NNN REIT Inc (NNN) 2013 Q4 法說會逐字稿

Greetings, and welcome to the National Retail Properties fourth-quarter and year-end 2013 earnings conference call.

(Operator Instructions)

As reminder, this conference is being recorded. It is now my pleasure to introduce your host, Craig Macnab, Chairman and CEO for National Retail Properties. Thank you, you may begin.

Thank you very much. Good morning to all of you, and welcome to our 2013 year-end earnings release call. On this call with me is Jay Whitehurst, our President; and Kevin Habicht, our Chief Financial Officer, who will review details of our fourth-quarter, as well as our year-end financial results following my opening comments.

2013 was another excellent, productive year for NNN, as we increased our recurring FFO per share by a meaningful 10.9%, expanded our already fully diversified and web-occupied portfolio, all while maintaining a fortress-like balance sheet. As our press release indicated, we acquired 275 net leased retail properties last year, investing $630 million.

The average initial cash yield on these acquisitions was an impressive 7.9%. As you are aware, this attractive yield improves over time as the rent increases contractually over the duration of our very long leases.

One interesting detail of our acquisition activity is that the vast majority of these transactions were single property acquisitions throughout the year, many of which are purchased from existing tenants, with an average investment per property of only $2.3 million. Only two of our deals in 2013 were larger than $100 million in size. So we continue to adhere to our strategy of focusing on carefully underwritten retail properties at low price per property and initial cash yields that are both above what is found in the broker auction market, as well as comfortably in excess of our cost of capital.

This past year, we evaluated four of the large transactions that were being sold by intermediaries, and in several cases, made offers that were not surprisingly less than these portfolios traded for. As many of you are aware, our strategy is to seek as many noncompetitive acquisitions as possible, and we strongly prefer to deploy capital where it results in per share accretion for our shareholders. Paying more than anybody else in a highly competitive transaction simply to increase our size is not appealing to National Retail Properties.

One more point worth mentioning is that we have a strong preference for acquiring retail properties where the rent increases over time. This means that we sell, then purchase, investment-grade properties at very low yields that have flat rent through the duration of the lease.

Our portfolio continues to be in excellent shape and at the end of the year, we were 98.2% leased. By the way, this is the tenth consecutive year that we have been at least 96% leased, which speaks to the stability and consistency of our portfolio. Over the next three years, we have very modest lease rollover, with only 4.7% of our leases coming up for renewal through the end of 2016.

As of the end of the year, we are at 1,860 properties, which are leased to over 300 different national or regional tenants in 47 states. These tenants operate in over 30 different segments of the retail industry, which provides us with very broad diversification. On average, these tenants are contractually obligated to pay us rent for approximately 12 more years.

Last year, we continued our multi-year track record of capital recycling, selling 50 properties for $61 million, generating solid gains that are not included in FFO. Importantly, the sale of these properties has the effect of qualitatively strengthening our portfolio, as many of these dispositions involve the sale of weaker assets.

In conclusion, our portfolio is in excellent shape, and very importantly, as you will hear from Kevin, our balance sheet is fortress-like, which will allow us to take advantage of the carefully underwritten acquisitions that we expect to make this year. Finally, although it is still early in the year to be making predictions, we are cautiously optimistic that 2014 will mark our 24th consecutive dividend increase. Kevin?

Thanks, Craig, and I will start with the usual cautionary statement that we will make certain statements that may be considered to be forward-looking statements under Federal Securities Law. The Company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we may not release revisions to these forward-looking statements to reflect changes after the statements were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the Company's filings with the SEC and in this morning's press release.

With that, this morning we did report fourth-quarter FFO of $0.50 per share, as well as recurring FFO of $0.51 per share, and AFFO of $0.52 per share. For the year 2013, we reported recurring FFO of $1.93 per share, and as Craig mentioned, that represents a 10.9% increase over 2012's $1.74 per share results.

For the year, AFFO increased 8.2% to $1.99 per share. As Craig mentioned, 2013 marked the 24th consecutive year of increases in our annual dividend paid to shareholders and our payout ratio has now decreased to 80% of AFFO.

This quarter's, and this year's, strong results were a combination of maintaining high occupancy, making accretive acquisitions, while keeping our balance sheet more than strong. Occupancy was up to 98.2% at year end. That's up ten basis points from prior quarter and up 30 basis points from a year ago.

