also contain certain non-GAAP measures reconciliation of non-GAAP financial measures to most directly comparable GAAP measures are included in today's release and supplemental information furnished to the FCC under form 8-K.

Both todays earnings release and supplemental information are available on the Investor Relations page of the company's website.

For our prepared remarks, I'm now pleased to introduce Mr. Johnson <unk> Johnson.

Thanks, PR and good morning, everyone.

I'm happy to report that we are now 100% complete.

In our process is making spirit simplified triple net lease rate.

Well I can't believe I, just said that.

The third quarter SMC, a closed the previously announced $2.4 billion sale the properties in the Master Trust 2014 portfolio.

And three flying J centers previously owned by Spirit.

In conjunction with that transaction.

Spirit received 265 million in proceeds.

And I resigned as chairman and director of essence, yet.

And I can now at about 100% attention to spirit Realty.

So what's next.

With the removal of 770 properties under spared management.

I'm focused on harnessing the increased bandwidth across various departments within the spirit platform.

To be our operating acquisition and financial targets.

We have an exceptional battle tested team had a very scalable platform.

So we can utilize to grow shareholder value.

And we're already making good progress.

As I'm sure you've noted for earnings released this morning.

Increasing this years acquisition guidance to 1.1.

The 1.3 billion.

Along with increasing our earnings guidance.

[noise] This acquisition volume is not by accident.

Well, we completed our forward common stock issuance in May.

We did so knowing that several opportunities to deploy capital what present themselves.

And we needed to have the ability to execute on those situations officially.

I'm happy to say that by yearend.

The equity capital, we raised and the proceeds from the S&P a termination will be fully deployed.

And we'll enter 2020 with very low leverage.

Robust capacity, you're a letter of credit.

Mike will go into greater detail in his remarks on the capital markets activity, we completed in the third quarter.

But the takeaway is that we had an excellent quarter across all fronts.

Now onto a rundown of our third quarter operating results and key financial metrics.

[noise], we generated FFO per diluted share of 87 cents, excluding the impact of the S&P a termination fee.

We had strong operational performance on all fronts.

Portfolio occupancy of 99.6%.

Lost rent blow.

2%.

It was actually 16 basis points.

And 1.5% property costs leakage.

We grew same store sales by 1%.

Which was below our last quarter, primarily based upon the timing of rent bumps.

And we increased our weighted average lease term [noise].

So 99 to 9.9 years.

Now turning to capital allocation.

We acquire 69 properties totaling 270.6 million during the quarter.

And invested an additional 5.9 million in revenue producing capital.

With an initial cash yield of 6.84%.

And economic yield of 7.61%.

A weighted average lease term 13.7 years.

And average annual rent escalators of 1.7%.

The investment activity, representing a key attributes that we look for including publicly listed tenants that are aligned with our industry deal.

At least structures that provide higher organic rent growth.

Definitely categories acquired included Carwash facilities professional services dollar stores entertainment.

An auto service.

[noise] approximately 61%.

The total investment was derived from public tenants.

Represents a key real estate and their underlying business.

Split reps from service retail traditional retail and industrial other was 39%, 24% and 37%.

Respectively.

Our top 10 of our top 15 tenancy hasn't will continue to evolve as we execute our investment strategy.

Dollar tree family dollar has now increased to our fifth largest taught it from a red contribution prospectus.

The 32 units that we acquired are secured by three master leases.

Bank of America moved up to the 11.

Rental contribution.

We review office buildings, very selectively and we'd like the critical composition of business lines within this building.

The long term tenant history, and recent investment by DNA into building.

In addition, we'd like to real estate Submarket trade area demographics rent economics price per square foot of this asset.

And the numerous amenities roundness, three and half million square foot Submarket.

Such as a town center light rail strong school system.

During the quarter, we disposed of 67.7 million in occupied properties at a 6.05% cap rate and one vacant property.

The most notable sell transaction.

