Q4 2019 Earnings Call

Greetings and welcome to the Spirit Realty capital fourth quarter 2019 earnings Conference call. At this time, all participants are gonna listen only mode. It question answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host PR, We've all senior Vice President of strategic planning and Investor Relations. Thank you you may begin.

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

Presenting on today's call will be question <unk>, Chief Executive Officer, Mr. Jackson shape.

She financial Officer, Mr., Michael Hughes, Hi, Mike had an asset management will be available QNX.

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

The company believes these forward looking statements are based upon reasonable assumptions they are subject to known and unknown risks and uncertainties that can cause actual results could differ materially does currently anticipated due to a number of doctors.

I'd refer you to the Safe Harbor statement in todays earnings release and supplemental information as was our most recent filing with the FCC [laughter] right detailed discussion at the risk factors related to the sports can 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.

Actually FCC under form 8-K.

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

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

Thanks, Pierre and good morning, everyone.

2019 was a phenomenal year for spirit.

Our shareholders in terms of operating and financial results.

We capped off three years or tireless effort by our entire team on board.

With substantial improvements to our operations.

Portfolio leadership balance sheet.

And technology.

These changes resulted in spirit, becoming a simplified triple net REIT.

That can generate predictable earnings and dividend growth.

You'll note in our earnings release that we're increasing our previously stated 2020 full year and football per share guidance.

Which Mike will lay out in his remarks.

As we look forward into 2020, we have a solid pipeline of acquisition opportunities.

We're seeing positive momentum from the changes we made sure acquisition process.

But the collaboration between our acquisition and asset management teams.

I'm grateful that we weren't able to provide investors with a comprehensive view up our team and our business approach.

At our Investor Day event this past December.

We're utilizing the systems tools and processes.

Yeah, we presented on a daily basis.

Enabling us to consistently produce solid operating and financial results.

Other notable accomplishments and 29 chain.

We're investments of 1.34 billion in real estate assets.

Yeah, we're aligned with our views on industry.

Credit and real estate underwriting.

Our successful returned to the capital markets.

I think over $700 million in common equity and 1.2 billion.

Unsecured bonds.

Receiving credit upgrades from both S&P and Fitch to Triple B.

And delivering total shareholder returns a 48%.

As a result of our success over the last three years.

Spirit.

As a favorable cost of capital, which makes us competitive at a much larger pool of potential acquisitions.

With our current team and platform, we are well positioned to achieve our strategic and operating goals for 2020 and beyond.

<unk>.

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

We generated.

FFO per diluted share.

Of 76 cents and ended the quarter with annualized contractual rents a 461 million.

We had strong operational performance on all fronts.

With portfolio occupancy of 99.7%.

Lost rent of 0.3%.

And 1.4% property cost leakage.

Which is a reflection of our active asset management and portfolio quality.

Our adjusted debt to annualized adjusted EBITDA Ari was 4.9 times.

Our public tenant exposure was 49% and our weighted average lease term was 9.8 years.

Our systems operations refine processes and people give us keen insights into our tenants.

The financial health.

Operating performance and the industry dynamics.

We're seeing the benefit of consistently ranking evaluating and monitoring their real estate markets credit fundamentals and trade areas that underpin. The 1700 52 properties that we are.

All of this critical data is accessible through our technology platform.

Shapes, our capital allocation decisions.

Turning to capital allocation.

We acquired 139 properties totaling 574.8 million.

And invested an additional 14.8 million in revenue producing capital.

With an initial cash yield of 7.55%.

An economic yield of 8.18%.

Average annual rent escalators of 1.8%.

The investment activity represented key tenant attributes that we are looking for.

Including.

Publicly listed tenants.

Existing relationships favorable industries.

Solid lease structures and organic rent growth.

The acquisitions this quarter represented 18 different industries and were accretive to our property rankings.

Approximately 39.4% of a total investment was derived from public issuers.

At our properties represent key real estate for their underlying businesses.

Our top 20 tenancy remains very diversified.

With our largest tenant only accounting for 2.9% of our contractual rents.

Since last quarter, our top 20 tenant exposure fell by 160 basis points.

[laughter], 36.9%.

And our top 10 exposure fell by 170 basis points.

To 22.2% contractual Rex.

The percentage of our tenants with flat rents fell by 200 basis points to 11.2% about contractual rents.

Our top 20 tenancy, we'll continue to evolve as we execute our investment disposition strategy.

