Spirit Realty Capital Inc (SRC) 2012 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to Spirit Realty Capital's Third Quarter 2012 Earnings Conference Call. At this time all lines have been placed on listen-only mode. After the speakers' remarks, there will be a question-and-answer period.

(Operator Instructions).

This conference call is being recorded and a replay of the call will be available, beginning at 6 pm Eastern Time, today, for one week. The dial-in details for the replay can be found in today's press release. Additionally there will be an audio webcast available on Spirit Realty Capital's website at www.spiritrealty.com an archive of which will be available for 30 days.

It is now my please to turn the call over to Michael Bender, senior vice president and Chief Financial Officer of Spirit Realty Capital. Mr. Bender, please proceed.

Thank you, [Colby] and good afternoon everyone. Thank you for joining us today for Spirit Realty Capital's first earnings conference call as a public company.

Here with me to discuss our third quarter 2012 financial performance are Tom Nolan, Chairman and Chief Executive Officer, and Pete Mavoides, President and Chief Operating Officer.

Tom will review our third quarter performance and provide you with an overview of our strategic priorities in the current environment and over the near-term. I will then provide you with more specifics about our financials and Pete will walk you through our portfolio acquisition program. Tom will wrap up our prepared remarks to the summary of our progress executing our strategy and our view of the market -- in the current market condition and after that we will be happy to take your questions.

Before I turn the floor over to Tom, I'd like to say that during this conference call, 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 those forward-looking statements to reflect changes after the statements were made.

I would now like to turn the call over to Tom Nolan, Spirit Realty Capital's Chairman and Chief Executive Officer. Please go ahead Tom.

Thank you very much Mike, and thank you everyone who has joined us today for your interest in Spirit Realty Capital.

Since this is our first earnings call, it's really my first opportunity to thank everyone for the support we received on the road show and we look forward to having a productive and informative dialogue with all of you, moving forward.

Clearly, the IPO was the main headline of the quarter and I will let Mike summarize that in greater detail shortly, as well as provide more detail on our financial results. But first, let me make a couple of general comments.

As a public company we are confident that Spirit is well positioned to execute on our operating and investment strategy, which we believe will deliver long-term shareholder value. The strategy is focused on both generating attractive, predictable cash flow and growing our portfolio through a disciplined acquisition program, but the ultimate goal of course, to increase our cash available for distribution so that we can continue to provide an attractive and sustainable dividend for our shareholders.

Since this is our first quarterly call, I thought it will be useful to provide a quick recap of our business model. At Spirit Realty Capital we invest in single tenant operationally essential real estate throughout the United States. That is our tenants conduct activities on these site that are essential to the generation of their sales and products. We primarily invest in properties leased to well run middle and small market companies with attractive credit characteristics and stable operating histories.

Our tenants are primarily engaged in the retail service and distribution industries. These tenants lease the properties on a long-term triple net basis, and just to remind everyone, under a triple net lease, the tenant is typically responsible for all improvements and is contractually obligated to pay all property expenses such as taxes, insurance and repairs and maintenance.

Our business model is to deliver value to our shareholders with an emphasis on generating stable and predictable cash flows from our current roster of high quality tenants under long-term leases. We also see significant market opportunities to further expand and diversify our portfolio through a disciplined investment strategy that targets accretive investments.

We have an extensive network of tenant and broker relationships and a proven track record of underwriting acquisitions that meet those investment criteria. The scale of our portfolio also allows us to make acquisition without introducing additional concentration risk.

Speaking of concentration, we recognized that the concentration in our portfolio, so the Shopko/Pamida properties will attract investor interest for some time to come. And justifiably so, but as we noted in the road show it's important to emphasize that Shopko has a long history of solid stable financial performance. Additionally, the recent combination of Shopko and Pamida is a good development for our portfolio and that it creates a stronger tenant with ultimately better sales and margins.

Make no mistake as we stated on the road show, it remains our long-term goal to reduce the Shopko concentration. But in the meantime we are pleased with the solid and consistent performance of that company. In addition, because we include Shopko's financial reports in our 10-Q and Ks, we believe this transparency will benefit Spirit as it will allow our investors to gain the comfort we do as we monitor its financial performance going forward.