The three flying J used the H.P.T. for 55 million at a 5.7% cap rate.

We also sold at Red Lobster, Walgreens and tractor supply.

Now before I turn the call over to Mike I.

I want to remind everyone about our investor day that in New York City on December if that.

I'm excited to have you seen meat and here from a large number of our associates across many departments.

We'll be presenting.

As a result of our upcoming Investor day, we're not attending the name recessions in Los Angeles.

With that I'll turn it over to Mike Mike.

Thanks, Jackson good morning, everyone.

It was another exciting quarter for spirit again, Mark by capital markets activity in capital deployment.

Starting with the balance sheet on September nine we issued 300 million a 3.2% seven your senior unsecured notes due in 2027.

500 million of 3.4% tenure senior unsecured notes due in 2030 and use the proceeds to repay the amounts outstanding under our term loan facilities.

These offerings allowed us to take advantage of the low interest rate environment locking in a seven to 10 year treasury yield, a 1.565% and 1.6% to 7% respectively.

And utilize their improved credit spread which Titan another 20 basis points on the tenure since our June issuance.

These transactions also further simplified our balance sheet, removing all floating rate debt exposure outside of our revolving credit facility extending our weighted average debt maturities to 7.1 years.

Despite funny 277 million of acquisitions in revenue producing capital and repaying 26.4 million related party mortgages, we ended the quarter with an unprecedented amount of liquidity at spirit.

Liquidity was driven by the espenshade transaction and the settlement of all the remaining shares of common stock previously issued in may add or four contracts in anticipation of our fourth quarter acquisition activity.

I do want to point out there or leverage this quarter before times was positively impacted by the essence you. These dividends and interest income on MTV knows received through September 20.

Third quarter leverage excluding this income would be approximately 4.4 times in any of that our leverage is certainly low and we expect to move closer to our target range by yearend.

Now turning to the key operating metrics during the third quarter annualized contractual rent, which annualizes. The written place at quarter end, Rthirteen point 6 million compared to last quarter.

Fortunately 17.79 to the increase was attributable to acquisitions and contractual rent increases offset by a reduction of 4.1 million attributable to dispositions.

Reimbursed property cost or leakage is basically flat compared to last quarter at 1.5% and lost rent was effectively nonexistent.

There are few items I want to point out on the income statement as quarter DNA was again artificially elevated by share based awards issued by the essence <unk> Board of Trustees, Jasper CIS, Yeah, who isn't employee of spirit.

As our employee benefit from these awards in accordance with the accounting rules on share based payments recorded noncash asset management fee revenues of approximately 500000.

A corresponding offset the GNS.

Recording of this noncash transaction did not impact our net income or any of our non-GAAP earnings metrics and this arrangement will not reoccur in future quarters.

Finally, other income included a make whole payment of 900000 to the repayment of our Master Trust 2014 nodes in conjunction with essence, you sell the Master Trust.

As penalties for mortgage and lease terminations are considered ordinary course in our business. This pelosi is included in the F. <unk> per share excluding am termination fee net of tax.

Excluding the make whole payment, we reduce that CAC the f., though by approximately one cents per share.

Now turning to our guidance.

Our updated guidance is being presented relative to the previous guidance provided assuming the sale of essence Yeas Master Trust 2014 on September 20.

For the full year 2019, we're raising our projected F O per share range from $3 and 27 to 3031 cents $3 and 31 to $3.34.

Please note the fourth quarter. If a will include approximately 1.4 million in mortgage prepayment penalties, which will be reflected in other income the repayment of 23.8 million in mortgage receivables.

We're raising our projected capital deployment, comprising acquisitions revenue producing capital and redevelopment Rmbseven hundred 900 million to 1.1 to 1.3 billion, we're maintaining our asset dispositions range of 225 to 275 million, excluding the sale of the flying J C. H BJ.