And in the fourth quarter Carmax was a new addition to our top 20.

During the quarter, we disposed to four occupied and seven vacant properties totaling 23.8 million.

The occupied properties were sold at an 8.73% cap rate.

Over 60% of the gross disposition proceeds were related to the sale of a shopping center in broad view, Illinois.

This shopping center had approximately 12.4% leakage on the in place rents.

There was some pay can see.

And we were able to carve out the retained retain the home depot than anchored the center.

This is a great example of the targeted dispositions we spoke about.

And we initially set our 2019 disposition guidance.

The gravy on this disposition is that both enhances our portfolio, while keeping a target tenet like home depot.

Before I pass it off to Mike I want to reiterate what we're solving for here at spirit.

It's predictable earnings and dividend growth with a competitive cost of capital.

We have a very high quality portfolio.

To find and disciplined investment strategy.

A fortress balance sheet.

Strong operating systems.

And outstanding people that are working together to achieve this goal for our shareholders.

With that I'll turn it over to Mike.

<unk>.

Thanks, Jack and good morning.

I speak for everyone to spirit, when I say that we're very pleased with the quarter in a strong finish the year.

Hope that all you listening today had the opportunity to attend our Investor Day in New York, We did a deep dive into our processes are underwriting technology and people. If you missed it sure not the entire five our webcast is still available under the Investor Relations tab of our website [noise].

Starting with the balance sheet, we ended the year with leverage which we defined as adjusted debt to annualized adjusted EBITDA are you a 4.9 times.

The low end of our guidance range.

During the fourth quarter, we did issue 2.7 million shares of common stock under our ATM program for gross proceeds of 140.6 million, which allowed us to maintain low leverage despite robust acquisition activity.

In December we repaid one CMBS mortgage with a loan balance of 42.4 million.

The loan Curian interest rate of 4.67% and it was scheduled to mature in September of 2022.

As a result of the repayment, we unencumbered 12 properties with the gross book value of 80 million and recognized debt extinguishment costs of 2.8 million.

At year end, 90% of our debt and 93% of our rents were unsecured.

In addition, we maintained $698 million liquidity, consisting of cash and availability under our revolving line of credit.

Now turning to the piano.

Reported fourth quarter as FFO per share of 70 success and full year EPS FFO per share of $3.34. Both at the high end of our guidance range.

Annualized contractual rent should annualize the contractual rent in place at quarter end grew 39.8 million compared to last quarter.

Actually $43.8 million of the increase was attributable to acquisitions and contractual rent increases offset by a reduction of 3 million attributable to dispositions and 1 million to vacancies.

The Jackson mention operations are running very smoothly with high occupancy minimal lost rent and low leakage as our portfolio continues to experience very minimal tenant disruption.

Our financial statements were fairly straight forward this quarter I do want to provide some color around a couple items on the income statement.

First we recognize 11.7 million loss on the sale of a Multitenant power center, which warrants a little explanation.

And that asset was acquired the purchase price was allocated equally across the square footage and land acreage of the entire property.

Ever when we sold the property, we carved out and retain the anchor tenant which is Jackson mentioned was home depot.

Since the actual market value the anchor tenant was far greater than the residual value of the remaining power center, but the book value was spread equally across the asset the sale resulted in a book loss I point. This out because this is a case, where the book loss was not representative of an actual loss of economic value.

And second we recognize an income tax gain during the fourth quarter of 229000, which was also a bit unusual.

Again, it was a result, a reduction in taxable income for taxable losses incurred during the fourth quarter, which related to the income tax expense of 11.2 million recognized during the third quarter. Following the $48.2 million management termination fee payment rest of Jay to Src.

Generally we're only subject to state local tax which on a normalized run rate basis should equate to approximately 200000 per quarter. So please keep in mind for your models going forward.

Now I spend as a few minutes highlighting some of the changes to our disclosure materials that we rolled out this morning.

These changes were implemented to address shareholder feedback improve the presentation of key metrics and remove duplicative information.

As you hopefully had the chance to see this morning. The earnings release has been significantly streamlined our removing year to date references financial results portfolio and balance sheet highlights and other information as you look at of with the information now provided in our earnings supplemental.

The streamlining will save time and cost based on shareholders feedback that they would rather see all important information consolidated into the earnings supplemental.

Our earnings supplemental received the major overall this quarter with a refresh look in improved layout.

