Spirit Realty Capital Inc

F:21S1

Earnings Call Transcript 2018-Q3

[Operator]

Greeting and welcome to the Spirit Realty Capital Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Pierre Revol, 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 today. Presenting on today’s call will be President and Chief Executive Officer, Mr. Jackson Hsieh; Chief Financial Officer, Mr. Michael Hughes; and Head of Asset Management, Mr. Ken Heimlich.

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 would refer you to the Safe Harbor statement in today’s earnings release and supplemental information, as well as our most recent filings 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 on the Investor Relations page of the company’s website.

For our prepared remarks, I’m now please to introduce Mr. Jackson Hsieh. Jackson?

[Jackson Hsieh, President and Chief Executive Officer]

Thank you. Good morning, everyone, and thanks for joining our third quarter 2018 earnings call. My prepared remarks for today's call will be significantly shorter than in previous earnings call, given our success of simplifying our business over the past year. Our portfolio is ideally positioned, balance sheet flexibility and capacity are strong, and the entire Spirit staff and Board are very excited to take advantage of the opportunities we see as we move forward.

From the time the Board made the management change on May 7, 2017, our stock price, dividends and SMTA dividend has resulted in positive returns. We believe we are in a great place. Our plan is working, and as always, we appreciate your interest and support in Spirit.

On the portfolio front, we've recently completed our annual property review and ranking process, and we are extremely pleased with the quality and positioning of our assets, especially from a tenant and industry waiting point of view.

Over 50% of Spirit's rent is derived from public listed companies and the remaining balance is split equally between private equity and entrepreneurial-owned businesses. In addition to completing the property rankings for our third year, I'm pleased to report we have developed our in-house business analytic tools. These cloud-based tools connect to our underlying MRI database allowing asset management to dynamically update our property lists and property rankings with the latest data. We are currently using these tools for our financial planning and analysis, for monitoring credit metrics, and to help make strategic decisions on both acquisitions and dispositions. We believe these tools will continue to improve our asset management and investment decision-making, which will ultimately lead to improve cost of capital.

One of our highest priorities has been to de-risk the concentration exposure that Shopko proposes within the SMTA portfolio. And I'm pleased to report that we've made major progress on this. Specifically, earlier this morning, SMTA filed an 8-K announcing the closing of two important financings. The one of particular note was the $165 million non-recourse loan on all of the 85 assets outside of the Master Trust, leased to Shopko. The details are contained in the 8-K, but this loan represents a strategic win for SMTA with associated benefits to Spirit. It de-risks Shopko's tenant exposure by locking in a cash value floor, while preserving the opportunity for SMTA to realize additional upside through the incremental proceeds from future sales of Shopko stores.

Now turning to the third quarter results. Our operations remain sound and consistent as we continue to focus on strong portfolio management and tenant communication. Our portfolio is 99.6% occupied and our weighted average unit rent coverage is 2.7x. Annualized contractual rent was $31.8 million, and our annualized cash rent received was $380.9 million. Our same-store contractual rent was 1.7% year-over-year. We saw especially strong performance from our casual dining and movie theater industry tenants. In addition, we continue to show improved results on property cost leakage, which was $1.7 million this quarter versus $1.9 million in the prior year period.

As you will recall, we highlighted our third quarter acquisition efforts in the last quarter’s earnings call. We invested $229 million in 26 assets. They were a balanced mix of direct deals with tenants, broker transactions and take-out construction transactions. Alaska’s Gyms was a $61 million transaction done direct and took us almost one year to complete. While the Lifetime transaction closed 39 days after we had a handshake agreement on price and terms. For the Lifetime transaction, we committed $224 million for the entire portfolio and subsequently brought in a partner to acquire one of the master lease portfolios. As we look forward ahead to the end of 2018 and beyond, we believe the transaction market remains healthy and we continue to uncover attractive opportunities as we add to our pipeline.

Dispositions in Q3 were de minimus. However, we are expecting more activity in Q4 given we’ve numerous assets and portfolios being currently marketed. As I mentioned, this quarter was very simple, but all results were strong. We were able to increase our base rent by $19 million, while keeping leverage at 5.2x. Our same store sales, occupancy, loss rent percentage and very low property cost leakages are result of the many process improvements we have made at Spirit over the past two years. We are excited about our completed acquisitions and the deeper relationships we’re building with our existing and new tenant base. As a reminder, similar to last quarter, SMTA will report earnings on Friday, November 9, and we will have recorded comments in order to help investors. Go to the webcast link on SMTA’s IR site and through the dial-in provided in their press release.