Again because this is our first call, I've asked Mike to review the protocol that we will use to incorporate Shopko's financial results in our SEC filings.

As we look to the future, we are on track to achieve our fourth quarter estimates and 2013 guidance that we release today. We remain convinced that the net leased real estate market offers an attractive and outside return opportunity on a risk adjusted basis.

We certainly realize that we are not the only company that operates in this space, but the market is large and diverse and able to accommodate increased investment activity, given the estimated over 1 trillion of US real estate still held by corporate owner occupier. We are well positioned to capitalize on those opportunities and grow over the long-term.

When I was on the road show, I noted at that time that if investors put their faith in us, I committed that this management team would be aligned, enthusiastic, and motivated to perform. As I sit here in Scottsdale today I can report that speaking for all of us, the excitement is very high and we are anxious to execute our plan on behalf of our shareholders.

Now I'd like to turn the call over to Mike Bender, our Chief Financial Officer who will take you through the detailed financials. Mike?

Thank you, Tom. Before I get to this quarter's financials I'd like to do two things briefly. First, I'd like to summarize the initial public offering we completed at the end of September, it generated total net proceeds of $455 million including $61 million from the exercise in full of the underwriters over allotment option.

Note that the overallotment closed after the end of the quarter so the related cash proceeds are not reflected on our September 30 balance sheet.

We used $399 million of the IPO proceeds to repay a loan under a term note that resulted from the Company's take-private transaction in 2007, the remaining $330 million outstanding under that term note was converted into 24.2 million shares of common stock.

Second I'd like to talk about Shopko financials. As Tom mentioned, because Shopko stores is a material tenant for the Company, we will be providing the financial statements of their parent and guarantor under the lease Specialty Retail Shop Holding Corporation, every quarter in our periodic SEC filings.

Since they have a January year-end those reports will be on a one quarter lag. So, for example, we would typically provide you with financial statements for their second quarter, which ended July 28 in our third quarter 10Q. In this particular case we have already provided their second quarter information in the S-11 but we expect to show it again as an exhibit in our 10-Q when filed.

Our next filing will be our year-end 10-K, at that time we plan to provide Specialty Retail's third quarter financials.

Now let's turn to our results for the quarter. In the third quarter, ended September 30, 2012 we generated total revenues of $70.7 million, an increase of 2.5% compared to $69 million in the third quarter of 2011. Total revenues for the nine months ended September 30, 2012 increased 2.9% to $211.1 million as compared to $205.1 million for the same period in 2011.

This increase was attributed to acquisitions we have made in the last year and the built-in contractual rent increases in our existing leases.

Our G&A cost totaled $17.4 million in the quarter and included a significant amount of expenses related to the IPO and the retirement of the term loan. Specifically, we recorded $8.3 million attributable to the debt extinguishment and IPO related expenses and another $4.9 million related to IPO incentive awards, the vast majority of which were non-cash stock grants.

Similarly, in the third quarter of last year we incurred approximately $6 million in fees directly related to obtaining those conversion rights under $330 million of the term loan. Excluding these items, G&A for the third quarter of 2012 would have been $4.2 million, which represents 5.9% of total revenue.

Before the unique items in both periods G&A for the third quarter of 2012 was up slightly over a year ago, as we built the executive management team in preparation for becoming a public company again.

Property costs were $1 million flat in the third quarter and decreased 23.6% as a result of our higher occupancy rates compared to a year ago. Because the term loan was outstanding for almost the entire quarter, interest expense was $42.1 million and is higher than we project would be going forward.

Still interest expense was down $1.4 million from a year ago because the debt amortization we paid over the course of the year reduced our debt level. This reduction was partially offset by new loans entered into in connection with acquisition that we made.

Non-cash depreciation expense is comparable to year ago and reflects our consistent portfolio size. We had only $150,000 of non-cash impairment expense during the third quarter compared with $2 million a year ago. Under accounting rules our impairments tend to be episodic and are triggered primarily when we make a decision to sell a vacant property. Obviously, these non-cash accounting charges do not impact the cash flow generated by the portfolio.

The last detailed item to note in our results is the $32.5 million loss that we recognized on the extinguishment of the term loan. This loss was primarily attributable to the premium related to converting the $330 million of the loan.

