NNN REIT Inc (NNN) 2015 Q3 法說會逐字稿

Greetings, and welcome to the National Retail Properties Third Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Craig MacNab, Chairman and CEO for National Retail Properties. You may begin.

Rob, thank you very much. Good morning, and welcome to our third quarter 2015 earnings release call. On this call with me are Jay Whitehurst, our President; and Kevin Habicht, our Chief Financial Officer, who will review details of our third quarter financial results, following my brief opening comments. In addition, Kevin will update you on our guidance plus provides some of the key assumptions for how we envision 2016 unfolding.

We've just completed another consistent, predictable quarter at NNN. As indicated in our press release, we are projecting another year of terrific FFO per share growth. We are delighted that we are maintaining our full year track record of high single digit growth [in] per share results.

In the third quarter, we had an extremely active quarter, acquiring 97 properties and investing $264 million at an initial cash yield of approximately 7.15%. When the rental growth from these properties kicks in, we will receive an average yield from these acquisitions that will be in the low 8% range.

This quarter, our retail properties were acquired from 14 tenants in 29 states across 11 retail lines of trade. So again, very well diversified and further evidence that our differentiated deal sourcing capability is excellent.

By the way, the average lease maturity for the third quarter acquisitions was 18 plus years. We are very pleased that so far this year we've invested $567 million in 190 different properties at an initial cash yield of just below 7.2%. As a result, we are now projecting to acquire around $650 million of retail properties this year.

Our fully diversified portfolio continues to be almost fully occupied and is now just over 99% occupied, which reflects a slight uptick from prior periods. This exceptional occupancy reflects two things to me. Firstly, the merits of well located retail properties, which generate extremely predictable cash flow for a long period of time.

And then secondly, the success of our selective disciplined acquisition approach along with careful underwriting of each and every property. Based on the tenant financial information that we receive, our tenants remain in very good shape. In addition, the announced acquisitions of Rite Aid and Pep Boys will result in meaningful credit upgrades for both of these tenants.

National Retail Properties continues to be very well positioned. Our balance sheet is strong, our portfolio is in excellent shape and from a growth perspective, we have a multi-year track record of sourcing through our differentiated approach well located retail properties for acquisition. Kevin?

Thanks, Craig. I'll start with my normal cautionary language that we will make certain statements that may be considered to be forward-looking statements under Federal Securities Laws.

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, headlines from this morning's press release include reporting record third quarter FFO and recurring FFO of $0.58 per share, which represents an 11.5% increase over prior year results. As we noted in the press release though, these amount do include a rent settlement income from a prior tenant of $1,950,000. So excluding that income, results would have been $0.57 per share of FFO and recurring FFO for the quarter and that represents a 9.6% increase over prior year results.

Year-to-date, per share results increased 8.5% to 9% or about 8% if you exclude this rent settlement income. So anyway you look at it, NNN is producing very good year-over-year results, and continuing a string of years with 7% plus growth in per share results. As we've noted in the past, we've not achieved this result with using more leverage or shorter-term debt or variable rate debt and we continue to operate more efficiently with year-to-date G&A expense as a percent of revenues declining from 7.8% in 2014 to 7.0% in 2015.

And if you look, over 90% of 2015 year-to-date incremental revenue has found its way to the bottom line, and that includes covering increased interest expense due to higher outstanding debt amounts.

As Craig's comments indicated, the acquisition pace quickened in recent months and we are now guiding to around $650 million of 2015 acquisitions. This has allowed us to raise our FFO per share guidance for 2015 to $2.20 to $2.23 per share, which is a $0.04 increase over prior guidance. So 2015, we're on track to perpetuate growing our per share results on a multi-year basis, while maintaining a strong balance sheet. The annual base rent for all leases in place as of September 30, 2015 was $476 million.

As Craig mentioned, occupancy continues to hold up well, ending the quarter at 99.1%. The portfolio is in pretty good shape. We continue to have tenants being acquired by higher rated retailers as Craig noted with the most recent announcement of Walgreens acquiring Rite Aid, which at the margin will help our Rite Aid credit and we do have more Rite Aid's than Walgreens. So it's really a net credit positive for us. Also Bridgestone announced its acquisition of Pep Boys, which we have 16 stores or about 1.5% of annual base rent and that'll be a notable credit improvement for us as well.