I'm now going to turn it over to Mike Hughes.

[Michael Hughes, Chief Financial Officer]

Thanks, Jack, and good morning, everyone. We’re pleased to be reporting on Spirit’s first clean post-spin quarter. We did recognize $966,000 in discontinued operations for transaction expenses related to the Spin-Off; there was no other impact on the financial position of SMTA for the three months ending September 30, 2018. As I noted on the last call, our prior year comparison periods in the income statement and balance sheet have been adjusted to reclassify the operations and financial position of SMTA and Spirit’s consolidated results to income or loss from discontinued operations in the income statement and assets and liabilities related to SMTA Spin-Off in the balance sheet. Please also note that the statement of cash flows for notes the Spirit’s consolidated financial statements and non-GAAP metrics such as adjusted EBITDA and adjusted AFFO are not adjusted for discontinued operations. Additional disclosure related to the discontinued operations line items can be found in Note 8 of our 10-Q, which will be issued premarket on Friday.

Now turning to third quarter results, we’ve been net acquirer over the last 12 months, however, as the majority of our acquisitions took place through the end of this quarter, rental revenues declined $6.2 million compared to the same period last year and grew $1.7 million compared to second quarter. Annualized contractual rents which annualizes the rents in place at quarter end, grew $19 million compared to last quarter, of which $15 came from acquisitions.

Interest income grew by $827,000 compared to last quarter as second quarter's interest income was reduced by $600,000 related to the acceleration of non-cash amortization that resulted in the early prepayment of $7.5 Million mortgage note receivable in April. Third quarter interest income also include interest from Spirit's 34 million investment in SMTA's Master Trust notes for the full three month period.

Other income was relatively flat compared to the same period last year that decreased $764,000 compared to last quarter. The second quarter included a $1 million prepayment penalty related to the previously mentioned mortgage note receivable.

Unreimbursed property costs or leakage declined by $513,000 from last quarter, as we recaptured 68% versus 55% of property costs. This improvement was driven by successful property tax appeals and the renegotiation of a professional fees contract at one of our multitenant properties. Reducing leakage remains a key focus for our team and we are very pleased with the results this quarter.

Reserves for loss rent decreased from 0.3% of contractual rents last quarter to only 0.2% this quarter, which is a historic low for Spirit. General and administrative expense was $11 million compared to $13.5 million last quarter. Now, as I mentioned on the last call, normalized second quarter G&A was approximately $12.1 million after you net out a $1.4 million in accelerated stock rent amortization resulting from the early investing of SMTA shares. Now this quarter G&A was low, primarily due to the timing of accruals for professional fees and I expect our quarterly run rate G&A to be closer to $12 million.

Related party fee income, which was a new line item last quarter, was $6.75 million, representing a full quarter of SMTA asset management fees and MTA property management fees. We also recognized preferred dividend income of $3.75 million for the quarter from our investment in SMTA's preferred equity.

AFFO per share was $0.17, which was in line with our previous AFFO per share guidance for Spirit as a standalone entity. And for the balance sheet, during the third quarter, we bought $420 million on our delayed drop of term loan facility, and the proceeds were used to repay our line of credit. Subsequent to quarter end, we exercise our first extension option to extend the term loan maturity to November of next year. Our leverage and liquidity remained strong. Our adjusted debt to annualized adjusted EBITDA was 5.2X at quarter end. Now to the November 2nd, we maintained $636.5 million in available liquidity. We are also pleased to report that in mid-August S&P upgraded their credit outlook for Spirit from neutral to positive, representing the third credit outlook upgrade that we have received since the Spin-Off of SMTA.

Now for guidance, we are reaffirming the guidance that we provided last quarter. As it relates to our capital deployment guidance, year-to-date, we have repurchased $168 million of our common stock deployed or committed $80.1 million for redevelopment and four takeouts acquired 14 properties for $226.5 million invested $22.8 million in revenue producing capital expenditures across 42 properties. As it relates to our disposition guidance, year-to-date we have sold 12 properties for $24.1 million and transferred six properties with gross investment values of $28.5 million to special servicers and fast action of $56 million in TMBS loans.

With respect to Spirit's common dividend, the Board of Directors declared a quarterly cash dividend of $0.125 per share for the third quarter consistent with our previously stated target equals to approximately 75% of AFFO.

