Spirit Realty Capital Inc (SRC) 2015 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Spirit Realty Capital's 2015 fourth quarter and year-end earnings conference call. At this time, all lines have been placed in listen-only mode. Please note that today's conference call is being recorded. An audio replay will be available for one week beginning at 6 o'clock PM Eastern Time today and the webcast will be available for the next 90 days. The dial-in details for the replay can be found in today's press release, and can be obtained from the Investor Relations section of Spirit Realty's website at www.spiritrealty.com. After our speakers' remarks there will be a question-and-answer period. (Operator Instructions).

I will now turn the conference over to Mary Jensen, Vice President of Investor Relations for Spirit Realty Capital. Please go ahead.

Joining us on the call today are Tom Nolan, our Chairman and Chief Executive Officer; Phil Joseph, our Chief Financial Officer; Gregg Seibert, our Chief Investment Officer; and Mark Manheimer, our Executive Vice President of Asset Management.

During the course of this call, we will make forward-looking statements. These forward-looking statements are based on the beliefs of assumptions made by and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or our ability to predict. Although we believe that our assumptions are reasonable, they are not guarantee of future performance and some will prove to be incorrect.

Therefore, our actual future results can be expected to differ from our expectations and those differences may be material. For a more detailed description of some potential risks, please refer to our SEC filings, which can be found in the Investor Relations section of our website. All the information presented on this call is current as of today February 25, 2016. Spirit does not intend and undertakes no duty to update forward-looking statements unless required by law.

In addition, reconciliations of non-GAAP financial measures presented on this call, such as FFO and AFFO, can be found on the Company's quarterly report, which can be obtained on the Investor Relations section of our website.

During our prepared remarks today, Tom Nolan, our Chairman and CEO, will provide an overview of our operating results and an update on our current business activities. Phil Joseph, our CFO, will then discuss our quarterly and annual financial results that were released last night. After our prepared remarks, Tom and Phil, along with Gregg Seibert and Mark Manheimer will be available to take your questions.

With that, I would like to turn the call over to Tom Nolan. Tom?

Thank you, Mary, and thank you everyone for joining us today to discuss our fourth quarter and year-end 2015 results. I would like to begin this call with a topic, I know is front and center in the minds of investors, that is shareholder value and how to maximize it. There's been much discussion lately in the REIT sector, including about Spirit Realty, about the relationship between the current stock prices of publicly-traded REITs and the value of the underlying real estate they own or NAV. When these NAV discounts occur, the dialog quickly turns to how public companies can best capture this value, be it through M&A, privatization or staying the course through a well-conceived and executed business plan.

We find this dialog welcome, healthy, and appropriate. And I can state without reservation that this management team and Board of Directors are committed to following a path that generates the greatest value for our shareholders. As I will discuss today, we believe we have a clear strategy and business model that will create attractive and sustainable long-term value for our shareholders. At the same time, this Board is fully aware of its fiduciary duty and routinely evaluates whether changes to our strategy are appropriate. Spirit's Board of Directors has ensured that the interest of the Company's management team are highly aligned with those of shareholders.

I can assure you that we recognize the relative discount to NAV compared to peers that has reflected in our current stock price. Whether it is reflected or not, however, our strategy and business model are delivering excellent operating results that are dependable, stable, and predictable. These results are achieved through a strong diversified and actively managed portfolio, as well as a flexible capital allocation strategy. Nowhere is this better demonstrated than in the fourth quarter and year-end results we just announced. As you can see in our press release, we reported strong results for the fourth quarter, capping off a solid year for the Company. I hope you recall that we announced specific objectives at the start of 2015 for our operating and financial performance, and we met or exceeded those on all fronts.

First, we said we will reduce the revenue concentration of our largest tenant to below 10%, and as of the year-end that tenant represents 9.1% of our total portfolio. In the fourth quarter alone, we sold approximately $56 million of properties associated with this tenant at a cap rate of 7.32% and we expect to continue to reduce that concentration over time. Our long-term objective is a portfolio in which no tenant represents more than 5% of the total portfolio.

Second, we said we will continue our drive to have an industry-leading balance sheet. We committed to a debt-to-EBITDA ratio that would be less than 7.0 times at the end of the year, and it was. We expect further improvement in 2016. Also, we continue to pursue an investment grade rating and while we cannot presuppose the actions of the credit rating agencies, we believe we are making good progress down that path.

Keep in mind that our lack of an investment grade rating in the past isn't simply a reflection of the amount of debt we have had, but rather the type of debt. At the time this management team began at Spirit, we were essentially a 100% secured borrower. We had very little unencumbered collateral, which is a key attribute of an investment grade profile. Today, our unencumbered asset pool stands at over $3 billion and is growing, and it is this transformation that is now allowing us to pursue an investment grade rating.

Finally, and perhaps most importantly, we provided specific AFFO guidance at the start of 2015. We raised that guidance probably through the year and today are announcing AFFO results at the top-end of that raised guidance. Year-over-year AFFO grew nearly 17% for the quarter and nearly 18% for the full year. We feel confident about our ability to continue this track record in 2016 and beyond.

In the three years since our IPO, our asset base has become significantly larger and our portfolio has become significantly more diversified, but our strategic priorities have not changed. This management team is focused on generating stable and dependable cash flows, even in uncertain markets, which we believe will in turn create superior value for our shareholders. We are confident in the predictability of our cash flow and social duty because of the quality of our portfolio and our active approach to asset and portfolio management.

Our portfolio consists of more than 2,600 properties in 49 states, broadly diversified among a wide range of high-quality tenants across many industries. Our portfolio remains essentially fully occupied at 98.6%, up 20 basis points from year-end 2014 with an average remaining lease term of approximately 10.7 years.

At December 31, 2015, approximately 46% of our normalized rental revenue is derived from Master Leases and approximately 88% of our single-tenant leases provide for periodic rent increases. For the trailing 12 months, our unit level coverage was a healthy 2.9 times.

Even when our portfolio was tested as it was when one of our top five tenants Haggen, filed for Chapter 11 last year, we remained confident in the resilience of our portfolio in individual assets. Of course, we wish the Haggen bankruptcy hasn't happened on our watch. And we understand the uncertainty it created about the potentially negative financial impact on Spirit.