During the third quarter, we increased our quarterly dividend 3.6% to $0.435 per share. Our year-to-date AFFO payout ratio is 75%, 75.0%, which is about where it should end up for the year. And 2015 marks the 26th consecutive year of increased annual dividends for NNN, something that only three other REITs can say and less than 100 US public companies. The consistency of these results and our long-term perspective in managing the Company have been critical components of that track record.

We also introduced 2016 FFO guidance this morning of $2.28 to $2.34 per share and AFFO guidance of $2.32 to $2.38(sic-see press release �$2.33 to $2.39�) which suggests 4% plus growth in results based on our current assumptions and those assumptions include; one, $400 million to $500 million of acquisitions in the high six cap range with a little over 60% closing in the second half; two, G&A expense of $35.5 million and that does not include $1 million of real estate acquisition transaction costs; number three, no change in the occupancy; number four, $1.8 million of mortgage residual interest income, which is about flat with this year; number five, property expenses net of tenant reimbursements of $5.6 million and that's flat with this year and then lastly, $75 million to $100 million of property dispositions. While we don't give any guidance on our capital market plans, you can assume we will maintain one of the more conservative balance sheets in the industry.

And turning to the balance sheet, we raised $38 million of common equity in the third quarter, primarily from our ATM equity program and we raised $125.6 million during the first nine months of 2015. And as you can calculate from our disclosure, our average selling price for the year was just over $39 per share. For the trailing 12 months, we've raised $330 million. This equity coupled with $48 million of dispositions and $41 million of retained earnings over the past 12 months totals $419 million of equity-like capital which has funded 64% of our $653 million of acquisitions made over the past 12 months.

At quarter end, we had $282 million outstanding on our bank credit facility. However, three weeks after quarter end, we paid off that entire amount with the proceeds from our recent $400 million offering of 4% notes due 2025 and despite a very choppy corporate credit markets over the past couple of months, including some deals that got pulled due to poor conditions, our offering was well received and nearly five times oversubscribed. Pricing on that transaction with only 10.5 basis points wider than our May 2014, 10-year note issuance. So we're well positioned from a liquidity perspective.

The weighted average debt maturity performing this recent debt offering and paying off our bank line and paying off $150 million of debt that comes due next month is [right at] seven years. And we currently have no floating rate debt. So our balance sheet remains in great position to fund future acquisitions and weather potential economic and capital market turmoil.

Looking at September 30 leverage metrics, debt to gross book assets was 34.9%, debt to EBITDA was 4.6 times at September 30, interest coverage was 4.8 times for the third quarter and 4.7 times for the first nine months. Fixed charge coverage was 3.4 times for the third quarter and 3.3 times for the first nine months.

Only eight of our 2,231 properties are encumbered by mortgages that totaled $24.5 million. So despite the significant acquisition activity over the past four plus years, our balance sheet remains in very good shape. So 2015 will be another good year for NNN. 2016 looks like we can continue that trend of recent years.

We've been reminding investors in some of distinctives which largely come from maintaining a consistent strategy for 20 plus years. We remain focused on a single property type. We believe retail properties offer better risk adjusted returns over the long term compared to other net leased property sectors and our core competency is in retail properties.

Additionally, we've always maintained a conservative balance sheet profile and we don't plan to change that. We like the optionality that creates especially if the capital markets become less friendly.

So our strategy has been very consistent for years. Our overriding goal remains to grow per share results and manage our balance sheet on a multi-year basis, and if we do this, we are optimistic we'll be able to perpetuate our 26th consecutive year track record of raising our dividend, which has been an important part of consistently outperforming REIT equity indices and general equity market indices for many years.

And Rob, with that we'll open it up to any questions.

(Operator Instructions) Nick Joseph, Citigroup.

This is [John here with Nick]. On the investment side, could you give us an idea of what you're seeing on current investment spreads and any color on competition you're seeing on bidding?

I think that so far this year and frankly, what we're looking at next year is cap rates appear to have stabilized. The markets continue to be robust. There are lots of properties available and we're going to continue to be selective as we look at assets.

In terms of investment spreads, do you guys have a number?

Investments spreads against what so?

Acquisitions versus dispositions?

Dispositions. Well, we are going to acquire a lot more than we're going to sell, but I think that given that we sell a very small number of properties, the disposition cap rates moves all over. In this current quarter, the disposition cap rates on average was about 6.85%. So obviously that's very attractive source of capital and we deployed the money accretively. But to be honest, we don't really think about that very much because it's a very, very small source of capital. We sold $8.5 million of properties. A couple of those were and generally right now, we're selling assets that we think over the medium term other people are better owners of than we are.