So important additions to note and our new supplemental are the addition of an earnings how as page an overview of GE portfolio operational and balance sheet metrics.

The disclosure of lost rent and leakage, which we feel our important metrics.

A reconciliation to net operating income.

The breakdown of the current quarters acquisitions by industry as well as or average annual rent escalations.

Our property count by state.

The breakdown of our portfolio by real estate value square footage in annualized rent.

Expanded credit metrics disclosures, new portfolio breakdown disclosure by asset type in industry.

And the new organic rent growth disclosure that shows our average rent escalations for our entire portfolio over the next 12 months.

There are couple importance attractions to note as well.

First we are now disclosing only our top 20 tenants in our earnings supplemental.

Given the competitive environment that we operate and we feel that continuing to disclose our top 100 to concepts every quarter puts us at a competitive disadvantage would be severe public peers and private competitors, all who are seeking new tenants everyday.

Keep in mind that we will still disclose all of our concepts annually and the schedule three included in our 10-K.

Second we removed our disclosure of same store rent growth.

Our much thought in deliberation, we concluded that the same store metrics was not meaningful for several reasons.

It would backward looking.

Captured less than 80% of our contractual rent.

You had to pass before newly acquired leases could be added to the metric.

And did not provide insights into portfolios health.

Same store rent growth has been replaced by the aforementioned disclosure forward 12 month lease escalations, which captures a 100% of our leases at each reporting period and provides investors with a forward looking growth rate that is actually relevant for their forecast.

Regardless of the portfolio health as we have mentioned many times our management team focuses on loss Red simply put lost rent is the difference between what we are owed by tenants and what is pad, which we believe is the ultimate lead indicator of tenant issues.

As mentioned before we added that disclosure to our supplemental package, we hope you'll find all these changes useful.

Now turning to guidance due to the steady operations, we are experiencing across our portfolio and the stability in our tenant base. We are updating our full year EPS FFO per share guidance previously provided in December.

We're raising our projected f. FFO per share range from $3 and 12 to $3.17.

Up to $3 in 14 to $3 in 18 cents.

All of their guidance ranges remain unchanged with capital deployment, comprising acquisitions revenue producing capital and Redevelopments from 700 to 900 million.

Dispositions from 100 250 million and leverage from five to 5.4 times.

One other item I want to point after models relates to interest income for this year.

I mentioned on our last earnings call and at Investor Day, We anticipate receiving an early mortgage repayment from a borrower during the fourth quarter.

Our ultimately wrote their prepayment notice in the early mortgage repayments did not occur. Therefore, we ended the year with 34.5 million in mortgage receivables.

Over all remaining mortgage receivables are scheduled to mature this year, which will result in less interest income compared to fourth quarter 2019 run rate.

The largest mortgage receivable balance of 23.7 million matures in the third quarter with the remaining mortgages maturing in the fourth quarter.

Just under 1 million of interest income was forecasted in our guidance for 2020.

And finally I want to provide some color regarding our thinking around our common dividend for this year.

While we feel our dividend is well covered and very sustainable overtime, we would like to migrate towards more conservative AFFO payout ratio of 75%.

We believe will better position the company for long term growth and better total returns for our shareholders.

We intend to reach this payout ratio through earnings growth. Therefore, I would anticipate keeping our common dividend payment as current annualized rate of $2.50 per common share the intermediate term.

As always our ultimate common dividend payment will be determined by our board of directors.

With that I'll open the call for questions.

Thank you the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad.

Information Tom will indicate your line is in the question Q you May press Star too if you would like to remove your question from the Q.

For participants using speaker equipment and may be necessary to pick up your handset before pressing the star Keith.

We do ask that you. Please limit yourself to one question and one follow up and then you may recall for any additional questions. Once again that is star one to register a question at this time.

Our first question is coming from Greg Maginnis have Scotia Bank. Please go ahead.

Hey, good morning.

Morning, guys to clarify one of your opening comments. So it sounds like a AFFO per share guidance was raised due to less than expected tenant fallout am I interpreting.

That comment correctly.

Yes, if you remember back on Investor day kind of walk through reserves that we put in place within our guidance just to account for things that happen and.

We're seeing better stability in our 10 base than our reserves within our guidance. So its things there is going well and so as a result, we took up our guidance based on really good operations.

