Spirit Realty Capital Inc

F:21S1

Earnings Call Transcript 2019-Q1

[Operator]

Greetings, and welcome to the Spirit Realty Capital's First Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Pierre Revol, Senior Vice President of Strategic Planning and Investor Relations. Thank you, you may begin.

[Pierre Revol]

Thank you, operator, and thank you, everyone, for joining us this morning. Presenting on today's call will be President and Chief Executive Officer, Mr. Jackson Hsieh; and Chief Financial Officer, Mr. Michael Hughes. Ken Heimlich, Head of Asset Management, will be available for Q&A.

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, they are subject to known and unknown risks and uncertainties that can cause actual results to differ materially from those currently anticipated due to a number of factors. I'd refer you to the safe harbor statement in today's earnings release and supplemental information as well as our most recent filing with the SEC for a detailed discussion of the risk factors relating to these forward-looking statements.

This presentation also contains 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 SEC under Form 8-K. Both today's earnings release and supplemental information are available in the Investor Relations page of the company's website.

For our prepared remarks, I'm now pleased to introduce Mr. Jackson Hsieh. Jackson?

[Jackson Hsieh, President and Chief Executive Officer]

Thanks, Pierre and good morning, everyone. We had a strong start to the year and are very pleased with our first quarter results. Before I get into the details, I want to reiterate the three critical 2019 initiatives that I laid out on the last call. First, execute on the acquisition and disposition targets that have been incorporated in this year's earnings guidance. Second, continue to improve predictive analytics in our tenant relationships to maintain high quality operations and deliver strong consistent results. And third, assist the SMTA independent trustees in their accelerated strategic process.

As I said before, finalizing this process and decoupling Spirit for SMTA is the most critical step in making Spirit simple and understandable for investors. We are laser focused on all three. As it relates to the first two initiatives, I'm very pleased with what we've accomplished, but operationally and from a capital deployment standpoint.

During the first quarter, we generated AFFO per share of $0.86, an increase of $0.02 per share compared to last quarter, excluding the Haggen settlement. We have solid operational performance on all fronts with portfolio occupancy of 99.3%, loss spread just under 0.2% and less than 2% property costs leakage. Our same-store sales grew 1.8% driven by c-stores, QSRs, gyms and movie theaters. Our leverage calculated as adjusted debt to annualized EBITDAre ended the quarter at 5.2 times an increase of only 0.1 times compared to last quarter despite significant acquisition volume.

Turning to capital allocation, we acquired 22 properties during the quarter, totaling $160 million and invested an additional $18 million in revenue producing capital with an initial cash yield of 7.16%, an economic yield of 7.93%, a weighted average lease term of 14.8 years and average annual rent escalators of 1.7%. Of the total investment activity, 58% was generated from existing tenants and approximately two-thirds of our new tenants were directly sourced.

Notable categories included warehouse club and super centers, casual dining and home furnishings. One tenant of note At Home, which is headquartered in Dallas, moved from number 33 to our number seven tenant, which we are very excited about. We believe At Home as a great and sustainable business model, delivering a full range of home furnishings and decor at discount prices that are below the prices of online retailers.

In fact, as I noted on their last earnings call, At Home has achieved 19 consecutive quarters of over 20% sales growth and 20 consecutive quarters of positive same-store comps. In addition to the positive business fundamentals, the real estate is outstanding with low rents. We look forward to continuing to build a relationship with At Home and welcome them to our top 10 tenant lineup. Overall, we're very pleased with our first quarter acquisition activity and feel bullish about our pipeline for the remainder of the year.

During the quarter, we disposed the four income producing properties for $36.1 million, consisting of a drugstore, dollar store, grocery store and a single tenant office building. I'm also pleased to announce that subsequent to the first quarter, we sold a PetSmart distribution center in McCarran, Nevada. This reduces PetSmart from our number 11 to number 57 tenant in terms of contractual rent. Since our last earnings call, we received several questions from analysts and investors about the disposition program. So I wanted to take a minute to clarify our thinking behind our plan.

First and most importantly, the assets in our disposition plan are not properties or tenants that we are afraid of or give us any particular concern. As portfolio managers of real estate, we're always evaluating the best way to optimize and recycle our portfolio and we have the technology and tools to effectuate that process, while the size of our disposition basket is large this year.

I want to reiterate, what I said on our last call. Dispositions laid out in our guidance are opportunistic and subject to change depending on market pricing, company capital raises and acquisition volume. I hope that answers any questions that resulted from our last call.