RJ Milligan, Robert. W. Baird.

Craig, just touching on the disposition side, given the fact that cap rates have moved lower and continue to stay low, there's a lot of appetite in the 1031 market, have you thought about increasing some of those dispositions and maybe you could provide us some color in terms of what specific industries there is more demand for in the 1031 market versus where there's not a whole lot of demand?

So, RJ, two things. Let me answer the first one in terms of amounts. You might recall that we have maintained an in-house team that focuses on dispositions for us and frankly this team has been in place for close to 10 years, they're very good at it and occasionally respond to, as you say, 1031 opportunities that we think are mispriced and certainly when buyers or people completing a 1031 exchange have time pressures, it creates opportunities for us. And as it so happens in this current quarter we're seeing just a little bit of that.

The amount of disposition guidance for 2016 that Kevin is talking about is slightly higher, frankly, it's double what we've currently sold this year, $75 million to $100 million versus the approximately $35 million this year. So you are going to see us continue to selectively sell assets, some of which we think are mispriced and some of which are weaker assets. We have very good assets. We just don't see the point in selling a great asset, even if we can realize a price that is on its face appealing.

In terms of the types of assets, the sweet spot generally for net lease retail properties is a smaller asset size. So if you want a single point estimate, it's about $2.5 million. In terms of what those are, the most attractive property type into that market are branded quick service restaurant properties which will sell in the $1 million to $2 million size range, and then as you start getting above that, you're into the full service restaurants category.

I do think that in the big picture for National Retail Properties, sure, we have 2,200 different properties, all of which are cannon fodder for disposition if we choose to do it. But over the multi-year timeframe, we build more value for shareholders by expanding that portfolio then by selling assets.

Okay, thanks, Craig. Curious if you guys since we're seeing a lot of the retailers look to either spin-off their real estate or do sale leaseback transactions, are you seeing an increase in the number of retailers (technical difficulty) that want to monetize their real estate and potentially increase the number of sale leaseback transactions we'll see next year?

We are in dialog with folks on a number of those kinds of opportunities. As you've heard us say before, we see all the deals that are out there and as you know, our focus is on building programmatic relationships with retailers and for us, this has been a great year for that. About 85% of the dollars that we've invested this year have been with our direct relationship tenants. So this has been a spectacular year for us.

We have 39 different retailers that make up our relationship business for this year and so that is certainly the sweet spot and the bread and butter for us and we are calling on the other retailers, a number of whom are in situation you've talked about where they've got real estate to be monetized to try to continue to grow that business for us, but I just can't reiterate, this year has been just a great year for us with relationship business.

Thanks, Jay. And one last question on Texas, 20% of the rents coming from Texas, curious what if we're seeing any fundamental weakness in terms of (inaudible) same-store sales or any sort of disruption there given what's going on in the energy markets, and two, if that presents an opportunity to potentially increase your exposure there, or if you would be adverse to increasing your exposure in Texas, given potential disruption?

RJ, it's a fair question. And when we take a look at the tenant financial reporting, which we are getting for many of our properties. We are not seeing distress. For sure, the price of oil is a lot lower but if you take a look at what's going on in Texas, job creation continues to be very, very high. Through September, I think that they've created more jobs this year than even California which is a state double the size in terms of number of people. So our portfolio in Texas continues to do well.

Just a little more color on that. As you're aware, ironically, in the C-store space, gasoline margins widen when the price of gasoline is going down. So our convenience store tenants continue to do very well. I guess its good or bad news. In Texas, distances are wide and people drive their cars of lot. So, the gasoline volumes continue to be very good.

In terms of whether Texas is an opportunity for us or not, we actually are very, very bottoms up focus. So each and every property that we acquire is individually underwritten by our team. And then, here at corporate in our investment committee, we are making risk-adjusted capital allocation decisions. If we see a good opportunity in Texas, we will jump on it tomorrow. If we see a better opportunity in Florida, we'll do that in lieu of the property in Texas. So, I think the overriding comment, RJ, is that our portfolio is in extremely good shape right now.

Thanks, Craig. And one last question for Kevin, real quick, is the acquisition guidance for 2015, I think I missed that, what is the full year acquisition guidance for 2015 and then, did you give us 2016 number for equity (multiple speakers)?

2015, around $650 million, $650 million for 2015 and then for next year, $400 million to $500 million with a little over 60% of that penciled in for the second half of the year.

Vikram Malhotra, Morgan Stanley.