As a result of all of this, the net loss attributable to common shareholders for the third quarter was ($49.9) million or ($1.70) per share compared to the third quarter of 2011 a ($21.2) million or ($0.82) per share.

Please note that per share amounts in historic periods are based predominantly on the lower number of shares outstanding prior to the IPO, since the IPO related shares were only outstanding for the last six days of the quarter.

Absence the items associated with the IPO and term note extinguishment discussed earlier the net loss attributable to common shareholders for the third quarter would have been ($3.5) million or ($0.12) a share.

Again driven by the items discussed earlier funds from operations or FFO for the third quarter were negative $21.8 million or $0.74 per diluted share compared to a positive $13.9 million or $0.54 per share for the third quarter of 2011.

Adjusted funds from operations or AFFO for the third quarter of 2012 totaled $28.5 million or $0.60 per share compared to $20.8 million or $0.80 per share for the third quarter of 2011. Ongoing adjustments to convert FFO to AFFO primarily consist of non-cash revenue, non-cash interest expense and non-cash equity compensation.

This quarter we invested $32.4 million in real estate properties, compared to the $6.3 million in the prior quarter. Pete will extend on all of our recent acquisitions and occupancy rates later on in the call.

Concurrent with the IPO we entered into a $100 million secured revolving credit facility with initial term of three years. Amounts available for borrowing are subject to the maintenance of a minimum ratio of the total value of our unencumbered properties as well as complying with other customary financial covenants. There were no amounts borrowed under the line at September 30, 2012.

Now I'd like to discuss guidance. Due to the cost and change in shares associated with the IPO and term loan extinguishment, we believe that estimates of FFO and AFFO per share for the full-year 2012 are less meaningful. Instead we are providing guidance for the fourth quarter alone. For FFO per share, we expect the range to be between $0.32 and $0.34. We expect AFFO to be between $0.38 and $0.40 per share.

For 2013, we estimate FFO per share should range from $1.35 to a $1.40 and AFFO should range from a $1.60 to $1.65 per share. This guidance excludes impairment charges and other onetime gains or losses related to capital or other transactions and is based on current plans, assumptions and estimates and are subject to the risks and uncertainties more fully described in the press release and the Company's reports filed with the Securities and Exchange Commission.

With that I will now turn the call back over to Pete Mavoides, our President and Chief Operating Officer. Pete?

Thanks Mike. At September 30, 2012 Spirit Realty had a total of approximately $3.6 billion invested in real estate and mortgage and equipment loans. The portfolio primarily consisted of 1,190 owned or financed properties that are net leased on a long-term basis to 165 tenants operating in 47 states and diversified across 18 different industries. Only one state, Wisconsin, accounted for more than 10% of the total value of the portfolio.

As of September 30th, the weighted average non-cancelable remaining term of our leases based upon annual rent was 11.2 years. At the end of the third quarter the portfolio was 98.4% occupied based upon the total number of properties owned.

Currently we have 18 properties that are available for either lease or sale. This represents a 60 basis points increase in occupancy rate as compared to the same period a year ago. We view 98% occupancy as essentially full and we continue to work hard to release or sell these vacant properties.

During the quarter we sold seven properties for gross sales proceeds of $5.5 million. This resulted in a gain of approximately $1 million. As part of our rigorous portfolio management we identified properties that no longer fit our long-term investment objectives and we sell these properties in an effort to manage risk in the portfolio and redeploy capital more productively.

During the quarter we invested $32.4 million in eight properties with one new tenant. This compares to $6.3 million in the third quarter of 2011. New investments for the nine months ended in September 30th, 2012 totaled $86.2 million representing investments in 58 new properties, leased on a triple net basis to five tenants.

These investments had a weighted average primary lease term of approximately 17 years. The weighted average initial cap rate on these investments was 8.58%. New investments for the first nine months of 2011 total $6.8 million.

An important indicator of risk in the portfolio is the unit level rent coverage which is a measure of the operational essentiality of a property or leased for our tenants. As of September 30th, 2012, the average unit level rent coverage on the trailing 12 month basis for those tenants that report for our top 10 and the portfolio as a whole was 2.67 and 2.63 times respectively. This compared to 2.44 and 2.49 times for the same period last year.