Okay. Thanks, and then Jackson you mentioned that top 20 tenants is going to continue to evolve what should we expect that evolution to look like is that just a shift towards more of the public tenants the being double B rated companies that you had mentioned at the Investor day or is this kind of a different type or size of assets.

And so there would be project.

Yes. Good morning, thanks, not it's more or less the same as we talked about at the Investor day.

We're our top 20 tenants as you know.

Our pretty tight relative to percentage difference between our number one tenant number 20.

At a very close together.

What I would tell you as some of the things that were sort of focused on right now obviously, our industrial assets QSR grocery home improvement dollar stores ODL service warehouse clubs education and auto parts. So we're seeking those.

Currently.

We're not going to shy away from C stores, or healthcare health health and fitness or casual dining as well but.

That's just generally kind of what we're going to focus on public tenants in those categories within our heat about that we're focused on and we feel like there's adequate.

Opportunity on the market right now, but but I do expect some shifting in our top 20 as we continue to the year.

And that's going to be just based on additional act and based on acquisitions not on dispositions.

Yes, probably more more definitely more on acquisitions, there might be some slight we're always looking to try to improve the portfolio and so will we get an opportunity.

Yes, we have very liquid portfolio ins granular so what we see an opportunity to move in asset out that we think doesn't really rank well within a master lease or opportunity like that or we do a blend and extend.

We'll try to monetize out because the markets, obviously very liquid right now in terms of buying and selling at the moment.

Alright, thank you.

Thanks, Rick.

Thank you. Our next question is coming from Haendel St. Juste of Mizuho. Please go ahead.

Hey, good morning.

Good morning.

So I was hoping you guys could talk a bit more about some of the investment opportunities that you are looking at that aligned with your heat map you improved cost of capital I guess more intrigued about the recent outparcel deal with.

Washington, Prime curious you could comment around that how intense the bidding process was the inclined do more of these types of deals and maybe some commentary on the split between.

Ground and fee simple.

But.

Interspersed in that can you comment overall on the acquisition marketplace as well thanks.

Sure Hey, good morning.

Look the Washington Prime deal to balance sheet is this is relatively small transaction.

No and we're in the kind of legal documentation due diligence portion of it at this point.

I wouldn't call that like.

Bright yellow new strategy for us it's just in the normal course.

We're talking with.

Owners of property, we're talking with tenants and.

Opportunities like that we'll continue to evolve as we rollout our acquisition program.

But.

We're looking for.

Pretty consistent as I mentioned on the previous question you highlighted some of the real priority industries that we're looking at that I just mentioned and.

Other things that Jim Mitchell, we still like Carwash, we still like auto dealers.

Beyond that we're not afraid of home decor and furnishing, it's a very small portion of our portfolio, where we like what we own we're not going up.

Increasing dramatically, but we're sort of set up right now have Delaware.

You look at our.

[music].

Kind of tenant exposure and just.

Proportion of.

Contribution from our top 20 tenants, we just have a lot of ability to sort of move.

Trump.

Influenced the portfolio if you look at what we've done in the last year.

We reshaped about 30% of our portfolio. We bought 1.3 billion of assets sold 260 million. So for US we can dramatically change in shape. This portfolio. That's one of the opportunities I think thats exciting for us good cost of capital not too small not too big and yet like kind of.

During the business like like we did last year, we can have a meaningful and influence on the shape of this portfolio.

So I would expect if we can do 20% to 30% reshaping is we're going through over the next few years. This is going to be a pretty exciting portfolio and balance sheet going forward.

I appreciate that and maybe.

Maybe a bit more on what you're looking at today, just curious how the range. The the sizing of the opportunity compares to maybe.

Year ago, and do you have anything under under contract in discussion LOI that you're willing to disappear.

Well on the Aloe I'd now [laughter].

We talked a little bit of how washing apply maisel, we'll just leave at that but I mean look if you if you kind of think about.

This past year I was kind of chuckling with the team last year on this call. We mentioned, we mentioned SMC a 26 times on her prepared remarks, and the other S. company was shopko, which file bankruptcy right around January of this year earlier last year.

So.

When you think about our cost of capital back in January last year was around 7% today, it's just under sub 5%.

So our opportunity bandwidth of what we can look at from a cap rate range has widened dramatically and so we're kind of diligently kind of going through those opportunities right now.

That's the thing that's most interesting I think for our platform, where we're trying to match up.

Simply said, we're trying to buy assets, where the tenants can pay rent to the entire term and at the end of the terms.