So just on the cap rate guidance for next year, Craig, you mentioned sort of seeing maybe a stabilization in the cap rates, but I think the high sixes would represent sort of another, maybe 20 basis point, 30 basis point decline. So, is this reflect maybe just different assets that you may be seeing or just some further compression over the next six months or so?

Yes, Vikram, thanks for noticing. I think that the average cap rate is very much a function of what the mix of assets are and I think cap rates are very, very stable. So far this year, we've been able to come in just above 7%. Some of that was properties that we contracted to purchase in calendar 2014 that closed this year, some of which is our development funding where historically we've been able to get higher returns.

I think at a high level, the difference between the 10 basis points or 15 basis points is really not that much of a game changer. I think cap rates are very, very stable right now. There continues to be a large demand for net lease retail properties. And frankly, we don't see that changing in calendar 2016.

Okay. And then, Kevin, you mentioned sort of you being prepping the balance sheet. And I guess for couple of years now, you've steadily taken leverage down and probably in anticipation of some sort of dislocation in the market. So maybe could you just remind us maybe three or four sort of indicators of some red flags that you may be looking out for that would sort of maybe change your mind in terms of how you fund our future growth?

Yes, at the moment, we are not inclined to use our dry powder and good news is we don't need to, that we create it on our balance sheet in terms of our leverage profile. So, for us, it's about creating multi-year long-term growth in per share results and one of the ways you do that is if you can grow results and delever at the same time, that's a good environment to take advantage of that, because that just helps you perpetuate per share growth.

So there is not anything per say that we're looking forward to happen. We do understand though that trees don't grow to the sky. Capital markets aren't always wide open and/or friendly and so when they've been open for so long and so wide, it does just encourages us to create a little dry powder for a day where that may not be the case.

Okay and then just last one, the transaction with Frisch's Restaurants. They are new top tenant for you guys now. Can you just walk us through the process there for the -- I think it was 19 assets that you guys bought, was that sort of a relationship-driven, was it sort of bid competitive process, how that came about?

The Frisch's transaction was a bigger transaction than the 19 stores that you talked about. We actually -- Frisch's, public company, iconic brand through the Ohio, Kentucky, West Virginia, Midwest area, very stable business.

Just to give you a little background, they've been around since 1960, profitable every year since 1960, paid a cash dividend every quarter for 55 years. So Kevin was kind of jealous of them. And did a going private transaction earlier this year with a private equity firm that we got to know and felt very good about and we ended up doing a 74 units for $170 million as part of that going private transaction.

To us it's a straight down the middle real estate deal again though. We were about $2.3 million per property and for that, we got about a 5,000 square foot building sitting on about 1.5 acres on average. All of the units that we got have been remodeled within the last five years. They were all well over two times covered at the store level. Rent was in the mid $20 range, $25 to $28 a square foot range. Rent to sales was very reasonable. So the whole thing was just right down the middle real estate transaction for us with a good brand sitting on good real estate. So that's the color on that.

Okay and then just the lease structure on that, like are there bumps, how frequently they occur?

It's a 20 year lease, it has effectively what works out to be the same kind of bumps that we've got across the whole portfolio. Call it kind of 1.5% per year bumps. This isn't very material to us, but it seems to be to other folks. It isn't a master lease, but we were very happy with the individual valuations of these properties and so the master lease is just something that we were able to get, but not anything that we felt was something that was a mitigant to any issues because we're very happy with the base real estate for this transaction.

Dan Altscher, FBR.

Kevin, I was wondering if you could just give us a little bit of color on the nature of that defaults. I know it wasn't very big at $2 million but if you could just help us understand kind of the nuances behind that?

Yes, not a lot of story to it. We had a tenant, a handful of convenience stores, put them in default because of issues and haggled for a couple of years over settling that and ended up with a reasonably good outcome.

The more important news frankly related to all that is that we released the vast majority of those stores to Tesoro, big oil operator and they're fully occupied. And so that's really the most important thing, but we were able to extract some settlement from rent that we would have earned otherwise. So, it's lumpy, it's why we call it out and made special note of that in our results. It's just a big number.

We have smaller amounts like this kind of thing happen from time to time. During this year, we got a check from Circuit City for $190,000 and so years after tenant issue of some sort, you occasionally get a check and normally it's not particularly material. This quarter it happened to be.