And with that I'll turn it back to Tom for some concluding remarks and Q&A.

Thank you, Pete. We believe that Spirit Realty Capital, the public company is off to a good start. The portfolio is performing well and we are pleased with the acquisitions we have closed this year and are confident our future acquisitions will support our strategy of growing our predictable sustainable cash flow.

As we look ahead to 2013 and beyond, we believe we are equally well positioned, we are focused on executing our business plan, including reducing our leverage overtime, growing FFO and increasing our dividend coverage.

Speaking of dividends let me review our expected timing and payment. We intend to use the end of any given quarter as the record date. So, for this upcoming quarter you should expect to see a dividend declaration in the middle of December, the record date would be at the end of the month and then the payment date would be in the middle of January. We would then proceed on that basis in subsequent quarters.

It is expected that our first dividend will be $0.3125 which is consistent with the amount disclosed in the S-11. We recognize we were public for a short period of time in the third quarter and as such we will issue a small stub-dividend for that period. We intend to declare that at the same time as the fourth quarter dividend payment. That dividend is expected to be $0.02.

Before I open the call up to questions, I'd like to thank the team here at Spirit Realty Capital for their dedication and contributions towards the success of our IPO. I look forward to working with this talented team to grow our business and create value for our shareholders.

At this point, we would be happy to take your questions. Operator, we will take the first question.

(Operator Instructions). Your first question comes from the line of RJ Milligan with Raymond James. Please proceed.

Hi, good afternoon, good evening guys.

Good evening.

Hi RJ.

I was curious can you disclose one tenant who was for the properties you acquired this quarter?

It's Sportsman's Warehouse.

Okay. And then I don't know if you could just provide a little bit commentary in terms of what you're seeing out there in the acquisition to market, where you think the opportunity is in the next, you know, six to 12 months?

Sure, I don't think our view has changed, substantially since we were out on the road show. I think we believe that though it continues to be a robust market, we have certainly seen some price compression over the last 12 months, but that price compression has generally been greater the closer you were at institutional or investment grade and slightly less at areas that we typically target which is what we refer to as kind of that BB, just below investment grade, well run company.

There has been some price compression there but not as much as elsewhere. And the opportunities that we are looking at, I would describe continue to be robust. I think our view is that we have more opportunities to look at than we will likely proceed with.

Okay. And a question for Mike, in the 2013 what are you assuming for acquisitions for the year?

We have not -- we are not targeting or not disclosing really what we anticipate to do for acquisitions, I mean obviously you can tell from the funds available what the range might be, but I think it's our position that we are going to do acquisitions when they make sense and we are really going to do the level that make sense. Is that fair enough, Pete or Tom?

RJ asked about acquisition for 2013.

I think that's something I know it comes up from time to time and still whether companies provide guidance on acquisitions and that is not something that we intend to provide guidance in.

Obviously when you build the business model you put in some parameters on what you expect you are going to do, but I have just never felt it's something that I think you do them when the opportunity presents themselves and when there are good risk adjusted opportunity and you don't when they aren't. And so I'm always uncomfortable having a target out there that you feel you have to achieve as opposed to transactions that you want to do and are appropriate to do.

Okay, fair enough, thanks guys.

Your next question comes from the line of Joshua Barber with Stifel Nicolaus. Please proceed.

Hi, good afternoon. If I could just follow-up a bit on the Sportsman Warehouse deal, can you talk about I guess some of the parameters that you are looking out for that and for other deals, specifically, namely cap rate on those deals and what your EBITDA coverage would have been?

We are always reluctant to talk about individual transactions and I think that's why when you heard Pete's description at the beginning of few sections on acquisitions. We are happy to give aggregate data for year-to-date data, what our average cap rate is.

But if you can imagine these are individual negotiations that occur with these tenants and we are very, very reluctant to have individual data on any given single transaction out there.

I will say that in terms of the -- as we were out on the road show and folks asked us where we saw our pricing parameters today, I think they are reasonably consistent with what Pete described as the average for what we have done year-to-date, again they may have tightened a little bit since then, but that these transactions, all of the transactions we have done were within that zone.

Okay.