On our third initiative, without getting into details on the Master Trust sale process, I can tell you that the process is moving along as planned. When SMTA announced their accelerated strategic process, our team was well prepared to hit the ground running. We continue to support the SMTA trustees in any way we can. I look forward to the conclusion of their process.

In summary, we've made great progress executing on our three critical initiatives this quarter. And everything is going along according to plan. Our acquisition and disposition pipeline continues to align our portfolio with our Heat Map and Efficient Frontier. Improve our weighted average lease term, credit quality and organic growth while our operations produce strong results.

The people, tools and processes that were put in place over the last two years are bearing fruit. And I applaud the entire Spirit team for their hard work and dedication. With the new bank facility put in place in January, our balance sheet is in great shape with extended maturities, liquidity and flexibility. I'm also pleased with our ability to utilize our ATM Program this year, which Mike will discuss in more detail.

Finally, we remain focused on helping the trustees of SMTA, finalize their strategic process, which will be the final step in making Spirit, a simplified pure play triple net REIT. As we have just lapped the first quarter of 2018, the last full quarter prior to the spinoff. I think it's important to remember how far we have just have outcome in just a year.

Our number one tenant is no longer a general merchandise retailer accounting for 7.9% of our revenues. Our leverage and fixed charge coverage are both improved more than a full term. Our unencumbered asset ratio has improved 23%. Our loss rent has improved 30 basis points and is at a historic low. Our occupancy is 40 basis points higher. Same-store sales growth is 30 basis points higher. We're raising and deploying capital accretively and most importantly, we have done everything we said we would do.

As I've said several times over the past few months, we're down to the final 10%. And I believe that the Spirit platform in this team can deliver results and create shareholder value for years to come.

With that, I'll pass the call over to Mike.

[Michael Hughes, Chief Financial Officer]

Thanks, Jackson. Good morning, everyone. As Jackson mentioned, we had a great quarter with good operations and robust capital deployment. I was especially pleased with our bank facility refinancing in January and our ability to issue well price equity that allowed accretive low leveraged acquisitions.

During the first quarter, rental income excluding 3.4 million of tenant reimbursements grew $1 million. Unreimbursed property costs or leakage decline by $1 million that represented 1.7% first quarter rental revenues. Annualized contractual rent which annualizes the rents in place at quarter end grew $13.3 million. Approximately $10.1 million of the increase was attributable to new acquisitions and revenue producing capital and $3.7 million was attributable to rent escalations, partially offset by vacant properties.

We had to minimize tenant credit issues during the first quarter, with lost rent returning to historic low of 0.2%. Loss rent was driven almost entirely by one c-store operator and those properties have already been re-leased to an existing Spirit’s c-store tenant.

The rest of the P&L pretty straight forward this quarter, the one-item of note is our G&A, which is elevated by $700,000, driven by $200,000 in audit fees related to our 2018 10-K, which effects only one quarter each year. $200,000 and employer tax withholding on prior year bonuses paid during the first quarter, accelerated 401(k) matching on those bonus payments and annual medical savings account contributions.

As Jackson mentioned, our adjusted debt to annualized adjusted EBITDAre was 5.2 times at quarter end. We invested $178.6 million in acquisitions and revenue producing capital, we disposed of $46.5 million assets and issued 900,000 shares of common stock under our ATM Program, our gross proceeds of $34 million, which helped to keep leverage low.

Year-to-date, we have issued 2.3 million shares of common stock under our ATM Program, an average price of $39.19 per share. A portion of the shares issued after quarter end were issued under four contracts, which have yet to be settled. We continue to maintain a high level of liquidity. As of April 30, total liquidity consisting of cash and availability under our revolving credit facility and delayed draw A2 term loan was $1 billion. We intend to use the availability under the A2 term loan and cash toward end of $402 million of convertible notes due May 15. Pro forma for the redemption of the convertible notes, our weighted average debt maturity is 4.4 years.

Turning to our guidance for the full year 2019, we were raising our projected AFFO per share from $3.32 to $3.38 to $3.35 to $3.39. We’re raising our projected capital deployment comprising acquisitions, revenue producing capital and redevelopments from $400 million to $550 million to $450 million to $600 million. We're lowering our projected asset dispositions from $250 million to $350 million to $225 million to $325 million. We were maintaining our adjusted debt to annualized adjusted EBITDAre range of 5 to 5.4 times.

As a reminder, due to the timing uncertainty of SMTA's accelerated strategic process, we have included a fee and dividend income from SMTA for the entire year. In addition, as I noted on our last call, the impact of the convertible notes repayment will primarily be felt in the back half of the year. And our dispositions will be heavier in the last two quarters. So please keep that in mind for your earnings models.