And we're reducing our adjusted debt annualized adjusted EBITDA, Our E range from five to 5.4 times to 4.8 to 5.2 types.

With that I'll leave it up with all the questions.

Thank you at this time will be conducting a question answer session.

If you like to ask a question. Please press star one on your telephone keypad and a confirmation tell indicate your line is the question Q.

The press Star to feed later moving question from the Q.

Just because you think speaker equipment, maybe necessary to pick up per handset before pressing the star Keith.

One moment, please hold the poll for questions.

[laughter].

Thank you.

First question comes from the line of Greg Mcguinness with Scotia Bank. Please ask your question.

Good morning, everyone.

So Jackson, we got another quarter and they are another increased acquisition guidance and I think you mentioned some opportunities you are coming you cannot take advantage of could you talk about those opportunities a bit more and then should we expect a similar level of acquisitions next year, maybe just left the FMT related income.

Thanks, Thanks for the question Greg.

Look when we this year, there's there's been a number of.

Different portfolios on opportunities in the market this year and at the beginning of year, we suspected that would be the case.

What I can tell you about up.

The fourth quarter, because obviously, we took that equity down in the foreign contracts.

Is that the port yeah, the things that we have.

I'll call. It we're confident in closing in water confidentiality are very granular I'm. So if you sort of looked at the average size of investment this year year to date, just about three and half million dollars.

Property and I think you can sort of suspect that that's going to have the same relationship assuming we hit.

The lower to upper end of that guidance range. So in a place like 350 to 550 million of acquisitions in the fourth quarter.

As it relates to next year.

Yeah, we we haven't really obviously some of with guidance, yet and we will at some point in the future, but look we'll give the investment community in more detail now once we.

Sort of complete this year.

That's something maybe would get to here at the a investor day.

Well I mean Investor day, I personally I'd encourage you to really comes to many good about 20% of the spirit team is going to present, so you're going to get a full run down to how we do the business.

It might be some surprises there so you definitely ought to go.

All right well I'll be there and then Mike I just got real quick question for you I apologize if you've addressed this before but is there any plan for the 21 convertible any reason to take that went out early [laughter].

Oh, no plans today love to do it but I don't think it's going to be practical to get those out. Its just yeah. I don't think I can get the people, though to sell those back to me, but if you know anyone who wants to sell some let me now [laughter] alright, thanks, guys.

Thank you Greg.

Our next question that's from the line of Shivani sued with Deutsche Bank. Please proceed with your questions.

Hi, good morning, and we've seen some cap rate compression in terms of where you guys have been investing throughout the year. There can you just give us a sense of how much of that has been related.

Decline in the 10 year versus sort of your cost of capital improvement and what you're willing to buy at these levels.

Oh gosh, a little July yeah, I give it a shot I mean, we you know I think you've heard us in different meetings.

But seven cap kinda area, where we're sort of targeting could be a little bit below or above.

In the course of an acquisition in course of a year.

I'm going to think about acquisitions, just sort of hard to kind of stuff right. These things kind of don't necessarily come as predictable as well, but as we would like.

We obviously have a pretty high degree of.

Focus on property rankings and heat map and things like that so well tell you is that based on this calendar year.

No.

The cap rates have sort of trended more in just in the high six range, but you know we're still targeting that seven area.

And I don't think it's a function necessarily the market cap rates declining. It's just what we see that's available that makes sense for our heat map, but our strategy.

Well that's that so there's there's obviously a lot of things that were not pursuing and the things that we are pursuing just happened to be at a slightly lower cap rate, but I.

I do think that we're going said, we sort of have a target around 7%.

As an overall average cap rate that we're trying to acquire an eight in any given year.

That's really helpful. And then Mike you've been mentioned not that far far from a leverage perspective exiting the quarter sort of excluding that benefit.

[laughter] range. So just trying to get an idea. This thing you norm or how much of it. It's that's related to deploying that then 10 related liquidity.