Overall, we are very pleased with the third quarter results, which met all of our expectations, and we look forward to a strong finish this year.

Operator, I’ll now open up the call for questions.

[Operator]

Thank you. We’ll now be a conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Vikram Malhotra with Morgan Stanley. Please proceed with your question.

[Vikram Malhotra, Morgan Stanley]

Just two quick ones. Just first on the Shopko assets, certainly you’re positive, and I agree with the de-risking. There’s some commentary in the article on sort of establishing a floor. I am wondering if you can share a sense of what the LTV was on the loan?

[Michael Hughes, Chief Financial Officer]

Without getting into specifics on the loan, I wanted to let Ricardo and team goes through their discussion points because as you know that’s a separate company. But the proceeds are basically $3.40 a share for SMTA. So it's a great addition of liquidity for them.

[Vikram Malhotra, Morgan Stanley]

And then just second question on the watch list, any changes or any notable tenants that went on or off the watch list? And any specific commentary you can provide around Taco Bell [ph] now, please?

[Michael Hughes, Chief Financial Officer]

Well, first of all without getting into specific names, Taco Bell [ph] is a QSR tenant within our portfolio. It’s in our top 50. We’ve been in discussions with those -- with that tenant. We’re pretty confident that its QSR assets and really good real estate and good markets in master lease. And our expectation is it’s less than 1% of rents. It’s not going to have a major impact to Spirit. And beyond that business is really stable.

[Operator]

Thank you. Our next question comes from the line of Derek Johnson with Deutsche Bank. Please proceed with your question.

[Unidentified Analyst]

This is [indiscernible] on for Derek Johnston. As of your [indiscernible] contemplate dispositions as source of capital, can you just share some thoughts on what would be an acceptable for the spreads between acquisitions and dispositions given the rate price in this environment? It looks like it’s been about 30 basis points year-to-date?

[Jackson Hsieh, President and Chief Executive Officer]

Yes, I mean, you're right. So when we look at dispositions versus acquisitions, I mean, we’re not really targeting a spread. I tell you that, I think, if you know the story we do take these real estate rankings seriously. We do property rankings on every single asset that includes asset management, acquisitions, credit and lease administration. And part of the reason why we go through that effort is we identify assets that can be sold accretively, assets that we love and we want to re-extend leases or assets that we need to sell. And so it's really more of a function of trying to be more offensive with our portfolio and trying to match up with the spread. So you might see a super wide spread one quarter and maybe not as much in the next quarter. So like I said, we’re trying to construct fortress portfolio here. So you do that by looking at your assets, discussing it, making sure everybody is on the right page, doesn’t lineup with our heat map. And that’s why we think it’s such a critical part of what we’re dealing. And I mentioned in my prepared comments on those BI tools, that’s something we’ve been working on for over a year now. And I'm so happy that that’s in place now, because that's giving our entire organization leverage across different cost functions on how to protect these issues. So one of these days, one of our Investor Days, and really one of you guys, is that I want to show you how this stuff works.

[Operator]

Our next question comes from the line of Haendel St. Juste with Mizuho Securities. Please proceed with your question.

[Haendel St. Juste, Mizuho Securities]

Jackson, what more can you tell us about the assets and the portfolio that you are marketing here in fourth quarter? Any particular industry, tenant that you are looking to pay back from? And any sense of cap rate or pricing?

[Jackson Hsieh, President and Chief Executive Officer]

I mean, I don’t want to get too far ahead because I can tell you that it’s a real cross section. I mean we have some QSRs. We have some fee stores. We are looking at a distribution center. We got some casual dining situations that we are looking at. We got some drug stores as well. So I think for us to give you a one-size-fits-all kind of strategy on why we are selling certain things like, hey, we're selling flat leases. It’s not really exactly that way. Organizationally, I can tell you we have a really, really strong sense of our 2,500 assets within both SMTA and Spirit. And we have a very good sense as to what needs to be sold and what doesn’t need to be sold. And like I said in my earlier comment, having these tools that are connected with our BI capability is something that’s giving whole leverage right now. But to answer your question, it's a cross section across all of those categories.