With that, I will open up the call for questions.

[Operator]

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from Haendel St. Juste of Mizuho. Please go ahead with your question.

[Haendel St. Juste, Mizuho]

Good morning out there. Jack, can I ask the question if you. Perhaps, you can astonish the comment you made earlier. I'm curious, if you could talk about how your improved stock price and your WAC, it's impacting your thoughts on capital allocation. You tap the ATM for a bit of equity here in the first quarter, lowered the disposition guidance a smidge. I guess I'm wonder, if you could read this as a side that you'd be more inclined to use your equity as a source of capital going forward as opposed to some of the opportunistic disposition you outlined.

[Jackson Hsieh, President and Chief Executive Officer]

Thanks, Haendel. Good morning. Remember, what we set guidance for this year, we assumed to kind of know equity issuance program because the company hasn't really issued equity census. The management team really came in. And we obviously had a challenge stock price at the end of the year. So the plan we laid out, once again this opportunistic dispo pipeline was based on a self-funding acquisition disposition program. The reason why it was so specific about it might change is obviously, we do look at our stock price, we do look at our cost of capital and there is no shortage of things that we look at that look very attractive. So I guess without, I think we're looking at our stock price and act accordingly. But at this point, you can see that we've kind of proven out the model, we were able to accretively acquire, we're accretively able to do it via the ATM. And we always have the option to look at that disposition program if necessary. So I don't know if that hope that answers it.

[Haendel St. Juste, Mizuho]

It does. Maybe following-up, can you talk a bit about some of the compelling opportunities, you’re seeing out there that align with both with Heat Maps and your cost of capital and how's that universe of opportunities changing as your cost of capital has improved? And that would do you have any assets under contract?

[Jackson Hsieh, President and Chief Executive Officer]

Well, I wouldn't want to talk about assets on a contract, but what I can tell you is that the volume of opportunities has increased dramatically from what we can see today versus say three months ago. And I think that's a function of obviously low interest rates. There's a lot of the companies that are on the triple-net sector or performing well. So there are a lot more opportunities, I'd say, there's also larger opportunities, larger portfolios that are out there that obviously a lot of us are evaluating right now. As it relates to the things that we bought this year or at least in the first quarter, we're quite happy with them. And I think that these will be indicative of what we do going forward.

So at home for instance, it was a tenant that we have seven stores in, where we had seven at home stores. This was a company that we've been looking at. We liked the business model. And so when we met with the CEO, the whole team, up at their offices, Lewisburg, it's a great business model and we knew that we wanted bring them in the top 10. We're going to probably do more with them. We love the business model and they're expanding. It's a public company, which is great and we've got really good lease structure.

If you look at the casual dining portfolio that we bought, that was a direct sale leaseback. All the stores were in Utah. We would love Utah as a kind of economic growth area. This particular portfolio had 15-year lease with bumps, really good rent to sales, proven stores. And so that was another great example of something that was in our kind of wheelhouse. And then the superstore, that we bought, it was a Walmart because it’s single asset, kind of very attractive. We liked the location, we like the profile.

So if you think about what we brought in the first quarter, it was like have a range of different things and the net result was – we brought – if you think about the last two quarters we've brought Life Time up into the top 10, we've brought at home up into the top 10, PetSmart went down. Obviously, shop goes out. So we're still reconstructing our top 10 tenancy and they'll probably be some other ones that come up in the course of the year into the top 10 that are not there right now.

[Haendel St. Juste, Mizuho]

That's helpful. Thank you.

[Operator]

Thank you. Our next question is coming from Greg McGinniss of Scotiabank. Please go ahead.

[Greg McGinniss, Scotiabank]

Hey, good morning. I know you're constantly, it's kind of getting into Haendel’s question as well, but I know you're constantly evaluating the portfolio, utilizing the Heat Map to determine stronger sectors. So I was hoping, you could give us your updated thoughts on the industries where you have higher concentrations? In particular, if you could address drug stores, which had a tougher earning season last month and casual dining, which continues to sound like a challenges to the business?

[Jackson Hsieh, President and Chief Executive Officer]

Well, I think – if you look at our – here's the thing on the dispositions that we completed in the first quarter, you dig into them, there we sold that Dollar General for like a 7.2% cap rate. We sold a Walgreens store for like just under 6.8% cap rate. We've sold a Smart & Final grocery store, which was one of the Haggen’s assets at a 6.3%, 6.2% sorry. And so the blended cap rate looked a little higher because we sold a fellow tenant office building that sort of have four years left on lease, those was fine. I'm probably going to renew, but it was a detrimental asset, didn't make sense, so each of those were sold for a very particular reason. And so as you think about, to answer your question on the Heat Map, looked through a lot of things that make a lot of sense for us to grow, home furnishings is one area that we're really focused on.