Yeah. It's it's not than you know I think will migrate back to took I I look at the stabilize range of five to 5.4 time. So just the nature of the proceeds you brought in from essence yea. The equity we took down in the acquisition volume, we expect fourth quarter, we're going to end the year, a little lower than our target range. So you'd expect it would probably migrate back to that five to five.

Four times next year, which gives us a little bit of capacity going into the the 2020.

Okay. Thanks, so much.

Well thank you.

Our next question is from the line of Brian Hawthorne with RBC capital markets, Let's see if your question.

Hi, I'm can you break down the drivers of the increased investment volume by increased relationships improved cost to capital waiting until a larger opportunity set or higher close right.

Oh, that's a lot of questions.

Yeah.

Hi, good morning.

Okay, I think if you step back and look at spirit.

And again this calendar year.

Is there a cost of capital has dramatically improved as the calendar year has progressed.

Well, that's a function of a lot of different things up obviously good work here by the team.

But our cost of capital, it's not necessarily what's actually driving what we're acquiring I would say well. It's yeah, we have a very specific.

Keep that strategy. So for instance, we've talked a lot about why we like car washes high margin business, you know very fragmented you've got a handful of consolidators out there we love that business while anymore. So this quarter we did.

Two separate transactions, you know with different car wash shoppers.

You know it if I were to tell you I wish our acquisition volume was a little bit more straight line through the quarters.

But if you sort of think about where we started the year, where I know a cost of capital was it was like right. It was sort of like probably the mid sevens stock prices like 38, when we close last year, there are GE spread simply much wider than they are now.

So you know as we've migrated down it just kind of I'll call five area. Yeah sure. It gives us an opportunity to look at more things, but yeah. We still are focused on trying to maintain that spread relationship and we think that our sweet spots right around 7% could be a little bit below could be a little bit above on an annual run rate basis.

And and I think the last thing is if you look at our supplemental yeah. We close 22 transactions year to date, that's about seven this quarter.

You ought to be Asha it I've talked about this a lot you know we were actually just tweaking some things that will present in our Investor day, but you know we'd like to see that number get up to 14 to 20 transactions a quarter.

Yes, that's a little bit lumpy, but like I said, you know, we're still a little bit work in progress, we're not 100% there, but I'd I'd expect next year and 2020, you'd see a little bit more sort of smoother straight line hopefully acquisition activity as a as the year progresses.

Yes, but answered some of your stuff.

Yeah, Okay. So it sounds like the improved cost of capital like so far though has been like the primary driver, but the other than the other the relationships with a close rates are are working well forgot that ended well the relationships. We still are doing quite a bit whats relationships, but the thing is for us.

We really do take that heat map pretty seriously when we look at least industries that we invested.

And I think you've heard us talk that we want to do more with relationship driven acquisitions.

You know at Investor Day, we're going to talk a lot about that and a lot about how we're we're organizing ourselves internally to attack that so I think it will improve god I could see <unk> like it should be better, but given given where we are I'm pretty happy with what we bought how we've done so far and the direction what we're going.

Well into 2020.

I will comment on the cost of capital piece of it. If you go back the beginning of the our guidance was originally a 400 550 million of acquisitions and that was really driven by our cost of capital. It wasn't the opportunity that we saw available in the market is more to our ability to issue capital it reasonably priced and so as our cost capital did improve.

You see us issue quite a bit more capital and increase or acquisition guidance throughout the year.

So that has been certainly a driver hasn't changed the weighted average target cap rate there were going for Jackson's mentioned several times today, but it certainly has allowed us to.

To be more inquisitive and buy more assets that made more sense.

Got it thank you guys.

Thank you.

Our next question is from the line of handles and just with Mizuho. Please proceed with your question.

Hey, good morning.

Oh, I guess a question on the investment front, Jack I guess I'm curious.

Are there any portfolios that today out there that interest to you are you seeing more that make more sense given the improvement in your cost of capital in your leverage profile and is there anything embedded in the fourth quarter.