As Craig mentioned, we completed $60 million of accretive acquisitions in the fourth quarter and $630 million during 2013. Over the past three years, we have acquired over $2.1 billion of properties, funding 80% of those acquisitions with permanent capital, that would be equity and asset dispositions, with the over 20% largely funded with 10-year fixed-rate debt. With interest rates of near 30-year lows, we are not particularly tempted to fund with short-term debt.

But let me go to a few details on fourth quarter. Compared to 2012's fourth quarter, rental revenue increased $14 million, or 17%, and that's primarily due to the acquisitions we made over the past four quarters.

In place annual base rent as of December 31, 2013 was $395.6 million on an annual run rate as of year end. Property expenses net of tenant reimbursements for the fourth quarter totaled $1.6 million, and that compared with $1.3 million in the immediately prior third quarter.

G&A expense decreased to $7.4 million in the fourth quarter. The decrease was largely attributable to lower incentive compensation expense.

Full-year 2013 G&A expense came in at $32.6 million, which is a 1.2% increase over 2012. But the big picture bottom line on 2013's results are that the core fundamentals -- occupancy, rental revenue, expenses -- they are all performing well, with no material surprises or variances, and 2013 marks the third consecutive year of 8%-plus per share growth.

Now turning to the balance sheet. After a busy first half in 2013 in the capital markets, we were able to stand aside when capital markets got more volatile and less friendly in the second half. During 2013, we retired $223 million of principal amount of our 5 1/8% convertible notes.

Notably, and this is really below the surface if you're not looking closely, but we funded 100% of our $569 million of net -- acquisitions net of dispositions. We funded 100% of net acquisitions with common and preferred and retained earnings, yet we were still able to deliver strong per share growth. This positions our balance sheet, we think, very well for future acquisitions.

Year-end leverage metrics. Total debt to gross book assets was 32.9%. We have only $46 million outstanding on our bank line, leaving $454 million of availability on that bank credit facility.

Debt to EBITDA was 4.2 times for the quarter, fourth quarter. Interest expense was 4.5 times, and fixed charge was 3.1 times, despite the fact we had a large preferred offering in May. Only 6 of our 1,860 properties, well under 1%, are encumbered by mortgages totaling under $10 million.

So despite the significant acquisition activity over the past three years, our balance sheet remains in very good shape. 2013 was another good year of strong per share results, and we are well-capitalized to make 2014 another good year.

We do continue to believe we are well-positioned to deliver the consistency of results, dividend growth, and balance sheet quality that has supported attractive absolute and relative total shareholder returns for many years. And with that, we will open it up to any questions. Thanks, Diego.

Thank you. We will now conduct a question-and-answer session.

(Operator Instructions)

Juan Sanabria, Bank of America. Mr. Sanabria, your line is open. We'll move on to the next question.

Dan Altscher, FBR.

Thanks. Good morning, everyone. Looks like a pretty nice quarter.

I noticed there was no updates to the 2014 guidance, and I'm wondering -- just looking and based upon this quarter's on both FFO and AFFO, looks like you are well in excess to exceed even the top end of your guidance for next year. Just wondering what the current thoughts are around that?

None of our key assumptions for the year have really changed at this point, so we weren't looking to make a change in our reforecast in our guidance. The year continues to shape up pretty much as we planned. We anticipate, or guided to, $300 million of acquisitions; G&A expenses, $33.5 million, $34 million; no real change in occupancy. So we don't really see any real fundamental reasons for us to be tweaking our guidance at this point in time.

Okay, and maybe a question for Jay. From what I could gather, it looked like fourth quarter in general for retail net leased, cap rates continue to compress. Looks like there was not a lot of supply, and maybe some year-end demand rush for year-end buying.

What are you seeing now early on in January into February? Is that trend continuing, or has that year-end demand slowed down a little bit?

Dan, this is Jay. We feel like the pipeline looks good for 2014, nothing really notably outside of typical. There is enough good product out there, and cap rates continue to stay low and feel some compression.

There is a lot of money chasing after quality deals. We feel like with our focus on dealing with the retailers directly and sourcing our properties off market, we feel comfortable with hitting, and hopefully exceeding, the guidance that we have given.

I guess presumably, though, still even in the noninvestment grade market, you are still seeing some tightening or compression of cap rates, at least over overall 2013 levels, though?

Certainly no loosening, and I think you could say some tightening.

Got you, thanks so much.

Emmanuel Korchman, Citigroup.