It also created uncertainty about our underwriting process in general well beyond the impact of that one transaction. That uncertainty, coming as it did on top of other macro issues in the triple-net REIT sector was certainly a contributor to be underperformance of our stock price against our closest peers. Today, I'd like to bring you up to date with some facts on the Haggen transaction that should help dispel some of that uncertainty.

For those of you who have followed the court proceedings you're aware that the process has not completely run its course. However, we are at a point in the proceedings where we are increasingly confident in a likely range of outcomes. So, let me summarize where we are.

When we first commented publicly on the Haggen transaction, I noted that this was some of the best quality real estate we have had the opportunity to acquire. When Haggen sought bankruptcy protection, that underwriting was certainly put to a quick test. We originally invested $224 million in 20 properties. The tenant sought protection and we immediately and aggressively pursued a course of action to protect their interests.

Ultimately, we negotiated a very favorable settlement with the bankruptcy estate that split the portfolio into four categories. The first is nine stores that were immediately leased to new tenants under substantially the same attractive lease terms that we negotiated with Haggen. There wasn't even one day of lost revenue on those stores.

The second category comprises five stores, on which Haggen affirmed the existing lease and that are now included in the final stages of an auction to a new owner operator, as part of the sale of Haggen's core operating business. Once again, there was no disruption in the rental stream to Spirit. The third contains six stores that we agreed to allow Haggen to vacate and we took that free and clear. The fourth and final piece is a $21 million damage claim the estate agreed to pay to us in exchange for Spirit allowing Haggen to remove those six stores from the last lease and vacate them.

Let me quickly summarize the value we expect to realize in each of these four groups, starting reversely. Groups three and four are related, since the $21 million damage claim was negotiated directly as a result of our acceptance of the lease rejection on the six stores. The damage claim is an unsecured claim of the estate today and the Company has not yet completed the bankruptcy process. However, we have a high degree of confidence we will receive all or most of that amount. So our expectation is, we will break even on the six stores or most likely post a modest gain. Two of those six vacant stores have already been sold.

On the five stores still leased to Haggen or the group two in my list, we expect to be able to sell those at a price higher than our bases. How much higher will depend on the final outcome of the core store auction, but we are increasingly confident from our observation of the process that we have significant value in those stores.

Finally, we believe we have substantial value appreciation on the nine stores that are now leased to new tenants. In aggregate, we expect to realize a meaningful financial gain from the resolution of the Haggen situation. When we aggregate all four categories and assets, we estimate that total value will likely exceed our original basis by close to 20% or approximately $40 million. We have posted this summary on our updated Haggen Fact Sheet and you will note this figure is at the conservative end of the valuation range.

I'm the first to admit that the path we had to go down to realize this return was painful and convoluted. And clearly, our assessment of Haggen's ability to execute operationally was inaccurate. I realize that this is not the way investors expect us to make money and it is inconsistent with the stability theme you've heard from me so often. But this outcome does demonstrate the expertise of our real estate acquisition and underwriting team with some on both the value and the risk of these properties and structured the transaction that would protect Spirit from damage in the case of the negative credit limit.

I would like to take a moment to move beyond Haggen specifically and address our overall acquisition performance. We have a seasoned and experienced acquisition team led by Gregg Seibert, who is here in the room with me today. When this management team joined Spirit, the Company had approximately a $3.1 billion enterprise value, of which almost one-third was leased to Shopko. You may hear us from time to time refer to that portfolio as the legacy assets.

Since then, we have purchased more than $5 billion of additional assets. This new portfolio, almost two times larger than that of the legacy assets, has performed exceptionally well since we acquired and has significantly enhanced the overall portfolio quality as compared to the legacy assets. In fact, of the very few defaults and impairments we have experienced in the past three years, a vast majority of those were legacy properties.

I realized there are some, who believe, the triple-net industry is just a financed vehicle and not a real-estate platform. I'm not one who shares that view. History has taught us that the cyclical economy can and likely will test the business acumen of our tenants and those of our peers. Having operationally essential good quality and well underwritten real estate can make a meaningful difference in how well a portfolio absorbs such a challenge.

In addition to the diversity and strength of our acquisition platform, another important differentiator for Spirit is our active approach to portfolio management. Unlike some in our industry, Spirit continually manages our portfolio to refine, improve, and position it for the long term. We carefully analyze the fluctuating valuation for specific property in the market conditions in our tenant end-markets. That means that sometimes we are a net acquirer and sometimes we are a net seller. We buy when it's smart to buy and when it's not, we position our balance sheet to capitalize on opportunities when they arise.

In 2015, we sold approximately $547 million of properties from our portfolio at a weighted average cap rate of 7.22% while acquiring approximately $889 million of property at a weighted average cap rate of 7.68%. Our future acquisition activity is highly dependent on market conditions. However, we will not make acquisitions just for the sake of doing so. We will make acquisitions when we find high-quality assets at appropriate prices and will improve the quality and diversity of our portfolio. That is why we don't provide acquisition guidance because we believe market conditions will not always allow for smart acquisitions. We certainly can see periods in which Spirit is a net seller of assets. In fact, given that we are almost two-thirds of the way through Q1, we currently expect that we will likely be a net disposer of assets this quarter.

These two qualities combined, our large diversified portfolio and our active approach to portfolio management are critical factors to our track record of dependable performance. They have enabled us to report strong AFFO growth and a steadily increasing dividend.

We also believe that we add value through our capital allocation strategy, which provides us the flexibility to consider a spectrum of options, depending on market conditions. On one end of that spectrum, we can make acquisitions and we remain well positioned to do so when we spot the right opportunity.

In the middle of that spectrum is deleveraging, reducing debt to strengthen our balance sheet, which lowers our cost of capital. And on the other end of the spectrum are share repurchases, such as we just announced. They give us yet another way to return cash to shareholders if market conditions warrant.

We will also invest in our future to best position ourselves for growth and performance. That's why we're excited that we are establishing our new consolidated headquarters in Dallas. I don't have to tell you how important location is in our business. We have long had a presence in Dallas. And given the transformation of Spirit Realty in recent years into a large geographically diversified leader in the industry, we are confident that this location will enable us to operate very efficiently and effectively.