Acquisition guidance domain portfolio perspective.

Well.

Thanks, Gary Haendel.

Well just step back you know this earlier this entire year, we've looked at several different portfolios to be honest with you there there's been a number out there.

You know for a variety of different reasons.

You know year to date, we haven't been successful and either it's because of the nature of the properties or a ranking process or our view of value.

You know field value relative to our cost capital you all those things sort of factor in.

Like I said on the fourth quarter. We obviously are confident that we're going to do a significant amount which were set on doing but we don't want or they get to specific as to what it is by what I can't tell you is the end result of what we expect to do.

We'll be.

We'll be very granular and consistent with kind of our portfolio.

So if that's helpful. A that is that is and.

Perhaps this.

The question you may not be willing or wanting to answer, but I understand that H.P.T., who bought the SMTC Master Trust is actually looking to sell.

Some of those four assets I'm curious if theres a scenario that you may be interested in potentially buying back some of those assets or could be completely rolled out.

No. We usually don't we don't really like to comment on our acquisitions. We at this point so.

What was when we set as we're pretty confident about the fourth quarter, it's going to be pretty granular looked a lot of portfolios. This year and we'll continue to look at portfolios.

And then just wanted to follow up on the commentary about the off this asset the DNA.

Certainly sounds like that's an opportunity that you are increasingly attracted to so curious how much more activity, we could see on that front and perhaps what level exposure you might be willing to have to that type of asset in your portfolio.

No I appreciate the question.

First I guess just make sure everyone make sure you understand our office exposure right now.

Yeah. We have 37 buildings that are characterized in the office segment. If you look at our sub.

30 of those buildings are really medical service related ammo bees oncology centers.

They're not what we you and I would call. It office building. So the seven buildings that you and I would call office.

You know our are basically smaller.

Net lease up Triple net lease offices choice to an end user.

And as you know when we spun off essence yea, we did spin off assets like the stations Casino headquarters and some other headquarters building.

This this a b, they building, which which I've physically been physically been or most of the floors.

Walked around trade area, it's a great piece of real estate.

It's it's the best office building that we have in the portfolio.

The reason I like this one was 270 bucks a foot.

Its a super tight submarket and suburban.

In suburban Maryland, it's in the Valley area. So that's a that's a class a market with 33 buildings, it's got 6.8% vacancy.

Market rents are about 20 to 50, a foot you know we're in at 18 foot with our tenant.

There hasn't been any kind of spec building for 10 years in that market.

So it's very mature there's there's no land sites in that area available for development. So so our build a new spec building that the by an existing ones.

And the other thing I liked about it was trade area is outstanding so like the five year pop is like 90000.

Income is.

I'm sorry.

Five mile income is like 90000.

Got a super educated.

Workforce like 80, 80% of the people within five miles at this property have either advanced degree bachelors associate or some college.

And really if you look at them at the tenants in that area, it's mostly financial services and computer gaming industry.

So getting back to why this one makes a lot of sense for us its first of all its great to be it isn't there we have annual rent escalators north of 2% via they it's been in this facility for well. They originally was M. dnase headquarters building and won't be they acquired it.

So they basically did a sale lease back on this building back in 2008.

And.

They basically get another tenure early renewal that you're putting more money back into the properties.

And the thing that's unique about this is that it's got its a they do anti fraud.

And that kind of stuff in the building. So that's obviously pretty important for financial institutions.

And this is one of the redundant facilities that they have.

You know in the country. The other thing about it is.

They're putting in.

Merrill edge Merrill edge is going to add 600, new employees into the building.

The buildings already built out so it's pretty cool situation. So we like the fact that as Scott.

Pretty critical functions as it relates to anti fraud for be a day, it's got a growing.

Wealth management platform that they're putting in they've got like airplane leasing and other functions within b of a in that building.