And we continue to look at industrial select manufacturing assets. Obviously, we did a lot in the gym space, so we're going to continue that really, but we're going to have a high focus on quality. So the good news about our strategy today is just given, we were able to remove so much real estate out of the spin. We're just well positioned to grow off of multiple industries right now.

And just one point on sort of the dispose as we think about it, so coming back to Haggen’s just for a minute. So we basically have gotten all our money back through the most recent sale. We sold this property in Atascadero, California. So we've still have six occupied stores in the Haggen portfolio, one vacant, that's under contract. Those are all long term lease, really good real estate. We're going to continue to evaluate those and when we don't have to sell them, but obviously we saw them at very low cap rates. That was one of the things that went into the calculus as we came up with the dispo plan for this quarter.

On the drug store issue, look I can just tell you, I might pull my retirement accounts. I brought Walgreens stock and CVS stock, love the companies. I would tell you that the stores that we own. We own drug stores that were primarily from the Cole acquisition, the Cole II acquisition that Spirit completed. So I characterize those drug store leases as your typical developer lease, single site, flat rents, no mass re-lease. So there is a good market for those. And for us, I love the drug store industry, but I'd say that developer leases not that great for us. There's not a lot of rental growth. You can see what our same-store sales are in our rent bump, contractual rent bumps and owning drug stores as sort of diluted to that, if you think about it. So we find opportunities to selectively modify this space, we'll do it.

[Greg McGinniss, Scotiabank]

All right, great. And then, I guess just sticking with the dispositions a little bit. Now, I know you're not worried about the assets in the pipeline. And previously, you mentioned you're looking to sell assets, assets that are in the wrong industry, flat restructure, flat restructures to fund acquisition. But I'm curious what separates this larger batch of 2019 dispositions from the more regular portfolio maintenance disposition that you expect to conduct in 2020 and beyond?

[Jackson Hsieh, President and Chief Executive Officer]

Yes. There's some double net assets in that big pool. Double net, we're trying to improve property cost leakage as a measure. And we're trying to improve our same-store sales growth rate. So that's one of the target areas in this kind of bucket, but we've virtue. The other thing is, we still have a few of these, I'll call them power centers that were acquired through the Cole acquisition that, yes, there's good credit in those centers. But yes, there is leakage. And so once again, our property costs leakage this quarter was 2%. And I'd love it to go down lower and the only way it goes lower is attacking that sort of bucket that we're relating to. So like I said, we're not concerned about the rent capability of those locations. But yes, they do drag on our end to kind of net cash flow.

[Greg McGinniss, Scotiabank]

All right, thanks.

[Operator]

Thank you. Our next question is coming from Shivani Sood of Deutsche Bank. Please go ahead with your question.

[Shivani Sood, Deutsche Bank]

Hi. Good morning. Mike, you had mentioned in your opening remarks that we should expect the suggestion feedback half weighted. Can you give us some color there on timing and whether we should expect the maths that there would be pretty equal? Sorry…

[Michael Hughes, Chief Financial Officer]

Acquisitions or disposition?

[Shivani Sood, Deutsche Bank]

Acquisitions.

[Michael Hughes, Chief Financial Officer]

Yes. Acquisitions, they're a bit – it can be chunky. I would expected if I was guiding it the beginning of the year, I'd say, it'd be pretty even across each quarter. Yes, obviously, we had a really good first quarter. So it's hard to tell. I mean it's – we have a lot on our pipeline. And the interesting thing about pipeline is, you develop it, you get a lot of stuff under different forms of LOI contract and things take different times to close and send them as your surprised how quick you can get through something sometimes it takes longer. So it's hard to say. So if already guessed, I would, you can’t take the remaining guidance for the year and kind of divide it by three and that would be my honest guess just depending on how thing shake out.

Dispositions, I think we have a little more control over. So that's why I just stated, more back half weighted. It's probably pretty equally split in the last three quarters of this year on the dispo side. But as you saw it in first quarter, it was pretty light. And so you're going to have a little more in the back half of the year relative to the first half.

[Shivani Sood, Deutsche Bank]

Great. And then occupancies been pretty high, well above 99%, and there are some vacancies in the portfolio, but how much higher can we reasonably expect us to get?

[Ken Heimlich, Head of Asset Management]

Yes, this is Ken. I think we think it can go higher. We always have our eye on our preferences to never let it go below 99%, but we look at our vacant portfolio and we're opportunistically either reloading or selling when it makes sense. But we don't have any concerns about the occupancy levels.