Dallas, part of fourth largest metro here in the US is a centrally-located business center with an extensive travel infrastructure and a well-established real estate community, and it offers an attractive location from which to manage our growing portfolio.

We also expect to tap into the deep real estate experience in this market as we complement our team. It is also worth noting that our largest concentration of assets is in Texas. The cost of relocating is not insignificant but we believe the investment will be well worth it in the long term. And like any investment, we expect to see a return on it as we realize both strategic and future cost benefits.

Phil will go into the fourth quarter numbers in more detail, but before I turn the call over to him, I want to briefly give you an idea of how we did this past quarter. We reported AFFO per diluted share of $0.22 in the fourth quarter, which was a 6.3% increase over the comparable period of last year. Our full-year AFFO per share was $0.87, above our initial guidance of $0.84 to $0.86.

These strong results demonstrate the effectiveness of our business model quarter-after-quarter. I don't think it's a coincidence that Institutional Capital has rotated into the triple net sector, including into Spirit in the first two months of this year. The overall economy and capital markets have become more volatile and uncertain and we offer results that are dependable, stable and predictable.

Our 2016 guidance envisions continued growth in AFFO and we expect to continue to improve the quality of our portfolio and our financial position. We are confident we can deliver on this promise and as I mentioned earlier, we have a history of meeting or exceeding the goals we set out. As always, we appreciate your support and look forward to reporting our progress with you in the future.

Before I turn this over to Phil, I would like to comment on one other commitments Spirit made in 2015 and that is when we hired Phil. I asked him to review our supplemental reporting package and to establish ourselves as a leader in that area. I would hope you agree that we've made substantial progress in that regard and we look forward to continue to improve that going forward.

With that, I'll turn things over to Phil, who will walk you through our fourth quarter financial highlights. Phil?

Thanks, Tom. We are very pleased with our fourth quarter financial results. Our reported AFFO per share growth compared to the same period in 2014 is particularly notable given our much improved financial standing.

2015 has clearly proven that we are well disciplined allocator of capital. To highlight, through mid-April of last year, we raised net equity proceeds of approximately $347 million at a weighted average share price of $11.90 per share. In addition, during the year, we acquired $889 million of properties and an initial weighted average yield of 7.7% and sold approximately $547 million of assets at a weighted average cap rate of 7.2%.

In summary, our net acquisition activity of approximately $340 million for the year was largely pre-funded by well-timed equity issuance and accretive capital recycling.

Furthermore, since our IPO, permanent capital sources have funded approximately 69% of our property acquisitions, including the Cole merger. In 2016, we will continue to capitalize on the embedded organic growth inherent in our portfolio and specifically seek out accretive portfolio capital recycling and liability management opportunities to drive shareholder value.

As Tom alluded to, during 2015, we made considerable progress in four key areas, portfolio diversification, financial standing, access to capital and financial disclosure. Page 4 of our financial supplement provides a good backdrop on our progress.

From a portfolio perspective, we have outperformed our year-end goal of reducing our Shopko exposure to below 10% of our normalized revenues, which now stands at 9.1%. More importantly, our top 5 and top 10 tenant concentration compares very favorably to our net lease peers. In terms of our financial standing our leverage and cash flow metrics continue to show notable improvement. In this regard, leverage remains below our year-end target of sub 7 at 6.89 times. Our $3.2 billion unencumbered asset base represents 38% of our total gross real estate investments and our fixed charge coverage ratio stands firmly at 2.9 times.

With respect to access to capital, we are organically positioning the balance sheet to strategically access capital more efficiently. During the quarter, we closed and upsized our senior unsecured term loan to $370 million. The term loan facility has an accordion up to $600 million, which when combined with our currently undrawn $600 million line of credit, which has an accordion up to $1 billion well positions the Company as [we lag] into refinancing our near-term, high-cost debt maturities.

On the financial disclosure front, we continue to enhance our supplemental financial disclosure with your help and look forward to continuing the dialog with the investor community.

As Tom said, this afternoon, we reported AFFO of $0.22 per diluted share for the fourth quarter, including adjustments for restructuring charges associated with our corporate relocation. This performance represents an increase of 6.3% compared to the fourth quarter of 2014 and an approximate 1.9% increase from the 2015 third quarter. As with recent prior quarters, the year-over-year increase is largely due to higher rental income, as a result of our strong acquisition activity over the last 12 months, moderate same-store rental growth, consistent operating expenses and interest expense savings on debt retirement and refinancing.

Total revenues for the fourth quarter of 2015 increased approximately 9% to $168.7 million, compared to $154.8 million in the fourth quarter of 2014. Also during the current year of fourth quarter, we recognized approximately $1 million in lease termination and settlement fees. Recall that we recognized $2.2 million in lease termination fees in the current year third quarter.

Same-store rent growth for the quarter when compared to the prior year fourth quarter increased 0.3%. Rent growth was negatively impacted by a lease restructuring related to our legacy investment on tenancies that represented approximately 0.4% of our annualized cash rents. Our same-store performance, excluding the impact of these tenants, would have resulted in a 1.1% increase year-over-year.

On the expense front, you will notice that this quarter we had separately disclosed expenses attributable to the relocation of our corporate headquarters to Dallas. The $7 million in expenses recognized during the fourth quarter relate primarily to retention and separation benefits that we have reserved for those employees that have elected to not relocate to Dallas. We expect to incur other costs related to the move, certain of which will be expensed as incurred, primarily employee relocation costs as well as hiring and redundant personnel costs.

Lastly, we will capitalize certain of our costs relate to our office build-out. In total, we expect the total cash impacts related to the move to approximate $20 million. From an AFFO prospective, the anticipated add-back adjustment to AFFO for non-capitalized items will approximate [$50 million] or $3.4 per share.

Total expenses in the fourth quarter of 2015 increased to $158.8 million from $131.7 million in the same period of 2014. Approximately $22 million of this variance is attributable to certain non-cash items, namely asset impairments, depreciation and amortization, non-cash interest, and non-cash G&A. Additional items contributing to the increase in the operating expenses are the aforementioned relocation costs and moderately higher property costs.