Super tight market. So that's your loan when it question. We love. This building it's got great credits got all the things that match up for our property ranking and stuff.

Long term office is going to be about 5% about portfolio. So we're not.

We've looked at a lot office things and this is the one that kind of made a lot of sense for those reasons, there's a lot of others that likely wouldn't do it like we wouldn't do probably oh.

An office in a very high vacancy in suburban style market. This is very unique your last thing on that says.

You know right adjacent to this property is light rail you got a new town center, that's doing $150 million retail you know, it's got Great School system. So it's got a really it's a very unique asset and we thought when I walk that so we're done that's a good good deal for us and we got in a very good price.

That's great color. Thank you.

Thanks.

Next question is from the line of John Associate with Ladenburg Thalmann. Please proceed with your question [laughter] Good morning.

Good morning.

Just quick follow up the last question what percentage of your portfolio is his office. Today, then is it that that 5% level right now.

It's just about five and then what this it's I think it goes up like six.

And you know as we continue to grow the portfolio it'll get back to five.

And then maybe switching gears to well the other big acquisitions, a this quarter can you give us some color on how you sourced the family dollar transaction.

And what is the kind of remaining term on those properties.

Yeah, I think what packed a term meets its 10 plus years on the Sthree pools and.

This is actually just give a little more hair color on this these are these have CP VI bumps and they're in the master lease structure. So we kinda like that we'd like every other these these were in.

Yeah, So I would say that.

Yeah. This was unique because of the characteristics of the lease structure for us. That's what made it really interesting you know I don't looking to go into who we bought it from how we bought it but it was obviously bought it was not a direct.

Deal with a developer. This this was another existing institutional owner that old it.

Okay, and then maybe kind of more broadly speaking what partners are you finding the most kind of transaction opportunities with is it more through the sale leaseback market broker relationships or potentially even transactions with other Reits.

It's I'd tell you in today's market, it's it's all the above.

I think you'll hear longer term, we'd like to do a much higher percentage you know a business with our existing tenants.

But you know you can't really predict that that's not as predictable a deal flow were actually it is but it's it.

In terms of how we're trying to scale up.

Yeah, well sort of grow into that portion of the business, but like there's still a lot of broker deal flow, there's a lot of.

Other not just read says other institutions that are selling things we've been selling things as you know so it's a it's a pretty functional market I mean for us the key thing is.

Its got to be good real estate, it's got to have the right lease structure, it's got to be in the REIT industry Gotta score well our property ranking system.

You know that we're trying to improve the quality of our real estate.

Quality of our tendency and sort of improve on the annual rent bumps within our current structure and build out the Walt.

Understood and then one last kind of modeling detailed question.

Just what was kind of relatively the timing of the pull down of forward.

Yeah, we put we pulled that down right into the third quarter I guess is right at the end.

Yeah right yet okay perfect. Thank you very much that's for me welcome. Thanks.

Thank you if you like to ask questions today, We press star one from your telephone keypad. The next question is from Atlanta, Rob Stevenson with Janney Montgomery Scott. Please proceed with your question.

Good morning, guys. Jack said appreciate the color on your thoughts on office. How are you guys thinking about industrial these days seems like it's hard to buying expand that segment, given where pricing is do you take advantage of how hot that market is in cell and redeploy into other higher yielding assets opportunistically over the next few years How's that factory.

And your thoughts.

We are well good morning, well, we do like industrial and distribution. Yeah, Obviously, we did a transactional party city last quarter.

You know we're out we're out carnitas trying to see industrial opportunities I mean.

No you're not going to see us pursue what I'll call flex industrial with five year.

Average lease maturities, that's not or multi tenant industrial that's really not well we do.

But you know things that have criticality Churchill accompanying the credit that we like that Scott.

Good real estate characteristics, I mean would definitely.

We're definitely looking a lot of those opportunities right now.