And just -- more color, as we disclosed in our S-11 we generally target to maintain a portfolio average of around BB flat credit profile, we generally target minimum unit level coverage of 2 times and we are generally targeting a range of 8.5 percent on acquisitions. So, those general parameters are guidelines, not set in stones but it kind of gives you a sense.

Okay. I guess when we are looking at it post IPO, I guess our estimate was you guys had around $105 million, $110 million of cash. You bought about $35 million of assets in the quarter and you have $45 million of cash at the end of the quarter. Is that -- was our post IPO number a bit too high or were there other uses of cash during the quarter, can you help me reconcile those numbers and where your current cash balance is?

Sorry, may not be following your flow. We've got -- the $45 million within the quarter again is before the $60 million [of the shoe] so entering October, you will/are about $105 million. But you are talking about third quarter in and out?

I'm just -- what is your cash balance today, would basically be my question?

Oh sure. Yes, yes. Say, again, say $45 million, 9-30 plus another $60 million as $105 million roughly and then the Sportsman's transaction was $45 million. So you are back at about $60 million.

Okay. Okay, that's the difference.

And the Sportsman transaction closed after the quarter as did the shoe. So we made reference to that transaction but it closed right after the quarter.

Got it, understood. Can you -- I didn't see it in the release, but I apologize if I missed, what is the amortization and guess other uses of cash or can you help us reconcile the AFFO number to a fatter recurring cash flow number? And I guess principle repayments probably shouldn't differ that much from the red but can you give us some idea of where that is.

Right, you see the maturity schedule is always the best way I think to look at that, it's in the financial statement footnotes. And you see that the [AM] tends to be pretty consistently around $40 million; for 2013, it's $43 million. One thing to note as you look at CAD and go from AFFO to CAD. From my perspective I add back in just as I take out debt amortization, I add back in principal payments that I receive, and I actually get about $5 million a quarter of principal payments on my loan portfolio.

Okay, So, we net $5 million to $6 million outflow every quarter?

Yes, yes, exactly.

Great. Thank you very much, guys, and good luck.

Thank you.

Thank you.

Your next question comes from the line of Alexander Goldfarb with Sandler O'Neill. Please proceed.

Good evening.

Good evening.

Okay, so that actually is great, because I'm writing down the math quickly. So, let's go to the dividend first. On the quick numbers, if we use the [162] midpoint, and the 43 million of amort, that's about sort of rough number, somewhere in an $8 million to $10 million shortfalls, but what you're saying is you are getting $5 million a quarter in principal amortization. So, really you are going to have net $10 million of cash left over for 2013, is that correct?

Yes, roughly.

Okay.

Just that way, right.

Okay. Yes then that's certainly helpful. Just some quick housekeeping things before I ask acquisition question. The share count we should be using for the fourth quarter and for next year is that 85 million diluted shares correct?

Yes. The share for purpose of the dividend as you know is 84.851 million that's the total number of shares outstanding, now the calc gets tampered a little bit in terms of the FFO per share because you use -- sorry for the accounting [are came] but -- you temper that because you use the treasury stock method on the LTIP program. In other words shares that are granted but not yet vested to our employees actually get -- you get a little bit of pullback on that so the numbers will be light of the 84.9 million.

So what should we be using then?

For fourth quarter, roughly 84 million shares. And for 2013 it grows a little bit say 84.4 million.

Okay. And then I understand that you are not giving a set guidance -- acquisition guidance number, but in your guidance for next year, presumably there is some level of acquisition that's contemplated in that, correct?

Correct.

Okay. Then that's fair. And then one final thing -- well actually two final things. On a go forward basis are you going to be providing your total square footage or sort of a same store NOI breakout?

Well on the square footage, that's something that in this particular space, in the triple net space I think people have found it's just -- it's not terribly meaningful, given kind of a unique operation, the essentiality of the space. So, the convention I think is that it doesn't get used.

The second one I haven't thought about so--.

Same store break out in what sense?

Like just the same store NOI, just so we have a sense for how much the same store pool is growing year in, year out?

Well I think that's something we'll take a look at, Alex, and -- we don't -- our portfolio doesn't change that much. We've got over 1,000 properties and as you heard from Pete, we are adding eight, nine at a time and selling four and five. It is not hugely material but it's something we will look at.