[Haendel St. Juste, Mizuho Securities]

Got it. And the pricing should be fairly consistent with what you told …

[Jackson Hsieh, President and Chief Executive Officer]

I think the pricing, I mean, some of the pricing is going to a very low cap rate. There might be coupled with higher cap rate. And so, like I said, we are not targeting a cap rate target. It's not just about a -- look, we have some very low cap rate opportunities out there right now that we expect to sell. Also the supermarket area is another area that we are focused on in the fourth quarter. So rather than trying to give you an exact number, I can just tell you, it's going to be a cross-section of all those categories I just talked about.

[Haendel St. Juste, Mizuho Securities]

Fair enough. Michael, I guess for you, just curious on thoughts on, I guess, that floating rate that you are heading into what appears to be higher rate environment into '19. And then, more specifically, I thought you have extended year term loan from this November to next November. Curious if you have any more options at your disposal there? And then, how you are thinking about the two pieces of floating rate debt maturing next year the convertible and then the term loan in November?

[Michael Hughes, Chief Financial Officer]

Yes, I mean, definitely some of that. And I'm very focused on during the fourth quarter, we definitely have a plan and a path that we are going to look at our near term maturities and deal with those, and we will go and talk more about that in February. As far as the floating rate fixed exposure, obviously, our leases are mainly fixed and with bonds. But I do think as there's a place for a certain amount of floating rate exposure within this portfolio merely because it's hard to guess where rates are going to go before curve can often get overstated. So I think it's good to have a piece. And I'm comfortable with the figure where it is. I don’t think I would expand that out anymore, though. I think we would kind of stay at that 80-20 split. However, are looking at potentially fixing some of the floating rate debt going forward. So offshore looking pretty attractive and that is something that's on the table. And we will make the decision over the, probably the next couple of months. So it could come down a little bit.

[Haendel St. Juste, Mizuho Securities]

And just to confirm, I think, I read in one of those footnotes that you have is one more extension option for the term loan in November. Is that right?

[Michael Hughes, Chief Financial Officer]

That’s right. So we actually have the first extension, which takes in November '19. We’ve had another one more extension after that, and the line of credit also has a one year extension.

[Haendel St. Juste, Mizuho Securities]

At your disposal? Or is it at the bank?

[Jackson Hsieh, President and Chief Executive Officer]

No, no. That's at our disposal. Of course, certainly, you have to meet certain covenant tests, which, of course, we're meeting. So, yes, it is our option.

[Operator]

Thank you. Our next question comes from the line of Wes Golladay with RBC Capital Markets. Please proceed with your question.

[Wes Golladay, RBC Capital Markets]

When you’re looking at deal flow, where are you seeing the best risk adjusted returns?

[Jackson Hsieh, President and Chief Executive Officer]

Well, for us, it’s specific to our heat map. If you kind of look on our website, I mean, we do take that stuff seriously. So we are focused on sectors that have -- that are a little bit more Amazon-resistant, Sort of, score well on Porter's Five, the way we weighted, which is -- have strong competition dynamics and barriers to entry. So we sort of look at categories like that for us, lot of a service industry is kind of really fit in that box, so the gyms, the entertainment assets, even carwashes to some degree is sort of score well in that, auto service scores well. So we’re focused on those kind of verticals right now, and, obviously keeping an eye on sort of where we’re from a -- from just an allocation of capital standpoint given our existing exposure to the industry.

[Wes Golladay, RBC Capital Markets]

Are you still finding, I guess, good deal flow there as far as, like, not a whole lot of competition, I imagine, in some of those categories. Lot people like, but are you still finding your niches in there?

[Jackson Hsieh, President and Chief Executive Officer]

Yes, I think, what’s interesting for what I can tell -- we’re just getting back into the acquisition front, and so I kind of mentioned in my prepared commentary just those two gym opportunities. The reason I get it was, one was just a deal where we were working with this group for one year was just us, took a long time to nail that transaction down, that was the Alaska Gym’s deal. And then the Lifetime portfolio was a little bit more competitive. It wasn’t really being shopped by a book or anything like this. There were some brief discussions. But we were able to move more aggressively on that. I would sort of characterize the market as all of the companies, at least that we’re competing with, sort of have different areas of interest and focus in any given particular time period. And so, I don’t think they all -- not all of us are chasing the same things. And so, I think that's a big positive in terms of trying to control pricing, and even assets. But I do think that you're starting to see a little bit of cap rate movement up for assets that are not the prime-prime 1031 eligible kinds of assets, so larger portfolios, properties in more rural markets, properties with more complex kind of issues around them. We’re starting to see widening in that area. But if you kind of talk core fee store or core QSR or well-located gym, those are still pretty aggressive.