Hard to line up it's got to be the right pricing and your comment on pricing is like if you're looking at Amazon facility. Those are those are probably little bit of our reach right now, but there is a there was a good opportunity set out there for industrial with a double b equivalent kinds of credit.

With good rent bumps good structure.

For us you.

You know we've looked at a lot it's got to be.

You know, it's got to be or the counterparty, where we think.

No. They can be competitor from ecommerce standpoint, you feel you talked a lot about our heat map. So I would say, there's a lot of things that we passed on but there are lot of things we pursued cop short a couple of times, but we believe that's an area that we're going to continue to get after to try to grow into.

Okay, and then you know conceptually these days when you think about the future how important is it a you know in terms of when you add tenants that a mix of those be investment grade I mean, the origins of this company was not was not investment grade, but then through coal and somebody other transactions over the years you've had more.

For a now post S.M.T.A. you have a decent amount of of of investment grade kind of how important and how do you guys think about that in terms of you know the tenant mix and acquisitions going forward.

No I'd say that the the more important criteria that we're looking at these days.

Actual I GE is about 24% today, you know what our shadow rated.

Tenants or Moody's equivalent or spot another 17% so were about 41% investment grade but.

The thing that we're really a little bit more focused on these days right. Now is that we've got a higher degree of interest I'm looking at public tenants.

So they don't necessarily have to be investment grade.

And I think that.

So if you look at sort of like single B double B equivalent.

Public tenants. So like you know party city falls that bucket and there are a lot of others.

But a lot of these are maybe smaller cap double bees.

You know they've got access to capital, but you know I find that we're able to get sort of better lease structures you.

Able to buy their real critical real estate I think thats, because there's more of an opportunity there.

You know any investment grade land.

For dealing with a strong triple b.

Oh, we're just not going to get the lease term that and the lease structures that were looking for.

I'm not to say, we wouldn't do those and I think the pricing dynamic gets to be a little bit more aggressive so.

No I wouldn't say that we have a outright hey, we want to take investment grade.

Up to 50% that's really not what we're trying to do what were it and what we're trying to do right now is it slightly shift the weight towards more public Tennessee for now as we continue to go up there's obviously a lot of private equity and private operators that we still deal what as well, but probably what you're not going to see us do as much which is.

Maybe what old Spirit did you know, we're not going to do the water to operator, one to Threed, one a tenant 10 unit operator tons of deals anymore.

That's something that probably that doesn't really make sense for us. So we're trying to drive to a more.

Institutional oriented counterparty that doesn't actually I have to be investment grade and then the other thing is what the privates.

You have some private.

Operating companies franchisees that Canada, they're better than vessel, great better systems better.

Just better coverage stickier. So you know what gets you there we're not going to foreclose those out either.

Okay, and then a couple of quick question a numbers question any significant skewing add to the timing a third quarter acquisitions front or back end loaded.

Yeah, I think most the acquisition [laughter] backend loaded and that's really baked into our assumption in the fourth quarter now, we'll see how that plays out but it seems like throughout this year. Most of the average had been back end loaded I don't understand yet the game theory behind why that is people seem to get more focus as a quarter come soon in on all all.

Side, but that seems have been the case throughout the year certainly was a case for the third quarter and we expect to be the case for the fourth quarter as well.

Okay, and then lastly, when you adjust for all the various footnoted adjustments for S&P, a tax expense et cetera. What is the 331 to 334 F. a guidance, implying as the range for fourth quarter.

It's about 74 cents.

At the midpoint.

Yep.

Sure Okay that black.

Thanks, guys appreciate it.

Sure.

Thank you at this time I'll turn the floor back to management for closing remarks.

Thank you.

Well. Thank you all for joining our call. This morning, as you can see where we're off and running and I hope you'll attend our Investor day event in New York City on December five a promising it'll be worth your while and we appreciate your interest and support.

Thank you.

Thank you. This will conclude today's conference you may disconnect your lines insight. Thank you for your participation.