Okay, and then just finally, Tom, you spoke about 1 trillion of owner occupied properties out there. Just sort of curious as you look over the landscape where do you see the most opportunity as far as either geography or product type or asset size? And obviously asset size could be part of a large portfolio, but just a little more granularity on that.

Sure, I'll let Pete take a shot at that one.

Yes, I think, we certainly see investment opportunities across all the industries currently represented in the portfolio and we will focus to maintain the current diversity that we have within the portfolio. We said on the road and we continue to expect to see some focus in the C store space, which is area that we are underweighted we believe.

In terms of property size, the average property size in the portfolio is around $3.5 million and we like that granularity and we seek to maintain that granularity going forward. And so I don't see -- think you would see us move dramatically away from that and go buy large, chunkier assets. We like the small bite size assets and that's kind of where we are going to focus.

Okay, thank you very much.

Thank you.

Your next question comes from the line of Rich Moore with RBC Capital Markets. Please proceed.

Yes, hi, good evening guys and welcome to earning season. That's the first one.

Thank you. Happy to be here.

Yes, you'll see what it's like after awhile. First thing I want to ask you guys is, on the line of credit, $100 million, it seems small to me. I mean and I realize you haven't given any guidance for how much you might do in terms of acquisitions, but don't seem you can do whole lot of them, given the size of the Company. Is that growable or you thinking of growing it, or you're just going to be patient for a while with it?

Well, I think it's like anything, Rich. We -- it is important to have a line, you want to have a line and -- but, on the other hand you don't want to pay for something a lot that you are not intending to use right away. And one of the things we felt strongly about was this company had -- has been around for a while, it had a track record, but it hasn't been public for a while and you get some -- from our perspective I think you get some credit seasoning and you get some credit for putting a couple of quarters under your belt.

And so our perspective is we will be in a much better position to negotiate a more robust capital structure in terms of the line, after we've had some -- a couple of these calls under our belt and we have so called done what we said we were going to do type of view. And we did as we said on the road. We had reasonably modest acquisition targets for the year realizing that again we didn't want to be overly aggressive and so we are very comfortable that we -- between the cash on hand and the line that we have, we can easily execute what we had articulated we would.

And then once we -- again we get a little more experience under our belt here, I think you'll see us go back and negotiate something more substantive.

Okay, good, thank you. And then, on the disposition, for me, I certainly understand why you wouldn't give acquisition guidance, I mean that -- it's a little more difficult I guess to ascertain. But on the disposition front, I mean what kind of pool of properties would you say you're thinking about disposing of over the next couple of years?

I don't think hugely material, first of all. I think -- we like our portfolio and we like the industries that we are in. I think -- I remember when we -- I think we used this for the 18 different industries I believe when we were on the road. There are a couple of assets that don't fit our investment criteria and I think we have identified those and if we can find appropriate pricing for those, I would expect that we will be looking to redeploy the capital. But it really -- it isn't -- I'm happy to say that we do like the portfolio and so I don't think you are going to see substantive pruning.

Okay. And then -- thank you Tom. And then the last thing for me is, it looks like the Shopko exposure is already down, which is a great start from where I had it in our first piece, but I'm curious do you have the Shopko rent coverage number, can you disclose that?

We haven't disclosed it. I think we obviously disclosed the top 10 coverage and Shopko is when you do the math, Shopko is a very significant component of the top 10. But again Shopko is a private company, we have an excellent relationship with them, we are in dialogue with them all the time, but we are also sensitive that we have -- they have obligations to provide us information that we then publicly disclose.

But we are very sensitive about disclosing information for what is a private company, outside of what they are obligated to give us because I found often when you do that then they tend not to share subsequent information going forward.

So, I think we want to be careful but we did feel that the statistic that Pete referenced which is the coverage ratio, it's the model that we use, it's the statistic we cover very carefully. And we felt in the effort to be transparent and to allow people to track our performance, going forward, that would be something that we would begin to disclose, this first call and obviously we will continue to do subsequently. So, the 2.67 number that Pete disclosed, again that's our top ten tenants but again Shopko has a pretty big component of that.

Okay, very good. Thank you guys.

Welcome.

(Operator Instructions). Your next question comes from the line of Ross Nussbaum with UBS. Please proceed.