[Operator]

Thank you. Our next question comes from the line of Spencer Allaway with Green Street Advisors. Please proceed with your question.

[Spencer Allaway, Green Street Advisors]

Based on your full year external growth guidance, it looks like you guys are anticipating around $200 million in that growth in 4Q. Can you maybe breakout how much of that you expect to be attributable to revenue enhancing CapEx even though am sure it’s marginal?

[Michael Hughes, Chief Financial Officer]

Yes, Spencer. It's Mike. So when you look at our capital deployment guidance, it’s 450 to 550. As I kind of walk through at the end of my prepared remarks, and we’re pushing close to -- we’re in the high 400s right now, through Q3, for capital deployment, I thinks it's around 490. So that would imply $50 million, $60 million of additional acquisition in the fourth quarter, which we feel comfortable. I know we could be a little higher than that or could be little lower. We have lots of size for the fourth quarter timing, can be tricky, especially coming to year-end. But I think, we still feel we're comfortable in that 450 to 550 range, and again, we are kind of pushing into 400s right now through Q3.

[Spencer Allaway, Green Street Advisors]

Okay. And then one on your cap rates, what you guys are acquiring in 3Q, obviously, much slower than what you were buying price has been, which makes sense given, obviously, the improved portfolio composition. But is it fair to assume without giving too many details of any near term acquisitions will be done at similar cap rate as you guys continue to enhance the portfolio?

[Jackson Hsieh, President and Chief Executive Officer]

Well, just one thing, I think, when you look at our 3Q portfolio, I think, we had mentioned in some of our meetings, Lifetime is an interesting portfolio, because there is a 10% ramp-up in June of 2020, which will drive our acquisition cap rates of 7% cap based on that ramp up, which is not actually too far away. But I would say, generally, like low 7s, is kind of that area that we are sort of focused on. But you will see that we do a lot higher in some cases, in sometime lower as a blend. But I think if you think about low seven type of yield, is that sort of where we are -- that’s kind of where the blended average share is about for us.

[Operator]

Our next question comes from the line of Collin Mings with Raymond James. Please proceed with your question.

[Collin Mings, Raymond James]

I just want to go back to Haendel's question real quickly regarding the debt maturity profile. Maybe, can you just remind us on how comfortable you feel taking debt to EBITDA going forward? Again, obviously, the guidance for 52 to 54 kind of for this year, but just remind us a parameters there? And as you look at options to address the near term maturities, can you give us any sense on where you would like to push that average maturity out to, again, right now, sub three years?

[Michael Hughes, Chief Financial Officer]

Yes, so on the first question on leverage, we still feel comfortable with this year kind of being at 52 to 54 range. I have said previously, I don’t really -- I don’t want stay at or below 5.5x in the medium term over the really long-term. I have actually take leverage down below that. But that’s not a hard-and-fast ceiling. We could certainly fluctuate above that and come back down later quarters, and of that depends on the timing of dispositions. But generally, I would think about that 5.5x as getting to a point where I want to go much higher. But for closing the acquisition in a quarter that takes above dispositions following on, that's fine. We got free cash flow that we're using to redeploy as well. We have about $30 million at quarter. So we do have some capacity there continue to incrementally bringing leverage down. But that’s going to feel of the goal there. As far as the near-term maturities, I would like to push my weighted average maturities as far as I can. Obviously, the yield curve is a little up. And we have to balance interest rates with that duration. But as we go into this fourth quarter, we are looking to find that right financing or group of financings that would give us the best duration for the best price. And so certainly, a long-term goal we have pushed that duration out. And we are definitely too short right now. We are going to do with that in the fourth quarter.

[Collin Mings, Raymond James]

Okay. And then just switching gears to the comments around the widening of cap rates versus some assets or opportunity. Jackson, just does that change any of the banking around the heat map, again, extensively highlight as far as opportunities? Just, how does -- what are you seeing in terms of the transaction market impact maybe again kind of a heat map discussion?

[Jackson Hsieh, President and Chief Executive Officer]

Look, the heat map is just one tool we use, obviously, we have spent a lot of time on credit. Obviously, tenant credit is critical, right? If you don't get the tenant rate, so really heat map in a good real estate, really strong credit underwriting on tenants. I think that the issue on the widening is just unlike people ourselves and our competitors, I think we’re just being more selective about what we’re trying to do, and obviously with rates going up, that’s scaring some people that might on the margin be incremental buyers. That being said, the 1031 market or what I’d call the traditional down the runway $3 million to $5 million size unit for sale. That hasn't changed at all. And we’re seeing that in the dispositions that we’re trying to pursue as well as things like that come up on a radar screen. So I would just say, it’s really more I’d call buyer selectivity given rates are rising, as sort of a overall comment, but not necessarily tied to our heat map because it’s really all three of the things, heat map, property rankings and credit that we focus on.