Be able to release it at a comparable rent either the guide.

Extensive.

Renewal option or we can find a new tenant so sort of a simple idea, but industries matter credit matters find good real estate matters all those things.

So I would just describe it with our cost of capital improving.

Our.

Menu of things that we can look at as much wider and so we're still being diligent and careful and all the normal things that.

That we should running a company like this.

Got it got and if I could Michael can you follow up clarify the comments on the dividend.

Is it your intent to lock in the payout at a fixed 75% of FFO or you just giving a guide is what you want to get that pale payout ratio to on a longer term basis.

Yes, no I'm not trying to be ridge and format a lock step policy, but as my philosophy is it's a similar philosophy that taking the balance sheet, so little bit more conservative.

Thanks, Bruce spent the past is just you migrate towards that 75% payout ratio. So we have enough recapture that create a lot of organic growth, which I think.

Would create a lot of long term total return for our shareholders. There were a little high now we're just above 80.

I think as we get through this year will definitely mired down the 70, so I don't think it'll take us to on to get to that point, but it's more of a it's more of a philosophy to get to 75% range and then from there. We can we can work around that range and the dividend will go up over time more in lockstep with earnings growth in that point I won't be perfect but.

Definitely stay right around that number once we hit it.

Got it got it thank you for that.

Yep.

Thank you. Our next question is coming from 70 suit of Deutsche Bank. Please go ahead.

Hey, good morning.

Handhelds question slightly different way can you give us some color on the cadence we should expect throughout the year from.

Position or does that timing perspective.

Yes, I mean, we don't give quarterly guidance.

You know for acquisitions, Shivani, but what I will tell you is.

In the fourth quarter I think we closed eight transactions.

Our medium term goals are to try to get that numbers somewhere between 15 to 20 transactions closed per quarter.

I believe this quarter will have more than a transaction I can say that that will close.

Pretty confident about that.

No I mean, where it's hard to.

We were pretty specific about what we want and so it's really hard to try to say hey, we want to buy X amount per quarter, because we really don't Wanna get forced into buying things.

That's one thing I would say idea.

The other thing is we obviously.

I want to do more business with our existing tenants.

If you remember from our.

Investor Day, one of the things that we really want to do is further integrate that asset management and acquisition platform trying to really utilize our our large tenant base, where there is really good opportunity because that creates a better predictable pipeline.

Let's say the other thing that we're doing.

Is once again, just just trying to pick our spots like if we think.

Theres an opportunity that's going to have like 10, better. So I mean, thats, probably we're not going to spend time, there we're trying to be more selective in terms of what we want to buy.

How we want to spend our time, we're not just going to go pay the most or over market because we've got attractive cost capital there just so thats.

Okay, Great way to answer the question, but thats.

We don't really sort of trying to fill it straight line across the year.

Fair enough.

And then just the recapture rate for the or can you shed.

Yes, Sean is can we ended 2019, a shade under 100% on they came in at 98%.

Thanks, so much.

Thank you.

Thank you. Our next question is coming from Brian Hawthorne of RBC capital markets. Please go ahead.

Hi, good morning, guys.

Can you talk about your expectations for broker versus relationship deals this year.

No.

We will we'd love to categorically do more relationship deals but.

Part of it is sometimes relationship tenants don't need money.

Yep.

So I think that's an aspirational idea that we want to try to develop and.

It's hard to put a predictor on what it is I mean put it this way.

I would rather do a broker transaction thats a good piece of real estate in the REIT industry versus a relationship deal that's over rented and not in the REIT industry remain so.

So I would say of our.

290 tenants, we don't want to do repeat business with all of them.

Just not that we'd all like all the but some we have higher priority and because of where they said.

Kind of in our industry map and just generally what's going on with those tenants.

But I would say overall all the work that we're doing with.

Operationally in terms of working.

Collectively with our asset management team then acquisition team together is to attack that ability to do more relationship business, it's clearly better more predictable.

But it's hard I can put a hard and fast percentage I think one quarter it could be really high the next quarter could be low really.

Like I said, we're pretty diligent on the types of things that we're trying to buy.

Well I would say relationship is also really important.

Sure Okay.

And then how comfortable are you with your movie theater assets and do you have the unit level coverage for them.

We do I mean, I'd say on overall most of our movie Theater, Let me just to answer the question. So we like the dining concepts and as you know as part of the spin off.

We were able to move a lot of what I'd call Big box movie theaters.