Hi, guys, good afternoon. A couple of follow-up questions. First, can you give us some intel on what you have in your immediate investment pipeline in terms of anything that's out, signed contract under letter of intent, is there anything that we should be thinking about that's sort of imminent over the next couple months?

No, and again, I think that just as a matter of protocol, this company will be a company that when we close on something we will announce it. I don't like to announce letters of intent or either. Again I think that's -- my experience is that you're best disclosing it when it's done. And we have got to -- we are looking at a lot of things, but I just don't want to be in a position where we are suggesting we are going to be closing something any given time in the future. I think we're all better off and it's a more conservative approach to simply announce it when it's closed.

Sure. On the $100 million line of credit, is that fully available today or is it a lesser number based on the borrowing base?

Fully available.

Fully available, okay. And then on Shopko, Tom, I don't think you and I have spoken since the news broke that their CEO resigned following your IPO. Can you give us any of your thoughts on how that impacts Shopko going forward? I think it certainly caught me off guard, particularly since it came so close on the heels of the merger that they have done earlier this year.

I'm happy to do that. And first of all, to be clear, I liked Paul. I thought he was a very good CEO, it had also caught us by surprise. Paul has been terrific working with us and again and I think I made this comment many times on the road show, Shopko had been much more forthcoming and Paul had been much more open as his -- as had his staff than they contractually -- necessarily had to be. And we had a very good working relationship with them, and so I was disappointed that he left. But that was more probably on a personal level, necessarily than on a professional level.

It's on -- my -- as it was related to us, and again it was a surprise to us as it was to you, that he was simply given one of those offers he couldn't refuse. And it was a bigger opportunity and he simply took it. I clearly have no idea whether he knew that when he was working with us, I have no knowledge of that. But he clearly saw an opportunity and grabbed it. And I can see why, because I think he was very talented.

But SUN is committed, SUN is very committed to this portfolio and they've told us that when they're prepared to make an announcement, they'll certainly let us now. But they're very committed to finding a comparable talent in the industry. It's certainly -- it's a good company, it's a big company and we're confident that they'll find somebody.

But I was -- again I was more probably disappointed on a personal level.

Okay. Is -- and I think I already know the answer. But is there anything you can tell us about how their back-to-school sales went, I think one of the -- I guess one of the questions about the disclosure that I guess, we are not going to get Shopko's financials until your 10-K, and that's -- we are talking probably what, March of 2013 and that's only going to reflect -- that's going to be a little stale by then.

Is there anything you can give a sort of in terms of how they did during the back-to-school season, to give us an idea of how things are trending into the holiday season?

Unfortunately, there is really nothing I can share.

Okay. And finally, thanks for giving the 2013 guidance. I think it's helpful and it's commendable for a newly minted REIT to be out with guidance that quickly. So we appreciate.

Well we appreciate that. And again I certainly felt that we had spent time on the road show talking about how predictable we were and I given that presentation on the road show, I felt that that was an important statement to make. That if you're going to go out and position yourself a certain way, then you should act accordingly.

So that was the judgment in terms of getting it out on this particular earning release.

And I guess we should have been -- we would have been worried if you couldn't have done that for net lease company that doesn't technically [rocket science].

Fair enough.

Fair enough.

Thanks guys.

Welcome.

Thank you.

Your next question is a follow-up from the line of Joshua Barber. Please proceed.

Hi, I'm sorry, just a quick follow-up. Pete I think you mentioned before you were looking for about $5 million principle repayments from the loan portfolio. I thought the portfolio had more like five to six-year duration, and I see it's only about $50 million. Is that really just a two year duration that's it's paying down on the next 2.5 years and getting to about $20 million of repays.

Yes, it is paying down and you can see that in our interest income line, that portfolio is diminishing and it's important which of course we like. We certainly prefer the -- having the lease property and the lease portfolio as oppose to the loans.

Okay great. So the duration is sub three years?

Yes, I think that's right.

Great. Thanks very much.

That concludes the Q&A portion of today's call. I'll turn the call back to Mr. Tom Nolan.

All right, well thank you everyone for your interest in our first call and for calling into our call today. And we look forward to speaking to everyone in the future.

Thanks everybody, have a good night.

That concludes today's call, you may now disconnect. Thank you and have a great day.