[Jackson Hsieh, President and Chief Executive Officer]

And I think in this one, Taco Bueno, you want to talk about that a little bit?

[Ken Heimlich, Head of Asset Management]

Yes. That as you know, we got through the Taco Bueno resolution and part of that was we took back seven units. You can see we went from five units in the vacant portfolio at year end. We took in seven. We obviously got rid of a couple. So we're at 10 right now, where we've got a couple of those Taco Bueno’s in the disposition pipeline. And we're very happy with the interest we've got on all seven.

[Shivani Sood, Deutsche Bank]

Thanks for that color.

[Operator]

Thank you. Our next question is coming from Spenser Allaway of Green Street Advisors. Please go ahead with your question.

[Spenser Allaway, Green Street Advisors]

Thank you. Can you provide some color around how much of your capital deployment guidance for 2019? You guys expect to be allocated to new property acquisitions versus the revenue producing CapEx?

[Jackson Hsieh, President and Chief Executive Officer]

Yes. I think, we expect, majority of that I'd say maybe $30 million to $40 million would be revenue producing CapEx in redevelopment and remainder of the new acquisitions.

[Spenser Allaway, Green Street Advisors]

Okay. Thank you. And then maybe just in regards to the deals you guys sourced year-to-date, would do you guys say that you're seeing more portfolio or one-off deals in the market right now? And would you say that pricing has changed at all in recent months?

[Michael Hughes, Chief Financial Officer]

It’s – I define it more as quality and quality, since by definition is well located real estate, reasonable rents, especially relative to market. Right concept, right lease structure, when you get those things lined up, the CapEx are pretty aggressive. And that's one area, Spenser, why we look at some of this CapEx type spending. When you have a tenant that matches all those things and they're looking for funding, you can generally get a premium on cap rate for those opportunities. I think that there are portfolios out there. I don't think there's portfolio premiums facility out there. But there's a wide range of interesting things out there right now.

And one of the things that I'm doing with the way I spend my time, I think some of we restructured some of my reporting lines at the beginning of the year. So as opposed to having nine direct reports, it's been reduced down to six. So that's enabled me to spend a lot more time with the acquisition team. I go to their weekly meeting among route with the team and I think that's where we're getting some benefit. And I also spend a lot of time, obviously with SMTA, the CEO there reports directly to me.

So those are kind of two areas of focus for me. And I can just tell you from what I see, that there's – anybody that thinking about selling, net lease properties today. If they sort of missed it last year, they're reevaluating it. And a lot of the companies, like at home, there were concepts out there that are trying to grow. So it sort of – if you're constructive in the industry and the tenant, you've got a relationship with them, you can find the right opportunities for you, whether they're single asset, CapEx oriented or portfolio.

[Spenser Allaway, Green Street Advisors]

Okay. Thank you for the color.

[Operator]

Thank you. Our next question is coming from Vikram Malhotra of Morgan Stanley. Please go ahead with your question.

[Kevin Egan, Morgan Stanley]

Hi, this is Kevin on for Vikram. So quick couple of questions for me, just in terms of the nature of the acquisition, I noticed there's a resident on the top 100 tenants provide any further color around maybe cash flow coverage – sorry, rent coverage, cap rate and hospitality in general is something that you'd be looking through or just looking to expand your exposure too?

[Michael Hughes, Chief Financial Officer]

Yes. This is Mike. I’ll take that. Hospitality or limited service hotels are something that we’ve been looking at for quite times, I came in the company and we think it makes a lot of sense in the triple-net lease space. And this is a true triple-net lease. It's the same type of lease we put on a Burger King or c-store. Cap rates are good on those types of assets right now, mainly because it's just a new market. And so we’re not looking competing with anybody at this point. So the yields are very high for us. Coverage is very strong. It's much harder than say, what a lender would actually loan money on to hotel. And I have a lot of experience with that. So very, very strong coverage, really triple-net lease, we evaluate the real estate in this particular hotel, we evaluate the market, we evaluate demand generators in the market, supply just like you would with a regular hotel. And we also spent a lot of time looking at the tenant credit quality. This is a regional operator with multiple hotels, kind of owner-operator and looking for growth capital to do more hotels.

So this particular operator we would do more hotels with and create a mass release. And one of things, we really like about hotels, just to be cash flow coverage, especially on limited services hotels, so much simpler box, low capital requirements, more predictable earnings. We really like that underlying real estate because, if you look at your typical retail box, if your tenant blows out of that, and if you can relate it, you get a dark box back. With a hotel, should you ever have to take the asset back, you end up with an operating asset. You could hire a third-party manager very easily. The brand stays on the hotel, let's say Marriott, one of the best brands in the world.