How did the portfolio a lot of the car mikes.

We did acquire.

A regional portfolio as part of the SBC transaction in the fourth quarter.

It's a private operator and so.

Generally I would say that our sweet spot is dine in type concepts.

We're not really looking at Mega plexus anymore at this point.

The big operators.

I would say that in that movie theatre portfolio that we bought with SBC, we price that appropriately for what it is I mean, I don't think we would normally go buying things like that but as part of a portfolio, we understood and we're willing to.

Tobias we thought we got it at attractive price, but I would say yeah, we'd get a good balance of unit coverage and things like that in our portfolio, but we.

We don't have as you know a lot of movie theaters relative to.

Some of our where we were before terms just overall rent contribution.

Got it okay. Thank you for taking my questions. One other thing just one last thing on that just as a follow up too on the regionals. You know there is some of the antitrust laws are changing in the movie industry that we're past.

Historically, so one of the things that we you might see going forward in the future as possibly more consolidation of regional operators by the big free because there's been some antitrust changes relative to.

So the movie distribution laws and things of that so that there could be also hopefully it maybe a potential tenant upgrading some of our regional operators.

Would you look to acquire more movie theaters them in that scenario I think it.

Well I think we are looking at movie theaters, but the type. We are doing are kind of more of the studio will be grow type, where it's really experiential dining and.

We think that it's really important.

To have that dining experience.

We also like those.

Thats a venue is because they tend to be smaller.

They can rental space out for corporate use yes, there was kind of Theyre just different then sort of these large mega plexus.

In terms of.

Different types of use and different profitability.

Margins in those in those units.

Yes, okay. Thank you. Thank you for taking the time.

Thank you.

Once again, ladies and gentlemen that is star one to register a question at this time. Our next question is coming from Adam Kubacki of Morgan Stanley. Please go ahead.

Hey, guys. Thanks for taking the question just given some of the recent headlines about art van just kind of wanted to see if you could talk a little bit more about your thoughts on the furniture space and if you've seen any changes in in unit level coverage and with the at home.

Yes, okay. So.

First of all on on some big what has a big question, but.

On furnishing and decor were just under 5% in terms of.

Exposure from a contractual rent standpoint.

We actually like the business.

As it relates to kind of difference the way, we see it between home furnishing zinc home furnishings and decor.

The core for US is interesting because that's lower rent per square foot generally in the boxes.

They've got generally tend ex the skews in home decor versus like furniture.

Like for instance, like at home the average basket.

It's about 65 bucks versus in the home furnishing unit is about.

1300 Bucks.

And they generally in home decor units they operated at two X. The the margins then furnishing. So those are all kind of good. Thanks.

In our home decor bucket at home generates about 85% of our total rent we still like at home we think.

We'd like to real estate they operate in.

We've got 12 units there they are into master leases with three single site properties.

So we're we're very comfortable with the rent per square foot and what they're doing.

I would say on the art fan question, we only own one of those units and it's a legacy asset that was part of the call acquisition.

The art fan is attached to a shopping center in one of our for power centers that we own so and the end the ran as you know.

Less than 600000, so were generally pretty comfortable.

We havent bought broadband.

So thats not the and one of the reasons like I said, we like home furnishings, and we'd like home decor. It shifts that you look at sort of what we own and those units in furnishings, it's big Sandy, which we picked up in the SBC transaction, which is a.

Regional operator, its privately owned very high coverage.

Ray more lazy boy, and Ashley and they're pretty Thats pretty yes, but generally equal contribution terms rent so.

We.

Got a lot RPM, but we do like home furnishing and decor and we'll continue to selected to look at it.

One other thing I would say is.

Within that portfolio of home furnishing and to core we only have two PE backed on companies in the portfolio.

One of them is all.

Obviously, the art band one unit and then we have another operator, that's PE backed in the home decor side. So.

We sort of like our exposure at this point.

We see opportunities, we'll we'll be very selective about it.

Got it Thats really helpful. And then just one more where there any sort of onetime acquisitions or any things that move the needle as far as the the initial yields on the acquisitions this quarter that seem to jump up a bit.

I mean really it's the it's that portfolio that we bought that made a big difference.

Like I said, we I.

If you were at the Investor day.

We're very excited about that transaction, we thought we.

The seller needed.

Got it had an objective to close before year end.

We were able to pick up.