Good morning, guys. Jay, maybe we can stay on the same topic for second. In the years you have been doing this, how long does it take to trickle down in sort of -- or the compression in cap rates for the broader market to reach the retailers and bring those relationship deals, or put pressure on those relationship deals you guys have been able to do?

Manny, the beauty of doing -- calling on retailers directly and being the capital partner for these strong retailers, is that we are not just selling cap rate. We are selling certainty and reliability, as well.

And so there is some value to our relationship partners in that -- in those other attributes. And we get a benefit in the cap rate for that.

You always have to be at, or near, market with your relationship retailers, but there is more than just cap rate going on in the discussions we have with our folks, and I think that is an enduring value. That is -- it is very hard to build these relationships, but it is worth the work, from our perspective.

I think Manny -- this is Kevin. You see the ten-year run-up late last year and the somewhat knee-jerk reactions that say, okay, cap rates are moving higher because the ten-year has moved up 100 basis points.

There is not a direct one-for-one cause and effect there, and the timing is, I don't think, well-defined. We are in a market that obviously is influenced by the cost of capital, but there's other forces that are around.

Great. Kevin, you mentioned there are no major changes to your 2014 guidance assumptions.

But you did mention that G&A was lower in the fourth quarter than you expected. Is your G&A guidance still the same?

Yes, for next year, $33 million to $34 million. So yes, if you think about fourth quarter relative to that run rate in 2014, we were a little light in the fourth quarter on G&A relative to that. Again, it's primarily related just to compensation accruals.

Got it, thanks, guys.

Jonathan Pong, Robert W. Baird.

Good morning. This question is for Kevin.

For 2014 guidance, were you guys assuming, you're due with a $150 million security note that's expiring in June. And through another debt issue, what all-in rate do think you could get on a comparable ten-year note today based on your credit?

Yes, I think June 2014, $150 million comes due. It is a 5.9% effective rate, I think of a 6.25%, 6.15% coupon. We look to take the -- refinance that in our normal course of capital-raising activity.

If we were issuing ten-year debt today, I think we would be in the low 4%s for ten-year fixed-rate debt. So it will be decretive refinance, if that is the question.

Jonathan, just to supplement that, we are going to continue to -- following our strategy of terming outside debt, certainly the short-term debt available at lower coupons. We think at that kind of cap rates Kevin -- at the kind of yield Kevin mentioned, ten-year debt is awfully attractive. I am sure in 2015 we will be thinking about the same.

Makes perfect sense. And this is just digging into the Q4 acquisitions. Can you give us a sense of the quality of these deals, whether it's from a lease to ratio perspective or investment-grade concentration?

Yes Kevin, Q4 acquisitions were right down the middle of the fairway for our typical portfolio. I think we -- 12 of the 14 properties that we acquired were from our existing retailer relationships. I think it was with nine different retailers in that mix.

And the average per property for the fourth quarter was a little higher than average, but that is because there was just a couple of somewhat bigger boxes in there, but nothing outside the norm of our portfolio mix. And the pipeline looks the same, as well.

Okay. And I know you guys haven't historically given this out, but in terms of your entire portfolio, what percentage would you say is investment grade or investment grade-like in terms of quality?

I won't speak to the investment grade-like, because I guess that's in the eye of the beholder, but investment grade-rated is right around 20% for us. And a lot of that comes from tenants who actually have improving credit, and we have noted that in prior discussions, where over recent years we have seen a number of meaningful, larger tenants actually have tenant improvements of significance.

All right. That is helpful, thanks a lot.

RJ Milligan with Raymond James.

Good morning, guys.

Hi, RJ.

What was the cap rate on the acquisitions in the fourth quarter?

RJ, we don't give out specific information too much, but I think we did say that the last year was at 7.9% for the year, and the fourth quarter was a little better than that.

But generally it is in line, 30%-plus kind of the year.

Okay, thank you. And I noticed, obviously, the acquisition volumes in the third quarter were a little bit lighter than the first half of the year -- $90 million, and $60 million in the fourth quarter. Just trying to get an idea of how you guys are thinking about timing in terms of acquisition volume for next year, and if anything held up the acquisition pace in the back half of the year that you think might trickle into 2014?

RJ, I don't think there was anything that spilled over from 2013 that we have are ready closed in 2014. Right now, our outlook is solidly in line with the guidance. In terms of a question somebody asked earlier, with our differentiated strategy of sourcing retail deals, earlier this morning, Jay and I reviewed our travel schedules for the next 45 days or so, and I would observe that Jay is on the road almost every week with acquisition officers, visiting existing tenants, as well as a couple of new opportunities that we have been working on.