And so it really retains its full value. So your recovery in a bad situation, I believe is much better. And these limited service hotels are very liquid and liquidity is always something we talk about. So just overall, we love the real estate and we think that that limited service model, we wouldn't do full service or resort or anything like that, but that limited service model is a very simple and good box to put triple-net lease around.

[Kevin Egan, Morgan Stanley]

Great. Thank you for the color on that. And then just in terms of the revenue increasing CapEx, you have 8.25% initial cap, central cash yield on that. Just arithmetically, how are you arriving at that? Is that taking into account what you think the spread would be if you did invest in capital or is this a capital that's not being invested on a expiring lease altogether?

[Jackson Hsieh, President and Chief Executive Officer]

I think what you are referring to, that’s the actual return on our invested capital. So, I mean, we have – in the quarter we had a number of different locations where we're funding either hard costs or TI. So that range of cap rate from a low to a high was from 7% to 10% across the portfolio of assets that were under that revenue producing CapEx category. So for instance, there were some Topgolf facilities in that bucket. There was a couple of restaurants in bucket, some entertainment assets. There was Shooter's World asset in there. So there's different kinds of things and they're from tenants that we have experienced with we can get higher yield.

[Michael Hughes, Chief Financial Officer]

And that yield – when you invest a capital you get yield on day one, they're paying incremental rent. A good example would be like, you have a Burger King operator and Burger King wants him to do a reimaging update and they need some capital to do that. If you give them that capital, you add it to their rent. And of course, we underwrite that and make sure the rent coverage is good rent to sales, all that. But that's an immediate return for us with existing tenant.

[Kevin Egan, Morgan Stanley]

But I suppose to get to that 8.25%, you'd have to have an idea of what it would be without additional capital. So that's something that you estimated or was it pretty firm that if you did not put any additional capital, this rent would be X and therefore if we do put it in and we get rent Y therefore.

[Michael Hughes, Chief Financial Officer]

The rent is X, they need additional capital and you add Y to it. So it's completely incremental to their existing rent. Their existing rent is what it is. This is additional capital and additional return. And that's what we know exactly what it is. Our $18 million, it's in our supplemental, we invested $18 million and our return on rent generators is not 8.25%. So they're paying $1 million a year in rent. They're paying additional rent for that capital.

[Kevin Egan, Morgan Stanley]

Got you. Okay. Thanks a lot.

[Operator]

Thank you our next question is coming from Brian Hawthorne of RBC Capital Markets. Please proceed with your question.

[Brian Hawthorne, RBC Capital Markets]

Hi. I'm looking at 2021 lease expirations. Just I want to know, are there any tenants in there that concern you? And as we get closer, should we expect that to come down? You have those assets in the disposition plan or is that more from – does that come down more from a tenant renewal?

[Ken Heimlich, Head of Asset Management]

This is Ken. The shorting answer is no, we're not concerned about that cohort that expires in 2021. There's a couple of things. If you look at that same cohort at the end – fiscal year end 2018 it was about 7.9% of rent, it's now rolled down to 7.1%. I would expect every quarter that we move forward it will continue to roll down. But then when you look at the actual leases that are in that cohort, no, there's nothing in particular that gives us a lot of concern. And as far as dispositions that may be a little bit of an ingredient when we go through and say, do we want to sell an asset, but it's not going to be a driver.

[Jackson Hsieh, President and Chief Executive Officer]

Yes. Just to come back on that, for the earlier question on that CapEx, sometimes we're in discussion with an existing tenant and putting capital into existing facilities. One of the tools that we use is lease extension as part of the negotiation. So a good example would be, the Walgreens store that we sold. So that was a property in Cincinnati, Ohio. We got a blend and extend done to make that a 10 year lease and we ended up selling the property. Typically when you're looking for lease extensions, you're sort of programmatic and potentially looking at – if you're looking at a dispo, you want a longer leash to get more value for it.

So when we use CapEx, it's not just for higher incremental return on invested capital, but strategically it gives Ken and his team the ability to programmatically look at least extensions, particularly in existing national leases. So it's like – it's a very dynamic discussion. It's not compartmentalize, but we're looking to try to maximize and value this real estate. So capital is one, , blending expenses the other way, adding properties into existing national leases with existing tenants gives you that leverage to have that conversation. So there are a lot of tools to mitigate lease expiration. That's my point here.