With respect to G&A, it represented 6.5% of total revenues for the quarter, below our internal target of 7%. Cash interest decreased by 5% or approximately $3 million compared to the fourth quarter of 2014, primarily as a result of the repayment and refinance of high coupon CMBS debt. On the defaulted loan front, subsequent to quarter end, we extinguished approximately $14 million of debt and look to make more progress over the course of the year in resolving our non-performing loans, which today represent less than 2% of our total debt.

We continue to make great progress on lowering our [debt cost of capital]. Our weighted average cash interest rate decreased by approximately 31 basis points to 4.72% from the prior fourth quarter principally due to the repayment and refinancing of high coupon debt.

Now turning to capital structure and liquidity. As I mentioned previously, we have been a disciplined allocator of capital and continued to be well positioned for prudent growth. We have delivered AFFO per share growth above our initial 2015's guidance range of $0.84 to $0.86 per share. This is a notable accomplishment in light of our focus on organically reducing leverage in a challenging capital markets environment.

During the fourth quarter, our acquisitions totaled approximately a $175 million at a weighted average initial cash yield of approximately 8%. In addition, during the quarter, we disposed of a $103 million of properties at a weighted average cap rate of 7.1%, resulting in an overall gain on sale of $7 million. On the liability management front, during the fourth quarter, we extinguished approximately a $158 million of high coupon secured debt with a weighted average coupon rate of 5.95%, increasing our unencumbered asset base to approximately $3.2 billion, which represents 38% of our gross real estate investments.

Post year-end, we repaid $25.5 million of debt maturing in 2016 with a weighted average interest rate of 5.65%. As of today, our remaining 2016 debt maturities, excluding approximately $68 million of defaulted loans transitioning to debt forbearance totals a $159 million with a weighted average interest rate of 6.15%. Our 2017 outstanding debt maturities currently approximate $711 million and have a weighted average interest rate of 5.8%. We are very focused on these debt maturities, and we'll look to address them proactively well in advance of their scheduled maturities.

As I mentioned previously, during the quarter, we closed our $370 million senior unsecured bank term loan. This facility is an important step in our goal of diversifying our access to the institutional unsecured debt markets. We will continue to utilize the facility in tandem with our strong corporate liquidity and access to the capital markets to address these maturities in an accretive manner.

From a credit metric perspective, we are well positioned for prudent growth. As to leverage, at the end of the fourth quarter, our net debt to adjusted EBITDA was 6.89 times; in line with our communicated target of sub-7. Our leverage, adjusted for restricted cash balances available for acquisitions, resolved defaulted loans, and debt repaid subsequent to quarter end, would have approximated 6.74 turns. From a cash flow and a capital access perspective, our fixed charge coverage ratio improved to 2.9 times, and our ratio of unencumbered assets to unsecured debt at 3 times remained strong. As I had mentioned on prior earnings call, our 2016 and 2017 debt maturities represent a tremendous opportunity to significantly lower our cost to capital and improve our capital structure. We've approximately $870 million of non-defaulted CMBS debt maturing during this period that has a weighted average interest rate north of 5.8%. In addition, we have approximately $1.5 billion of assets encumbered by this debt. Some of this tenancy includes Walgreens, FedEx and CVS among other highly valued credits. These debt maturities represent a meaningful potential earnings driver as we seek to lower our cost to capital to accretively recycle assets and to significantly increase the size of our unencumbered asset base.

During the quarter, you may have noticed that S&P raised our corporate credit rating to BB plus and more importantly, maintain a positive outlook. We continue to maintain an active dialog with all three agencies and we are optimistic that continual progress will be made throughout the year.

Now turning to corporate liquidity, as of December 31, we had nothing drawn on our $600 million unsecured credit facility. Currently, we have approximately $24 million in unrestricted cash and cash equivalents on our balance sheet and nothing drawn under our $600 million line of credit. In addition, we've approximately $51 million of liquidity available in our 1031 Exchange and Master Trust Notes release accounts that are available to fund real estate investments. In summary, our strong corporate liquidity position well positions us for prudent and accretive growth.

During the quarter, we increased our quarterly common dividend by 2.9% and declared dividends to common stock holders of $77 million, which represented an AFFO payout ratio of 78% compared to $70 million, representing an AFFO payout ratio of 83% in the comparable period a year ago. In conclusion, we are affirming our 2016 AFFO guidance range of $0.88 to $0.91 per common share.

With that we will be happy to take your questions.

We will now begin the question-and-answer session. (Operator Instructions) Alexander Goldfarb, Sandler O' Neill.

Hi, good morning out there. First question, Tom the stock buyback announcement, can you talk a little bit more about it? Just given where your stock is trading? On our numbers we're sort of close to NAV so it doesn't sort of make sense to do it. And then also on the acquisition front, you guys seem to be able to accretively recycle. So, is this a statement about the investment opportunity or was this just something to have out there, just to have out there?

Thanks, Alex. I think, I know I read one other comment. It's a good tool to have in the toolbox and I think that's exactly the way we looked at it. Clearly, if you look over the stock trading history over the last couple of months, the market has been volatile and there are times that the stock price did not look as attractive as it does now.

And by all accounts, we could be in for a period of volatility going forward here. Certainly, feels that way from a capital markets perspective. So, I think the management team and the Board felt that that was a good tool to have because unless you have it when the situation presented itself and you don't have it available to you. But we clearly felt that we weren't signaling any intent. It was simply a desire to have it available to us if market conditions warranted.

Phil here, one thing I'll add is that, I'm sorry Alex. The one thing I'll add to that is that we're going to maintain a vigilant focus on capital structure and moderating leverage. So, this is definitely we're focused on -- obviously, getting to investment grade at some point and we don't want to abandon our leverage targets.

Or to put it in other way, utilize the stock repurchase program to just kind of damage our leverage.