So we are pretty comfortable with our outlook. I think our first quarter is shaping up to be a nice, solid quarter. And if we have the opportunity to raise guidance during 2014, I promise you, we will be as happy as you are.

Thank you.

Dan Donlan, Ladenburg Thalmann.

Thank you, and good morning. Craig and Kevin, you guys have always been pretty conservative with guidance, but I think this one might take the cake here. Your run rate is $0.51, and your midpoint of guidance would assume like a $0.49 run rate on the FFO. So just trying to figure out how we bridge the gap to get to that level.

Are you anticipating some major tenant move-outs? Are you anticipating a refined $150 million of debt with, say, a $300 million or $400 million offering in the first quarter? How can we get to the $0.49?

I think one of the things I alluded to earlier, G&A is probably $0.01 per quarter of that in there. If you look at our fourth quarter, G&A of $7.4 million, and you compare that to, call it $33.5 million, $34 million in 2014, that is closer to $8.5 million, so there is $1 million in that number, just because I think G&A was somewhat artificially low in the fourth quarter.

So that may be half of the delta maybe you're thinking about. But other than that, I don't know in terms of your model, or --

I think -- just one more thing, I think your comment earlier is accurate, that we're not going to refinance the $150 million with an offering of $150 million. We are certainly going to do a benchmark-size deal.

And in the recent past, those deals for us have had a [three in front]. Who knows, we might even do it -- if rates are attractive, we might do it a couple of days premature.

Okay. But again, Kevin, if that's half of the delta, then you still have $300 million of acquisitions. You don't need to raise any equity. It just seems to be highly, highly conservative, not to move the guidance up even just a touch.

No, we like how we are positioned. You are correct that we don't need to raise equity, and we may or may not, but again, we try to be opportunistic on the capital front.

It has served us well over the years, including last year. So we will see how it unfolds, but this is the guidance where we are at the moment.

Okay. As it pertains to the fourth quarter, going back the last three fourth quarters, you have done, I think it was $270 million in the last fourth quarter, $300 million-plus in the quarter before that, and somewhere above $100 million in 2010, so why was this fourth quarter so light relative to years past? Normally, this is a pretty big quarter for the [net lease reads], and is this something that was specific to you guys, or was the market in general relatively soft in the fourth quarter?

Dan, you've asked an interesting question. I think it's a differentiated point about National Retail Properties, so we are going to continue to emphasize that we are not volume-oriented.

We are selective and disciplined about deploying capital. We are looking to acquire properties in off-market transactions at very good yields.

In calendar 2013, an initial cash yield, on average, 7.9%, with growth coming from almost every single deal, that is hard work that we planned to do it. We are not motivated in the belief that more is better, especially if you are effectively just trading dollars. Raising equity and investing at very low yields, where there is no rental growth, doesn't make sense for us.

Okay. And then, there has been some talk of some retailers, I think Darden's right in your backyard there, potentially doing a large deal a sale leaseback transaction. Are you starting to get more inbound calls from people that are looking to do more opportunistic type of deals like that, or what is your thought process there? What have you been hearing?

Dan, that gets into an important part of our strategy again. And I appreciate these questions, because our core acquisition approach is to be proactive, not reactive. Almost by definition, when we respond to somebody calling us, we should probably assume they have called every single other one of our other competitors.

Doesn't matter if you get the first call or the last call, you just want to be in that process. But while we do play in that game, as I mentioned in my prepared remarks, and we make offers, we are not chase -- we are not trying to be the highest bidder at the lowest yield. So there are some deals out there, and I have every confidence that in 2014 we will get our fair share.

Okay, thank you.

Rich Moore, RBC Capital Markets.

Hi. Good morning, guys. Thank you, by the way, Kevin, for the additional disclosure on the debt conscience that you have. I'm curious, going back to a previous question, is the $0.02, call it, of interest-rate savings, baked into your guidance, or would that just be gravy when that occurs?

No, that is baked in our guidance, we have assumptions. Like Craig said, it will make a difference as to when we pull the trigger on issuing debt this year, and so that can go a long way to moving a needle positive or negative, depending on the timing. But yes, we have assumed we have financed that debt, and that is included in our guidance.

Okay, good, thank you. And then there has been more talk lately, it seems, from the banks about what they are going to do with their branches. I am wondering what you guys are hearing, and if you have any concerns for the bank portfolio, the branch portfolio that you have now?