[Brian Hawthorne, RBC Capital Markets]

Okay. So of those properties, do more of them fall under your current disposition plan then?

[Jackson Hsieh, President and Chief Executive Officer]

No, and I wouldn't say, no. The disposition plan as I said, there's double-nets in there, there's things that have flat leases. I mean, if you think about what we're trying to accomplish, we want as high same-store rent bumps as we can in this portfolio. We want a low real estate leakage, i.e., we're responsible for roof or structure parking lot. We want as little as possible. We're trying to create just cash flow and triple-net lease structures. That's really what we want with good bumps.

So some of the assets that comprise this bucket of opportunistic disposition sort of fit that profile. We have certain landlord expenses are not great for us, we don't like that. Or they're flat leases or they're not great prompts. There's a whole different sort of set of criteria. But that's the nature of what's in there.

[Brian Hawthorne, RBC Capital Markets]

Okay. Thank you.

[Operator]

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

[John Massocca, Ladenburg Thalmann]

Good morning.

[Michael Hughes, Chief Financial Officer]

Good morning.

[John Massocca, Ladenburg Thalmann]

You have mentioned power centers in single tenant office earlier, is that all categorized in that 1.4% of rent that comes from kind of "other"?

[Ken Heimlich, Head of Asset Management]

That's not necessarily a definition of that bucket. Other is really a collection of industry that in and of themselves are not big enough to create its own bucket.

[John Massocca, Ladenburg Thalmann]

Okay. So what percentage of the portfolio today then is power centers are in single tenant office kind of roughly?

[Ken Heimlich, Head of Asset Management]

Well, the power center, what we would call true multi-tenant it's less than 5%, I believe it's in the 3% to 4% range.

[John Massocca, Ladenburg Thalmann]

Okay. And then single tenant office is that – I imagine it's very diminmus.

[Ken Heimlich, Head of Asset Management]

Not meaningful.

[Jackson Hsieh, President and Chief Executive Officer]

Yes. A lot of the single tenant office got spun-off into SMTA, like the stations, headquarters, the casual male headquarters building academy sports. And by the way, we're not afraid of single office. Those are the ones that got sort of spun-off.

[John Massocca, Ladenburg Thalmann]

With the power centers then something that you would really be looking to kind include in that disposition guidance in order to kind of maybe simplify the story a little bit or improve on the leakage?

[Ken Heimlich, Head of Asset Management]

Yes. The multi tenant power centers had – several of the boxes that we look for and we say, hey, what do we want to put to the disposition. Number one, I would suggest is leakage. They just tend to have that. Number two, when you build a shop to manage, when you build your asset management systems, there's one way of building it to handle multi-tenant then there's another way where you're dealing with single-tenant. And the multi-tenants are not the most efficient assets, so we've – given that we have so few of them we've elected to say, hey, over the long-term we're going to reduce our exposure to that area.

[John Massocca, Ladenburg Thalmann]

Okay. And then on – you guys also mentioned Topgolf. How many of those do you have under development. And then also you may have been addressing this in the earlier question, so apologizes, if you kind of went over this. But with kind of developments like that where you maybe knocking rent day one, and does that come into the revenue producing CapEx bucket on the investment line item here in the supplemental? Or does that not essentially count as an acquisition until the development is delivered?

[Michael Hughes, Chief Financial Officer]

Yes. So if a property is under development, a couple things. One, we are getting rent day one, but we don’t put that rent in the earnings, it has to be capitalized. And then when the project comes online, we then take that capitalized rent and we amortize it over a century, over the life of the lease. It's not being recognized in the P&L, we're not counting it as revenue producing capital in our supplement. So really it has to be earning day one.

[John Massocca, Ladenburg Thalmann]

So, for instance like Topgolf, would it be counted maybe a new tenant acquisition when you got delivery, or is it kind of supplemental break out of that.

[Michael Hughes, Chief Financial Officer]

The Topgolf as Jackson mentioned, that was constructed, it is operating and we did put some capital into that one. So that is in a revenue producing capital because we are recognizing – we are getting the earnings, we're recognizing the P&L because that is up and running operational.

[John Massocca, Ladenburg Thalmann]

Okay. And then just a quick detail question, how much of the – I think I was calculating roughly $1.4 million issued on the ATM subsequent to quarter, was via the forward and roughly what price was that issue at? Just in terms of whether it's going to create kind of some weird GAAP dilution.