Got it. Okay, that's fine. I know some of the earlier questions from some of the other folks were on the asset sales and maybe this is the reason why is I think, Craig, maybe in the last quarter, you talked about asset sales and simplifying the business, maybe just doing some cleanup. It seems like that's what you're saying really happened this third quarter that maybe there is a cleanup and there's nothing really of size or of nature like going forward that kind of resembles this quarter. Is that the right way of what you're trying to say?

Yes, Dan, thanks very much for paying attention. Absolutely, right now, we are looking to sell some of the really small properties that we have that are consuming more property management time than they are worth and we are selling some of those. In addition, occasionally, we do respond to 1031 opportunities and we have a small number of those currently ongoing, which is one of the reasons why we think disposition guidance next year will be slightly higher than this year. But I think its small dollars in comparison to what we're deploying in acquisitions, Dan.

Juan Sanabria, Bank of America Merrill Lynch.

It's Josh Dennerlein with Juan. Just one quick question for you guys. With the Walgreens Rite Aid transaction, any thoughts on potential store divestitures given overlaps for FTC requirements or would you expect the management team to try and monetize more of the real estate?

Just to give you a little color on our exposure there, but the highlight answer is to us, it's really a non-event. So we're just going to kind of watch it from a distance and see what happens. We own 17 Rite Aid's in the portfolio and seven Walgreens. So it's really a small concentration. The overlap between those two is non-existent. We actually only have two Walgreens that are in the same time zone as the Rite Aid's and the Rite Aid's right up and down the Eastern seaboard.

The big notable fact for us about those properties are, in both cases, the rents are very reasonable. Our Rite Aid rent averages $22 a foot across the portfolio and the median is $20 and our Walgreens rent averages $23 a foot. So both very reasonable. We've got five, six years left on both of the concepts. So we've got a number of years left and at $20 to $23 a square foot of rent on good drugstore corners, we feel like we've got a very safe investment there and whatever happens in terms of dispositions by Walgreens in order to make it work or whatever, the landlords are still going to get their rent for the balance of the lease term and whatever else happens, you get a new tenant that comes along and in our case, with low rents on these properties, we just feel very secure.

Tyler Grant, Green Street Advisors.

Just wanted to get a little bit of color on re-leasing activity during the quarter. So, for example, what percentage of assets did you re-lease for the same tenant versus a new tenant and at what percent [over the] expiring rents?

I'll give you what we've done on that. For the quarter, we renewed 15 of our -- we had 17 leases expire and renewed 15 of them for 100% of what we were getting previously. And so that's pretty much on track with our long-term average across there. And then, we also -- what did we do? We leased how many new vacancies, Kevin? Eight new leases of vacant properties and those were at about two-thirds of the prior rent that we were getting and again that works out to be just about the long-term average for us.

Sure, and then just say, again based upon the long-term average, what percentage of non-renewed assets do you end up selling versus trying to release?

We try to release every single property. We are not in the business of selling vacancy. As it so happens in this current quarter, we did sell two properties which were vacant, one of which we sold for about $150,000. It came to us with a portfolio that we purchased seven or eight years ago, and the purchase price of that property in that portfolio was almost exactly the same dollar amount. So, consistent with what I said to Dan in the previous question, selling small properties and then we did sell one of the structural vacancy that we had but our in-house leasing team enjoys the opportunity of leasing up of our portfolio.

All right, sure. And then just in terms of the structural vacancy that you referenced, where were you able to sell that relative to the initial cost?

We did not make any money and frankly, we lost about $2 million of it, Tyler.

All right, and then, just moving on to your development pipeline, given where we are in this cycle, do you expect to see more or less than I believe the $100 million that you had put out there at one time historically?

I know you understand this, but maybe some other people on the call don't. We are not taking any development risk at all. It is just how we fund a property that one of our relationship tenants is opening. So it's a new store, we'll buy the land under an existing lease with them and then we'll fund the construction and it's essentially just becomes typical sale leaseback once it's finished. This is obviously very, very good business for us because we've got a very clear line of sight on capital deployment over the next nine months or so. So, it's just a function of the 39 relationship tenants and their plans to open new stores. We are not taking development risk.

Rich Moore, RBC Capital Markets.

I wasn't clear when I looked at your purchase website, is that all of the purchase, that 74 units or do they have?

There are a number of more stores and there are also some franchises out there. I think the overall concept is north of 125 units altogether.

Okay, [and all of yours] are right with the Company, not with franchisees?

Correct. Yes, we're all company-owned, company-operated stores.