Tremendous amount of QSR and casual dining units that we knew really well and one of the cost of doing business was we had to pick up a movie theatre portfolio, which we talked about the last question, but overall.

I want to drove a lot of the obviously the activity in the fourth quarter, but I think you'll see more sort of.

I'll call it normal size transactions going forward, and which are alkone that somewhere in the circa 10 $20 million range.

Got it thank you.

Yes.

Thank you. Our next question is coming from John Macosko of Ladenburg Thalmann. Please go ahead.

Good morning.

Morning, So as you think about netted I think about the acquisition volume outside of the SPC transaction, I mean, what kind of where the big tenant.

Industry thrusts there.

I mean, we focused we did obviously we bought the at home portfolio last year, we bought some restaurant portfolios carwash portfolios with but distribution assets.

They were they are pretty diversified if you think about it outside of.

The SBC transaction.

And as I kind of laid out to you.

Our real focus point. This year is I talked about our I'll call by Green category, which is laid out earlier question things like QSR grocery home improvement dollar stores.

No service warehouses warehouse clubs, we've got more bandwidth and interest in those areas.

So.

I would think that based on what I said on that earlier question, yes, we're going to try to fill those buckets, but once again, we want to make sure that credits right real estates. Good granular liquid. So so those would be the principal things that we'll look at.

Okay, and then it looked like the Carmax additional carmax assets came from SBC, but.

One other place smaller tenant that you saw kind of move up a couple of ranks in.

Total exposure was was GPM I mean, how did you source that transaction.

Hey, John This is Ken that was that the movement of GPM up was actually a result of us putting agent assigning an existing CNG lease with a different tenants over to GPM.

We felt like it made a lot of says we.

That greatly increased the strength of our tenant for those properties. So that technically wasn't I wouldn't call. It an acquisition it was more in existing tenant that assign their lease to GPM.

Okay that makes sense and then.

Touching on another industry that's been in the news recently.

From a tenant credit perspective, what is your long term view on franchise restaurants and has that changed at all given some of the recent struggles in that space.

Well I mean.

Look.

We like restaurants, and what's critical about restaurants is get the right tenant get the right credit get the right real estate get the right rent per square foot.

In the SBC transaction, we picked up.

78 restaurants.

What I can tell you is that today, we don't have any crystal Burger in the portfolio. We don't have any granite city brewery, we don't have any American blue ribbon, we don't have any SD holdings Sonic.

We don't have any MPC.

And we have no pizza huts.

In the portfolio. So I mean look our restaurants or are we like that but you've got to be getting really selective on who the operator is.

Last year, we did a.

Transaction up and up in the Salt Lake area.

With a portfolio Lucy was it was one of the it was the Chuck Rama portfolio.

Those guys, where they're at with Trident They were at our Investor Day, we're looking for.

Quality niches on operators in and balance sheets, and real estate that kind of fit that.

Parameter. So we'll so we'll continue to look for those but youre, we'll have to be will want to be really selective we've got.

Look very nice portfolio of restaurants in casual dining and that's an area, especially on the QSR side, we want to continue to increase.

And then one last.

Detailed question I know you've removed disclosure, so promise I won't ask in every quarter, but what would.

Same store kind of NOI growth have been or same store rent growth had have been in Fourq you 19.

Yes, it would've been about 0.8%.

John who are running into that would have been 70, some odd percent of our portfolio given all the acquisition volume intense we've added so.

20% would have been Q4.

And John if you look at it for the for the over the whole year well based on how we announced the quarters. The overall would've been like 1.2% to 5% for the year rough rough justice Okay.

And from roughly 80% of portfolio yeah. Okay.

For me. Thank you very much. Thank you. Thanks.

Thank you. Our next question is coming from Chris Lucas of capital One Securities. Please go ahead.

Hey, Good morning, guys. Just two quick ones for me, Mike just as it relates to guidance for next year, how should we think about DNA for the year as it relates to percentage of revenue percentages assets or something.

Yes, I would think of a more just a dollar amount I think some you pretty flat.

2019, if you actually look at it has been flat since about 2016, so in see any movement that obviously as we increased revenues will become less or percentage of revenue, but I think about mortgage the dollar amount being flat.

2019.

Okay, great. Thanks for that and then Jackson, just sort of a bigger picture question I appreciate the additional disclosures, particularly as it relates to sort of from where the rent and.

Estimates have gone as it relates to size of asset I guess it raises the question for me which is.