[Michael Hughes, Chief Financial Officer]

Yes. So, what we issued after subsequent at the end of the quarter about $25 million was regular way and the remainder was on the four component. Top line, I believe the average share price that was in the high 39's. We use the treasury stock method to account for sales. So the way that basically works in Layman's terms, if you get to the end of a quarter and the share price is higher than where you should afford, you'd recognize the incremental dilution in between those two prices. And if the share price is lower than, you'll be anti-dilutive and you wouldn't recognize dilution in your shares.

[John Massocca, Ladenburg Thalmann]

Okay. Thanks for the color, very helpful. That’s it for me.

[Michael Hughes, Chief Financial Officer]

Thanks.

[Operator]

Thank you. Our next question is coming from Joshua Dennerlein of Bank of America Merrill Lynch. Please go ahead with your question.

[Joshua Dennerlein, Bank of America Merrill Lynch]

Hey, good morning guys. Appreciate the comment on At Home in the opening. I'm not really familiar with the business. Maybe add a little color to that. And what is it that you like about their business and how should we think about home furnishings and kind of the potential or non-potential threat from e-commerce?

[Jackson Hsieh, President and Chief Executive Officer]

Okay. Thanks, Josh. So At Home, it's an interesting business model. I mean, the way I would describe it, is that they're able to kind of do knock offs. If you look across the board as to different kinds of home furnishing venues. What At Home can do is that they can manufacture either private-label or slightly different knock offs for a lot of these kinds of products. That's number one.

The second thing is their productions – the ability to deliver goods into the country with our vendors is quite impressive. Whether it's home furnishings, paintings, photos. The other thing about these stores is they're all sort of north of 100,000 square feet in size. So when you go into them, they're almost like mini distribution centers. So if you went and looked at Barstools, at their store up here, just north of our office here, they literally have a whole skill of Barstools, not just one, but they're eight to 10 stacked in each of the particular brands that they offer.

If you're looking for a 40x60 inch painting, wall painting, oil paint, they literally have one entire side of the building stacked with different knock offs from China and you'll look at it, you go, wow, I've seen those paintings. They're not exactly like some of the their replicas, but not exactly from a trademark standpoint and they're like $90. So what they offer is they just offer a tremendous wide range of things within that store. They also attract a lot of entry level. So if you're sort of a college kid, you're trying to get out of dorm room, it's an awesome place to go to. And we really like what they do. I think they're extremely competitive from a size standpoint.

They have 180 stores right now in the country and they're looking to probably expand a 600 is the total number that they're targeting. It's a super formulaic approach. So when you go in and look at the merchandising, the merchandising is very simple and it's very consistent from a labor standpoint, they're not a lot of people in the store. They're just a really unusual venue and if you look at their pricing, they're actually cheaper than Wayfair and Amazon in a lot of different kinds of areas. So they're very competitive.

[Joshua Dennerlein, Bank of America Merrill Lynch]

Interesting.

[Jackson Hsieh, President and Chief Executive Officer]

Yes. If you come down to go in, I quite impressed. Obviously, we aren't already a number of them, but after we had a chance to really spend time with the senior leadership and the CEO up there, he's formerly the President – he was a senior person up at Nike and Gap. It's really impressive business model. We like it a lot.

[Joshua Dennerlein, Bank of America Merrill Lynch]

Interesting. I want to Check it out. And then for the disposition guidance, you lowered it. The stuff that came out of the guidance, is that – you still want to sell, but it's just maybe a 2020 or a later event at this point?

[Jackson Hsieh, President and Chief Executive Officer]

Looks, it's going to depend on, if we raise money during the year or if we buy more things, it's all a function of – it's a source of capital for us. It is number one priority. And like I said, the good news about that disposition group of assets is we don't have to sell them, right. These are credits, properties that are fine. Like I said, they don't have the – they're not accretive to our same-store sales or rent bumps. They're not accretive to our triple-net portfolio. So if we've got an opportunity to sell them – so there's a lot of other considerations that go into it. That's the thing. That's the key.

[Joshua Dennerlein, Bank of America Merrill Lynch]

Okay. All right. Awesome. Thanks guys.

[Jackson Hsieh, President and Chief Executive Officer]

Thank you.

[Operator]

Thank you. At this time I'd like to turn the floor back over to Mr. Hsieh for closing comments.

[Jackson Hsieh, President and Chief Executive Officer]

Thank you very much. I think the point I would leave all of you is that, I do think that we are very, very close in the final 10% way of our process to completing our path forward. But I also want to just reiterate, this business plan is working, we are raising capital. We're deploying our pipeline is – acquisition pipeline is very attractive for this year. We're really quite enthusiastic about the prospects of the company. So appreciate you all dialing in and look forward to speaking with you soon.

[Operator]

Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may disconnect your lines at this time. And have a wonderful day.