[Operator]

Thank you. Our next question comes from the line of John Massocca with Ladenburg Thalmann. Please proceed with your question.

[John Massocca, Ladenburg Thalmann]

Maybe trying touching on acquisitions again and kind of a near term focus, how has hour pipeline changed at all since the September presentation? I know you closed about $6 million more in acquisitions in 3Q versus kind of what was disclosed in that presentation. But you’re around $58 million more in transactions. It sounds like that’s kind of above we should expect for the rest of 4Q. But is there anything else kind of in that pipeline -- kind of gestated it for 2019?

[Jackson Hsieh, President and Chief Executive Officer]

Well, just one thing that’s been difference since the September presentation, we had our first tenant appreciation event here at Spirit. Those couple days, we invited down kind of a lot of tenants and other vendors that we do business with. And that was really a first of the company. And that is -- then is only going to grow. And so as you heard us talk in the past, with over 400 tenants in both companies that we operate, there is no shortage of tenants that we really want to do repeat business with. So one other things that is a high priority here is really continue to focus on that effort. So it's really dig deep with our existing tenants. And you’ll see that, I think, in 2019 and beyond. You always going to have the normal kind of broker transactions that you look at, and you might win one out of five times in those situations. But we really like the idea of one should get to know someone and their business and what they do. It just makes to a construction business better. They like our -- we’re able to construct acquisitions off of our existing tenant base -- lease agreement. We have got much better handle on their operational capabilities, so there are no surprises. And more importantly, my experience so far, I have seen the tenants like that would generally allow us to have a more attractive return, because we’re predictable as a counterparty for them versus just trying to buy assets that have existing leases on them.

[John Massocca, Ladenburg Thalmann]

So it sounds maybe more of a shift to the relationship base -- I mean, kind of talk about more of a relationship basis versus something similar to the Lifetime transaction you did disclose?

[Jackson Hsieh, President and Chief Executive Officer]

Yes, I mean, the Lifetime is unique. That was -- I would call that more of -- look, I have to deal more with Life Time or so in the future, that’s not to say the case. But that was one where as you all know that asset was being sold from a REIT that was going through a private transaction. So and that peripheral asset was something that we had kind of interest in last couple of years actually, that particular portfolio.

[John Massocca, Ladenburg Thalmann]

Understood. And then kind of sitting at the low end right now of the yearend leverage target, it sounds like made comments on call is maybe long-term leverage targets about 5.5. I mean, how you look at kind of balancing equity today versus maybe where you are trading and kind of stimulating external growth, and maybe other metrics to kind of stimulate external growth if the equity markets aren't kind of accommodative?

[Michael Hughes, Chief Financial Officer]

Yes. So we think about the leverage on the fourth quarter, there is some -- I mean, it really kind of depends on the timing of acquisitions that actually close depending on where we end up with at the end of the year. So we have a lot of dispositions and acquisitions in the pipeline and they can have a big impact. So we could end up -- on the low end of leverage we could end up, on higher end of leverage. So when we think about going forward, we do have free cash flow that’s about -- I mentioned $30 million a quarter, which we can deploy. We do have more disposition cap recycling. But when you think about long-term, yes, to really run this business effectively and to do it we want the way, we will issue our equity. And when I think -- I don’t have a specific price target in mind that I can articulate. I think for the right group of transactions with the right returns, we could issue equity. So it just really depends on what things look like at the time that we would raise capital. But we definitely plan to come back and be an issuer of equity at the right time.

[Operator]

There are no further questions at this time. I would like to turn the call back over to Mr. Hsieh for any closing remarks.

[Jackson Hsieh, President and Chief Executive Officer]

Thank you. Well, thank you everyone for joining us today. We are pleased with our results this quarter. Our portfolio remains healthy with the low vacancy and positive same-store growth. Our balance sheet is robust. And we are continuing to source and close acquisitions to create a path for long-term growth and shareholder value. We look forward to seeing many of you at NAREIT this week.

[Operator]

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.