Are you if you had a buyer.

Industry or is that to granularity.

To me it starts with industry first.

I'd say granule, let me I'll call you I'll go will kind of Mike My rankings industry first.

Which means industry and credit second would be good real estate.

Which means good location good rent per square foot and then.

Granular would be next.

And then I guess liquid as always really important want to make sure that whatever we buy.

We could sell.

Okay, great. Thank you appreciate that nothing else for me.

Thanks. Thanks.

Thank you. Our next question is coming from Ki bin Kim of Suntrust Robinson Humphrey. Please go ahead.

Thanks.

The bigger topic question.

What where the couple of main reasons, why you're not falling more I would imagine that as a good environment to solve cap rates are tight interface, so low and economies being a wall. So why not take this opportunity to prune your profile even further.

Well.

We're always trying to pro I mean, we sold 260 million.

This past year end, if you think about what we printed Blake.

Like.

One of the shopping centers that we sold.

So we see we carved out the home depot to keep it we sold the balance of the center for about a Adolf cap.

That may tons a sense.

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I think we will continue to sell and we're actually without getting specifically, what we're trying to do right now is improve quality within each of the industry boxes that we invest in.

So there might be an opportunity for instance.

In the C stores, we we like our circle case, but we think that might be an opportunity to add more we cycle. So one of the things that we're doing keven as.

Well as were as we're talking up but these priority sectors that were investing in.

We're also looking at and we can do this to our rankings to be able to take off the bottom takes that weekend.

Now taking off the bottom I mean, just selling outright or working on blend extend.

Selling selling those assets or selling weaker units or selling units that are not as.

Favorable for us out of a nationally.

So, yes, I think selling properties will continue to be.

An important part of what we're doing going forward and so yes. We are definitely focused on it we had talked about too much but we have.

We have the tech title, we have the tools to be able to kind of target what we want to sell.

So that will be sort of up.

We continue to be an important part of what we try to deal.

Okay and any quick update on.

Your casual dining in terms of like coverage or trends and financials.

I mean can you want to take that one media insurer.

Very very stable.

We don't have a all of our casual dining we do monitor they tend to get unit level and corporate level and what I can tell you is that we're very comfortable with it.

Okay. Thank you.

Thank you. Thank you. Our next question is coming from Stench, all the way of Green Street Advisors. Please go ahead.

Thank you just one quick one for me just in regards to your office exposure can you remind us how you guys are thinking about that particular property type right now and if theres any intention.

Reduce or grow that exposure.

Yeah, I think you know if you, especially in the Investor day, I talked about potentially office getting as high as 5%.

Yes, I was really I was referring to professional office so.

Well you would consider you and I would consider an office building today.

The way, we categorize it as about 3.1%.

In terms of waiting for us in terms of industry.

The way, we categorize office in our disclosure is medical offices in their datacenters and other so.

Yes, I wouldn't say office is a huge thrust for us if we like I said like.

That DNA transaction was really interesting for us and Maryland, but where it's not a core.

You know growth area for Us I mean, we've got other areas that we're prioritizing on but if it ever crept up I can see it maybe someday getting up to 5% some point.

Okay, and then maybe just one more on you did talk about in your prepared remarks, obviously your improve cost of capital on how that's why in the net in terms of what you guys are looking at on for acquisitions would it be safe to say that if your cost of capital does continue to improve throughout 2000, you guys could get more aggressive on the external growth from.

Yes.

Yes for US, we're we're constantly trying to improve the portfolio. So.

Mitch.

I'd say no to be honest with you like is because we don't want to buy things of that we don't think makes sense.

We're a tenant can pay rent to the term.

And there is lots of things the by I mean, it's like I'm, telling like we are our universe got a lot wider but that doesn't mean, we want all by more necessarily so we're just trying to be selective and I think keeping raise that question. We're also looking at trying to improve the quality of the portfolio. So so were we ever mindful eye of buying and still selling just to costs.

The improved.

Okay. Thank you.

Thank you at this time I would like to turn the floor back over to Jackson for any additional or closing comments.

Okay. Thank you very much well.

Look as I reflect back.

We're we're as a team Super excited here, if you think about where we were last year.

During the call I mean, we had way more things that we were juggling and having to deal with.

At this point, we're focused on executing our business plan and we're excited that you all still have interest in us and we've tried to good job. So thank you very much.

Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect and walk off at this time have a wonderful day.

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