Rich, I think in every category there is always chatter about what may or may not happen, and so forth. But the good news about our -- the SunTrust portfolio we purchased, is two really, really important things that gave us terrific comfort when we did our underwriting.

The first one is keep -- those branches, on average, have more deposits than SunTrust has across their portfolio. So we are dealing in the top half of the barrel.

Secondly, our average dollar investment in each property was only $1.7 million. And if you go out there in the marketplace, take a look at Loopnet or NNN 1031, you will see that bank branches that are above average in deposit base sell for well north of $1.7 million. So at a low price point, we have very good branches; it's a good position to be in.

Okay. So Craig, you are not hearing increased chatter from SunTrust or others that bank branches are on their way out?

Rich, absolutely not. Definitely not in that. Let me give you a little bit of commentary.

We live down here in the sun in Florida, and interestingly, JPMorgan Chase is [eating] Florida aggressively, and how are they doing it at the retail level? They're opening bank branches. JPMorgan's probably pretty smart folks, and they think that a retail strategy makes sense to them.

Okay. Got you, and by the way, the weather in Cleveland here is pretty nice, too. (laughter)

Well, when you move to Florida you will find you can play tennis 52 weeks a year outdoors.

I think that might be true. On dispositions guidance, did you give any guidance for this year? And if you didn't, what are you thinking in terms of your appetite for additional dispositions?

Our typical assumption is that we will find, again, our fair share of dispositions. And we usually grow an amount of around $40 million to $50 million in any given year as a base amount.

And as we go through the portfolio, we may ramp that up a little bit, as we did last year and the year before. But it's a fairly modest amount in the scheme of things.

Okay, and then real quick, Kevin, on this mortgage residual interest that you impaired. Is there anything special we should know about that?

Are you getting rid of that? Is that why the impairment -- or what is happening?

No, that is a long -- that asset we have owned for a long period of time, and actually it performed very well. We paid $9 million in 2005 and so far we have gotten back $40 million in the last eight or nine years. So it's been a home run. The downside to that investment, which we don't plan making any more of those, this was the special circumstances, that you have quarterly mark-to-market accounting.

And so you have to go through -- we have a third-party valuation that goes through this securitization waterfall, present value discounting, to come up with what they think the value of the residuals are. And depending on the performance of the loans, which they have actually been pretty good, and their anticipation for prepayment fees, et cetera, they come out with a new valuation. So that was lower this time.

It is on our books for, I think, around $11 million at the moment. It's a very small asset. We still are making good money off of it, and we have made tons of money off of it over the years, but it creates some accounting noise with these non-cash impairments every now and then. So if you look back over the years, you'll see it pop up every now and then.

Okay, good. Thank you. And then the last thing I had, I just wanted to go back to Dan's question on Darden. They are very actively looking to do something with their real estate. Have you actually talked to Darden at all?

Rich, we're trying to talk to every retailer that we think has real estate that might sell.

Very good, thank you, guys.

Cedric Lachance, Green Street Advisors.

Thank you. I actually just want to go back to Rich's question on disposition, but taking it a little bit broadly. Craig, you differentiated the Company by being a more active participant in disposing of assets than perhaps some of your competitors.

The environment of low cap rates, the environment where your [accretive] market's been more volatile, where is this fitting in your financing plans? And how can it increase over the next year or two, given the environment in which we are?

Cedric, thank you for picking up coverage, and it's a thoughtful question. We are always evaluating, debating internally. But one of the things that we have decided is that selling a very low cap rate property probably means you are selling an excellent asset, and we just don't think that makes sense, even at these [kind of] cap rates.

Our strategy is slightly different. We want to sell properties from the bottom half of our portfolio. And in 2013, we did sell some of the SunTrust Bank [watches], but aside from that, we did a very good job of selling some weaker assets.

So, the approach is two things. One, qualitatively improve the portfolio, and then, two, use dispositions as a source of capital when you need it.

I think you, more than most people on this call, are an NAV fan. And when NAV's in our -- or not in our favor from an equity standpoint, we've got a lot of properties that we can sell, and we have shown a willingness to do it.

Just as a reminder, on that note is that we have, over the years -- we have about a three- or four-year period, we've sold about -- over $1 billion worth of properties. And so it gets to the point -- we are not gun-shy about selling properties when we think appropriate. Nobody has sold as much as we have in our arena.

If I think about the pool of properties you could be drawing from, so if you think about the asset quality you may not want to keep over the longer term, what percentage of your portfolio is that?