I mean, that's just why it seem puzzling because one, I mean, you guys haven't issued equity for a while and presumably you want to be able to acquire more. So, to use precious capital for something that hopes the market recognizes especially that presumably would only do when there was a really a severe discount. Just seemed, it definitely stuck out and then as well as if you are trying to improve to an investment grade balance sheet buying back stock doesn't really seem consistent with that. So, can you give us some sort of parameters like how much of a discount you would need to see or how much capital liquidity --

As you can imagine, we don't want to put pricing on it but you've already touched on it and certainly I think hopefully our response address that directly that this was purely a design to have available to us in the event of some market disruption. But right now, it's purely sitting in the toolbox.

Okay. And then the second question is on Haggen, so a two-parter. One, if you can just comment on the auction delays, I think it's now been delayed three times March 11 is when it's been delayed to. And then two, what's the timing to ultimately recoup the $40 million that you guys outlined of potential proceeds above your original investment?

Yes, let me, I'll answer the second part and I'll let Mark Manheimer touch on the first part. I mean, we have at this point 18 stores left, I think we're going to be, I mean we're not, there's not an enormous rush, we don't certainly, we're not a motivated co-seller. But those 18 assets are very consistent with from our perspective, how we look at portfolio management. They have got a lot of demand there. The cap rates are very aggressive, and we look at those potential proceeds coming back to us and say, we can accretively reinvest those, and we feel that we can accretively reinvest them at comparable risk parameters. And so, any time you look in an asset that we see that that delta between what we can sell something, put it back to work we are going to act on. So I mean we're not going to just go out there and kind of flood the market with 18 stores, but we are focused on the fact that that they are in demand, and we're going to capture that demand. And so I would expect as we said that by the end of the year that we'll have most if not, all of that capital reinvested elsewhere. I'll turn it over to Mark to discuss the auction process.

Yes, thanks, Tom. Yes, and I guess I would note that the five units left that master lease has already been assumed. And so, we are going through the auction process, it has been delayed a couple of times, now pushed out to mid-March. I guess what I can say a lot of information we do have is privileged as being a member of the unsecured creditors committee. I guess what we can say is there has been a lot of interest both from strategic buyers and financial sponsors and bids have come in for the assets but now it has to get through the process has to be blessed by the unsecured creditors committee and part of that is going to be to remove all contingencies as part of those offers, so that everyone knows exactly what they're getting. But we are optimistic that that should be resolved shortly.

Okay. Thank you.

Juan Sanabria, Bank of America.

Thanks, guys. Just following up on the buyback question that Alex kind of alluded to. So we shouldn't assume that the proceeds from Haggen dispositions which seemed to be a low-six cap rate would necessarily be used to fund the buyback that you'd rather, notwithstanding a greater discount, reinvest those into acquisitions, is that fair?

Well, I guess the way I'd respond to one is they kind of mutually exclusive decisions. I mean the stock buyback is the decision under its own kind of decision-making, two is that a good use of proceeds and capital is fungible, whether the property came from cash flow or it came from the Haggen proceeds. So, we certainly don't link them. There wasn't any intentions to link them and we're obviously pleased that we're going to be able to raise significant capital available for reinvestment in the Company through the Haggen portfolio. But no, I wouldn't link them, I don't think -- that's certainly not the way we look at it.

And then on the balance sheet side, you alluded to kind of wanting to continue to bring down leverage, what should we be thinking of it sort of a more medium or shorter-term target for 2016 and what should we be thinking about from a refinancing perspective that it is assumed in guidance?

Yes, Juan. It's Phil here. So I would say from a leverage perspective, we're definitely still targeting sub-7 and I would like to end the year, I would say probably in the 6 to 8 range, is kind of what I think would be prudent for you guys to think about. And then from a refinancing perspective, I do think pricing has widened out a little bit across the space, be it from the ABS market, be it from the institutional corporate debt market. So, I would assume something probably in the four and three quarters range, and turns into a long-term cost of debt perspective and even that number does assume some new issue premium like in the private place of market or in the high-grade corporate market once we get to investment grade, I think it's a pretty safe assumption.

And then a quick question on the Dallas costs of the $20 million you flagged or guided to. Is the fourth quarter figure of $7 million you've already incurred, is that part of $20 million or is it $20 million on top of that?

That is part of the $20 million.

Okay, great. Thanks, that's it for me.

Ki Bin Kim, SunTrust.

Thank you. Good morning, everyone. In terms of your balance sheet, the unsecured term loan that you did this quarter for about $370 million or so. What kept you from going longer duration on that debt, especially given that you're signing leases with the duration of 15 years to 16 years?

Well, bear in mind that that facility has an initial maturity at three years and then we have two one-year extension options that our option. In terms of, when I look at our debt capital structure from a more long-term basis, we're better served not having bank capital being a longer-term source of capital from us, from a debt perspective. We're focused on accessing the high-grade corporate bond market where we can get tenures of around 10 years. And I think it's more important for us to focus on diversifying our access to capital.

The bank term loan market right now is very favorable, and I think the more we could demonstrate access to different sources of debt capital be at the high-grade corporate bond market, perhaps the private placement debt market that just going near to our benefit.

I guess, I would elaborate where we recognize, we invest long-term, we also want the right side of our balance sheet to be durable and long term. We're very focused as Phil talked about, ultimately achieving investment grade rating over time and that changes the whole dynamic of when and how you fix your capital going forward and we believe we'll be able to fix it going forward at more attractive pricing as we ultimately achieve those objectives. But we are very cognizant about what percentage of debt that we have that is shorter-term debt and it's very, very modest relative to our entire capital structure.

And that's not swap either there, right?

That is not swap, it is not.

And in terms of how much you want to buy back [and thus back] in this year or next year, looks like this quarter you paid about $5.5 million PPM penalty, which is about 3% of the total amount of that debt bought back. When you go through the math of when it becomes advantageous to pay debt penalty and go and buyback debt. Can you just talk a little bit about that versus waiting as they come due or the penalty is little bit less?

Ordinary course what we've been doing is we've been paying off this debt and it's early as to open to pre-payment at par, which is typically three months in advance of the maturity. Now what from a proactive liability management perspective, we only have a $159 million of debt coming due this year when you exclude the defaulted loans and that's very expensive debt, that's 6.15% and that's six, starts with a six, weighted average coupon. I think and you've seen this across the REIT space in the past, if we're proactive on the liability management side and we incur some early extinguishment of debt costs, some (inaudible) on that, the benefit to us is that we're crystallizing our lower cost of debt capital going forward. So, it's going to be based up on the facts and circumstances at the time, the access to capital that we have. And again, if we have the access to capital be it from the asset sales that markets go to regarding Haggen, more vibrant capital markets environment, we're going to be very proactive on that.