Got you. Okay, and then on your drugstores, since you guys don't break out, can you break out Rite Aid and Walgreens exposure out of that 2.4% of rent for us?

Yes, Rite Aid is about 0.9% of our rent and Walgreens is about half of that.

Okay, got you.

Which is to say we have a small number of CVS as well, Rich.

Okay (technical difficulty). Good point, Craig. And then the Pep Boys is, how much is that?

Pep Boys, we have 16 stores, which is about 1.5% of our rent.

[Okay, that's right]. I think you said that, Kevin. Thanks. And then, I guess the last thing is I don't really understand anymore what recurring FFO is and what the difference between that and the NAREIT definition never seems to be different and like we have the one-time gain this quarter and that [even goes in] recurring. So why do we have recurring again?

Yes, we've debated this. The $1,950,000, the character or the nature of that kind of income is something we get all the time except for the fact that it was much larger than what we get, like I referenced earlier, we got some money from Circuit City in this past year and we get dribs and drabs from various retailers over time, usually several years after there has been a bankruptcy or default or something going on. So, the income is recurring, I guess, and then I fully understand (inaudible) your mind that should go on recurring like that, fully understand that approach. We chose not to and decided just to highlight the amount in that transaction, so people could make adjustment. I don't know that there's an official definition of recurring FFO. We have historically tended to use it for more non-cash items that wouldn't get caught up in the NAREIT definition of FFO, for example, impairments on our commercial mortgage residual assets that [wouldn't] get add back in FFO and we tend to throw it into recurring FFO. We think it's a non-cash charge, and so that's what we tend to put as an adjustment to come to recurring FFO but understand your comment.

I just personally like the single definition, NAREIT definition which everybody would just use that and almost seems like, these differences are few and far between at this point and like you say, Kevin, you can always explain them and just say, well, there is (multiple speakers) thing in there and which is what you did this time?

Yes, we do report the NAREIT definition of FFO, that's our first and primary metric and from that, we've created two others, one called recurring and one called AFFO, which doesn't seem to have a consistent definition either. And so, but we do report and focus on FFO per share as defined by (multiple speakers).

(Operator Instructions) Chris Lucas, Capital One Securities.

Just two quick ones. Craig, on the Frisch transaction, it pushed your full service restaurant over 10% in terms of exposure. I guess, maybe if you could just remind us what your views are on risk management at the line of trade level in terms of concentrations that you are tolerant of?

Chris, that's a good question. And we do like the full service restaurant business where the per property investment is modest. As Jay mentioned, we made -- the purchase was about $2.2 million per property and rent coverage was extremely high and the rent to sales factor is well south of what is customary in the industry. So, it depends on mix of what we're looking at, but if it gets above 10%, which it has been in the past, we'll be [plentifiled] with that. And just as a reminder, our convenience store exposure at one point of times was just over 25% and today it's moderated nicely. It's going to ebb and flow over time. We don't have a hard line on any of those numbers.

On the first deal, had you worked with the private equity shop before on other transactions or is this your first transaction with them?

The way that came around is that we were dealing with the company for quite a period of time, close to two years before this transactions and as a result of that, we have interacted with this private equity firm that has expertise. It is set up around the restaurant business for about a year on this, but just to be clear, Chris, we had not previously done a deal with the new owners of Frisch's.

Okay. My last question on the two transactions you've highlighted, the Walgreens Rite Aid and then the Pep Boys Bridgestone. I guess if I could get maybe a guess as to what you think the value, the cap rate compression is by the improved credit backing of those two companies is?

And obviously, it depends on each property and all the rest, but I will point out to you the following, Chris, that in the third quarter, just ironically, we purchased one Rite Aid property, that's near Duke University in Durham, North Carolina and it actually has very high sales and serendipitously, it does not have a Walgreens nearby. It's in a very dense demographic area and I just talked to our in-house disposition guys a couple of days ago and they feel that the compression in cap rates on that particular property is close to 200 basis points as a result of the Walgreens deal but it's property by property, clearly, there is some accretion but the big point at the end of the day is what Jay White just mentioned, we expect our Rite Aid's to continue paying us rent from a long period of time and the reason is simple that the rent per foot is very low in the context of big drugstores around the country.

There are no further questions. At this time, I like to turn the call back to Craig Macnab for closing remarks.

Rob, thanks very much. Folks, we appreciate your dialing in today. We wish you all a wonderful holiday season and we look forward to seeing some of you in Las Vegas at NAREIT's meeting. Thanks very much.

This does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time.