Cedric, this is Jay. I think that maybe a little bit broader answer to your question, the -- our disposition strategy and activity is affected for the positive in our acquisition strategy of dealing directly with the retailers. When we are buying from the retailers, they are self-selecting those properties that they want to -- that they are committed to, and want to sign a 15- or 20-year lease on.

And so we are not buying from the retailers a broad spectrum of properties that are -- some are great, most are good, and some are bad -- we are buying a better spread. If all portfolios are a bell curve, our properties are skewed to the good, high quality side of that bell curve. And so what we found is that when we look back through the portfolio, we don't identify a high percentage of properties that we are really unhappy with owning for the long period of time.

I don't have a specific percentage for you on your question, but in general, our properties are at the top of the retailers' spectrum. And I think that is reflected in how will the occupancy rates has held up through good times and bad.

Okay. Just being on the topic of dispositions, in regards to what was sold during the year, you booked an accounting gain of $5 million. Would there have been a gain if you had been calculated on the acquisition costs of these assets?

Cedric, I will have to get back to you on that. I don't know the answer to that question on this group, so I will circle back to you on that.

Okay. And then just thinking about occupancy rates, if we were to think of your portfolio, just on the same property basis, so basically what you owned a year ago, would occupancy have grown in that portfolio, or is the occupancy growth that we've seen this year a function of assets that's been acquired?

Cedric, I don't have that exactly in front of me. But I think what happened is that our leasing activity offset almost dollar per dollar, or property per property, those that were not renewed.

Just to go to your question, we are up a few basis points in terms of occupancy. We have 33 vacant properties at year end. I don't recall from last year, but I'm guessing it was 35 or 37.

To your point, I would say we were pretty flat in terms of number of vacant properties for the year. So the small uptick in occupancy is in part driven by the denominator impact.

Okay, thank you.

Todd Stender, Wells Fargo.

Good morning. Craig, you mentioned that you did participate in some of the portfolio options. How big are you guys comfortable going? We are used to the one-off acquisitions, maybe small portfolios, but wanted to get some color on how big you are looking at, and just based on size?

Todd, that's an interesting question. It doesn't occur to me to think about in terms of size, I think about it if it makes good sense for shareholders. I am sure the size is the right thing to do.

Can you can still maintain your strict underwriting? I know when we talk about large portfolios, there's obviously some properties you probably would dispose of sooner than later. Can you still maintain your strict underwriting when you look at those?

Todd, I think, as I said in my prepared remarks, and I appreciate the question, we evaluated all of those large deals. Several of them had assets in them that we underwrote, and frankly didn't like, and we priced them accordingly. As a result, our offer for some of those portfolios was less than what they cleared for.

So, you are 100% correct. We are going to continue to underwrite each and every property. If there is a larger deal out there that make sense for our shareholders, we are absolutely going to do it.

Great, thank you.

(Operator Instructions)

Juan Sanabria, Bank of America.

Good morning. Just a general question on how you think about your cost of capital, particularly on the equity side, relative to the cap rates you are seeing. And if you could just comment on what you are seeing in the cap rates in terms of, have they fluctuated at all with some of the volatility we have seen? And apologies if you've hit on this earlier, as I joined late.

Yes, I think, as I've alluded to earlier, it is not a direct one-for-one correlation between cap rates and ten-year debt or our share price, to be quite honest. But our cost of capital, from an accounting cash cost standpoint, a lot of companies, I think, gravitate to some measure around the inverse of the -- their multiple, if you will. So you are suddenly showing a 6% accounting cash cost of capital.

We tend to, in our minds and in our thought process, and as we think about allocating capital, burn in that cost of equity at a higher rate, something closer to what we might think a reasonable investor might expect as a total return over the near to intermediate term. And so we tend to burden it a little higher, and hence, I do think that helps us be a little more selective as we allocate capital and make sure that it is impactful to the bottom line.

And Juan, as a relates to cap rates, we did talk about that earlier, but the short answer is that competition remains very strong, and cap rates are staying down, and perhaps even compressing further in the retail net lease world.

Great. Thanks, I appreciate it.

There are no further questions at this time. I will turn the conference back to Management for closing remarks. Thank you.

Diego, thank you very much. Folks, we appreciate your participation, a couple of excellent questions there. We look forward to talking to you -- many of you in the months ahead, as we are on the road a little bit.

And if nothing else, we will see some of you at these conferences. Thank you very much.

This concludes today's conference. All parties may disconnect. Have a great day.