Okay, thank you.

Vikram Malhotra, Morgan Stanley.

Hey guys, this is Landon on for Vikram. Congrats on the quarter. Just wanted to start out by asking some of your peers have commented recently about their willingness to be entity level buyers in the current market. I was wondering what your take is and your willingness on the selling side and would you be willing sellers and under what kind of conditions?

Sure, you probably asked that question realizing, I guess, what my answer would be which is -- that's just not productive or I think appropriate because it's kind of hypotheticals. I think my opening comments were an attempt to address I think the very issue that you raised, which is that investors appropriately focused on shareholder value and again, I try to -- on behalf of this management team and the Board expressed our view that we're here to produce shareholder value and to find the most efficient and effective way to do that. But it really isn't -- it's just not productive to discuss what could occur or what might occur or what someone else might do. So, I don't really have anything to offer other than that.

You're not able to comment on your willingness to entertain discussions --

I think my opening comments speak for themselves.

Okay, fair enough. And moving on to the Dallas move, originally you sort of have indicated that you didn't expect the cost to be particularly material. I was just wondering, did the cost end up becoming a bit higher than you originally expected? And in terms of the severance and retention, have you lost any significant personnel on the asset management or acquisition side?

Sure. I think, in terms of the costs, I guess a couple of things. I mean first of all, those are the costs that we provided in this disclosure. They are estimates for costs going forward. Just like anything that we do, now we want to be conservative in terms of the ways that we do it. And so when we looked at these cost from a disclosure standpoint, we wanted to make sure that we captured everything that possibly could happen and certainly our desire will be to bring it in, hopefully at less than those conservative costs. That's number one.

And number two, just on the cost. I guess, I would also say that the nature of the financial reporting and we wanted to be completely transparent, in an open book on what this is going to cost us and I hope people found that information useful. One concept that doesn't really exist is that there is no kind of concept we're discussing, opportunity costs or what might be, what's really the incremental cost versus what isn't and I say that and I will use the real estate as an example. We've disclosed the kind of what's the high-end and what the cost could be from our real estate position relative to our new office, but what doesn't get incorporated in that is what is the alternatives and what alternative costs could exist if we didn't move in that direction or we've made a different decision.

And I say that because, the office space here in Scottsdale, we signed this lease prior to the Company even being public. I think we had less than 30 employees at the time when we signed this lease. We've expanded it. We've made it work as best we could but the reality is it really doesn't work from an employee standpoint and we were going to have to address this real estate going forward if in fact, we didn't make the decision we made.

So there, again that is, I mean that has really worked itself in to this analysis. So it is what it is in terms of the numbers we think we're at the high-end of the range and we're determined to make it move, go more efficient. As to the individuals, we've been analyzing this for some time. The Board engaged a consulting firm associated directly with moving companies to seek advice on this. They gave us some general parameters and studied our Company as to the likelihood of the capture rates so to speak or the people that move. We really bifurcated it between what I would call, talented but still back office support, and we have over 2,800 properties as folks know and that's a lot of back office support and that type of talent and individuals really aren't subjective that's not the type of position that would likely move. So, when the consultant looked at this, and they gave us some parameters. I think we've been pleased with the outcome, we've got out of our real estate professionals, clearly the executive leadership team sitting in this room is committed to move, which is from my standpoint, obviously important.

And then we have executives from asset management and acquisitions that are committed to move and I believe at this point we're just over about half of the actual real estate talent. Again what I would consider to be real estate versus back office and support talent are committed to move. And so, that's actually a little higher than what our initial projections would be. And I would also say, I'm actually pretty pleased with the energy level and the enthusiasm of the people that are coming. They're excited about this. They're excited about what the company is doing. They're excited about the location and they're excited to be part of the beginning of putting a new culture and team together.

So, so far so good, it's not easy moving a company. We put a lot of that into this. Again, we engaged consultants early in the process, who have been assisting with us to mitigate the cost and disruption. That's the status where we are at the moment.

Really appreciate that. And then just a quick one for Phil. Just on the debt prepayments. Some of that was coming out of stuff that was 2017, 2019. Does that free-up certain assets that you think they are particularly marketable in the environment? Is that why you chose those particular pools?

So, I mean, I'm sorry, you talk about the 2016, 2017 debt maturity, the underlying assets encumbered by that debt?

It looks like you prepaid some of like the 2017 and 2019 maturities. I was just wondering, are there assets in those pools that that you want to sell, is that why you maybe chose those particular pools to repay?

Yes, this is Mark. So, kind of the way that we looked at what we already prepaid as we had some assets that we wanted to get to a little bit earlier as well as the 84 Lumber had a CMBS loan, half of which was a hung securitization that was held by a hedge fund and we were able to buy that back at less than what the defeasance was.

Okay, great, thank you very much.

Collin Mings, Raymond James.

Just following up on the prior comments, as it relates to the Dallas move. I think one of the benefits Tom that you have talked about in the past is the potential to the right size some G&A expenses. So just maybe looking past the cost associated with the move, could there be any sort of net reduction in G&A going forward?

Well, I certainly think that's our objective and now so far, it is a little early to reach a conclusion but I do think moves, if you think about a moving a house, you look at everything you got in the house and decide, why you are bringing it in with you or the process that you're bringing with you. We're looking at each of our processes, we're looking in terms of the people that we have to replace, it's given us an opportunity to ask ourselves whether we are doing the right things, whether we're doing the right processes, whether we are doing them in the most efficient way that we can do them, and really a move kind of creates that methodic necessity to do all of that and so I do think that our current plan is that where we are likely to be able to do the same amount of work that we're doing here with probably less body in the seat, no it is not a material amount, but that is our current thinking at the moment.

And obviously the second piece is that some of the money that's associated with this move is we are upgrading systems and we're getting kind of state of the art, new systems that we're putting in place that again likely would have been spread over time and spent over time and we're going to do it kind of all at once to create an efficiency in operations as we possibly can. So I think in that case, we are kind of front-loading the expenses that we're going to benefit moving forward. So yes, I think that the -- our judgment is that we're going to have both tangible benefits and then the intangible ones are the harder ones right, the value that the talent pool management succession, the travel quality of life and employees, traveling from Dallas as opposed to traveling from Scottsdale, which is not an ideal place to travel from. So, we look at the intangible benefits and we look at the tangible benefits.

Yes, the one thing I'll add to that is the well, just some empirical data, as we did engage Mercer to do a complete comp study across our entire population, go-forward employee base in Dallas. And to Tom's point, we are not expecting a material increase, if any increase in salary-related G&A. We've added every position by professional across the organization. So wanted to at least let you know that we went through a thorough study in that regard as well.

That's helpful. I think just maybe just relates to these comments that to just maybe help clarify, when you retain the consultants where they being advised as far as how to manage cost and manage this process or was it kind of a go, no-go decision as far as the move?

Well, I think it was hold -- the Board of Directors were the ones who have the go, no-go decision. They're the ones who engaged these consultants and the genesis of the work or the mandate was explained with the risks and benefits of a move. How does it benefit the Company, what are the risks associated with it, how do we mitigate the risks and how do we capture debentures. That was the mandate that our consulting firms were given by IR board as they assess really the alternatives that they were looking at.

Thanks, Tom. And then just going back to the comment about being a net seller here in 1Q, can you quantify just maybe how much you've sold year-to-date? And just beyond Shopko, can you touch on where you are really focusing your disposition efforts right now?

No, I mean I don't -- we've never got in the habit of kind of providing interim statistics because first of all, it can be a little misleading as you sit there in the middle of the quarter and when literally some things would be happening two days from now. So we don't tend to do that. I was just I think, trying to give kind of a perspective on -- first of all, couple of things, the one -- the way we look at value and how to create it and also just kind of a comment on the market, the market in general -- I mean, I think that -- the first quarter tends to be historically slow quarter for us in acquisitions anyway, but we're in an interesting time here where the market is, it's a little volatile and so we were being very cautious, I think in terms of the acquisitions that we're looking at. And the ones that we've done, I think we feel very, very good about and yet at the other end of the spectrum as I think you know, we have a very granular portfolio.

And the 1031 market, it is just -- it's on fire because of the fact that the people are talking about negative rates on the TVs, it's really hard to find yield, and so we're able at this point that we've got a lot of interests in some of our assets. I will give one example, I know I certainly wouldn't give the aggregate numbers, but we sold to Taco Bell, KFC, happened to be unit, property, closed yesterday at a 5.7% cap rate and we are a seller of the Taco Bell, KFC at a 5.7% cap rate, because we are going to take that money and we are going to put it to work at a significant spread differential to that. So I don't think and we certainly try not to separate project farther beyond than the length that we can see in terms of what our activities is for the year. So I certainly wouldn't read into what I said for the first quarter and say, oh let Tom's prognostications for the year, that's not. I was simply giving you a kind of the facts as they stood today, but we like what we see in our pipeline, we like what we're buying, we've been cautious, we're cognizant in our cost of capital and we've got a very robust acquisition market for the type of assets we own.

Yes. And I guess I would add just in terms of the, I guess, what kind of dispos are we looking at and I've always kind of put them into four buckets, one being the obvious strategic type of dispositions, which usually focused on diversification. Shopko being the obvious one, but we also watch our geographic diversification and our industry diversification. And there is a non-core sales, which is a multi-tenant sales from the Cole merger. We had a ski hill a lot of different things from really three separate portfolios that are kind of melded together that don't really fit what we consider to be core. And really what -- a lot of what we've done in the past or what I call de-risking sales which is really getting out ahead of the risk of -- properties that we're worried about, where we think that we can get a better return on sale versus a default scenario and that also includes tenant risk as well as removing industry exposure where we think it's a more cyclical industry.

As we went through a process, where we underwrote all of the assets that we inherited from the legacy portfolio as well as the Cole portfolio and really tried to figure out what assets would we buy today versus what's in the portfolio and what could we actually get if we went out and sold them. That process has more or less run its course.

I think what I'm more excited about doing is more what Tom was alluding to which is our accretive sales and that's really where the 1031 market values some of our properties more than we do and that is typically going to be very accretive to our acquisitions. And with the debt towers coming due here in 2016 and 2017 a lot of those assets are encumbered with, the CMBS that we haven't really been able to touch. And as Phil alluded to in his opening remarks, there is a lot of assets there, that don't really fit our investment philosophy that we're going to be able to accretively recycle and then you guys saw the Haggen factsheet, there's going to be a lot of opportunity there to accretively recycle capital.

Okay. All right. Very helpful detail. This one last one for me, just in context of the Sports Authority issues, can you just update us on your thoughts and views that relates to Academy Sports?

I'm sorry, could you repeat that?

You said it relates to the Sports Authority issues out there, can you just maybe update us on your views and thoughts on Academy Sports?

On Academy, I'm sorry. No. They have a -- they do have very different business models, granted they're in the same space, I think that may really create more opportunity for Academy. They?ve continue to accelerate their EBITDA growth, while Sports Authority obviously has struggled. Sports Authority is a credit that we've always steered away from. So, we don't have any Sports Authorities in our portfolio, but we actually view the academy trajectories likely improving with Sports Authority at a minimum eliminating over 200 stores.

Alright. Thanks, guys.

You're welcome.

Vincent Chao, Deutsche Bank.

Hi, everyone. I just want to stick with the investment markets here for a second. So it sounds like the 1031 markets still very strong, so cap rates not still very low there, you guys in the quarter though, the cap rates on your acquisitions are a bit higher than it's been in while, and just curious if the disruption that we're seeing, I mean, I would think there to be some more opportunities, maybe some expansion of cap rates, but just maybe if you give us your thoughts on that, outside of the 1031?

I'll let Gregg comment on that.

Yes. I mean, I think last year, second half of the year, we started to see an uptick in cap rate, mostly as you say due to a little bit of uncertainty in the capital markets, especially on the CMBS availability and the cost of that capital to a lot of our competitors. And also there is a number of REITs in the marketplace, although still active. There was obviously a one large player who was not in the market. Last year though, that's really seen by the third and fourth quarter to have an impact on the direction of the cap rate. And I think so far this year we're not seeing an upward trend as much, but we are seeing kind of stability that what we witnessed in the third and fourth quarters.

Got it. Okay. Thanks. And then just maybe a couple of final questions on headquarters move, Tom you mentioned to expect and get a return on that investment, obviously $20 million is not very much relative to the overall company, but I'm curious how you think about returns on that given the tangible benefits that you talk about, and then also the hard to define intangible benefits?

Yes. It's an excellent question, and obviously depends on how much you allocate to intangibles. Again, we do believe that we will have tangible benefits and that will benefit itself over time.

On the intangible one, those are again hired to value, but again -- all the employee surveys that companies do occasion and the opportunities that people have associated with their jobs that are becoming increasingly important. And in our recruiting and hiring as we look at bringing in younger staff, those elements are way too much higher today than they probably did a few years ago. And so from our perspective that intangible benefit in terms of just having an access to a talent that is incredibly diverse today, but not only diverse today and broader today than what we have, but it's also in a location that by all accounts looks like we will continue to have that opportunity going forward.

I think there is a reason that I think so many jobs have migrated to Texas over the last 5 to 10 years. It has been a job magnet and because it offers things to companies and employees and benefit that people find important in their quality of life. And so at one point, I'm sure we will try to do a mathematical calculation when this is all said and done, but we certainly weigh those intangible benefits very highly.

Okay, thanks. That's all I had.

Vineet Khanna. Capital One Securities.

Yes. Hi, good morning. Just acquisitions during the quarter were weighted towards sale-leaseback. Is that due to a change in approach or is it just how the quarter sort of came together?

No, I think if you look back historically since we've gone public, I think we're always at least 50%. I think the range is kind of 50% to 90% sale-leaseback. It's kind of our -- obviously, our business model is financing the middle market company across to over 13 different industries, mostly retail and it's very consistent with what we've done since the IPO in 2012.

Okay. And then just staying on acquisitions, can you comment sort of quantitatively or qualitatively how spreads are today versus how they were in the fourth quarter and throughout 2015 and net spreads on your investment?

I would say, they are about the same I mean, it may be slightly down but about the same compared to the fourth quarter. No real significant change.

Okay. And then just finally, can you provide some additional color on the type of businesses you guys have been investing in mostly, and what percentage of those have located in the top 100 MSAs?

The top 100 MSAs, I don't have that data readily available. I can tell you the -- obviously, the Haggen transaction last year was mostly all in top 20 MSAs that we did in the first part of the year that we discussed. So, outside of that it varies. If you look at the type of industries we're financing, I mean, if you look at our list of top 13 or 14 industries currently in our portfolio, I think with the exception of building materials, which we're not really active any longer, the rest of the categories are consistent with where we are investing, quick service restaurants, convenient stores, general merchandise, grocery, fitness were all categories that we added to our portfolio throughout 2015 and specifically in the fourth quarter.

Okay, great. Thanks for the time.

Tyler Grant, Green Street Advisors.

Hi, guys. A couple of questions for me today. So in the fourth quarter there were 13 new vacancies in the same property pool, Haggen represented six of these, what were the other seven?

Yes. So, one of them was a property that did not renew. And then the others were related to -- and which goes back to a question I answered earlier, which was we had some properties that were encumbered with CMBS, which we partially defeased because we ? they were properties that were not performing very well and we had other tenants that were interested in buying those assets. And so we partially defeased a loan and sold those properties.

All right. Sure. And then in your press release you do say you released seven of eight properties that came due which would suggest pretty good operating performance on an internal growth basis, but you don't mentioned the new vacancies in the same property pool. Is there a reason that you choose to present it that way?

I mean, where there is lease expirations and then there are defaults. I mean, that's kind of the default with Haggen and then we had a restructuring of a tenant where we ended up selling some of the assets and then we had one that was a non-renewal.

Right, sure. I guess, I'm just more saying in terms of presenting a full picture on your internal operations. The re-leasing is one half of it, but then you also have the same property pool, which you don't comment on. So I just want to understand, why you did choose to not comment on that?

Yes, I mean our -- I think, our thought is that it shows up -- I think you kind of backed into it, but I think it shows up where you've had -- we show the renewals that and then the vacancy number is shown.

Right. And then Spirit seems to sell more assets vacant than to its peers, is there a reason for that? So for example, this quarter you sold 14 assets vacant, if I were to look at it, if I'm the buyer on the other side of that transaction and I'm about to buy a property that's vacant, it would likely be because, I've a future tenant in my back pocket. So why is it that Spirit is not going out there finding that tenant, before the future buyer of the property finds it? And don't you think of leaving economics on the table by not doing so?

Yes. And I think there are some different schools of thought on it, but in our experience both at Spirit and other companies, we tend to find ourselves in our credit watch meeting, talking about the same properties repeatedly. And whether it'd be a property that, we look and try to find a new tenant and so I guess I would say, we're active with -- most of the things that don't show up on the relets are often times where we know a tenant is not going to renew and then we find another tenant. And if we don't find a tenant before we're getting the property back or shortly thereafter, it's an adversely selected property, so in our experience when we have found another tenant down the road, call it, six months, 12 months, 18 months later, it's usually real estate that's not very good and we end up dealing with more defaults, sometimes you put money into the property and then you've got them defaulting again. And in some cases, we've had the same property come in four or five times in credit watch, and our thought is that, we'd rather upgrade the portfolio and start to eliminate the properties that have already been adversely selected and over time, I think that's going to improve our portfolio.

Alright, sure. Just, so moving on to new topic, regarding your decision to relocate to Dallas, it was kind of touched upon earlier in the call in terms of the bulk of the real estate, people are -- have decided to relocate, but in terms of absolute numbers regardless of job responsibility, how many employees have decided to move and how many employees have decided not to move?

Well I think, I didn't say (inaudible) because I think I said about half (inaudible) in terms of the real estate professionals, but at this point we've got 20 employees that are committed to move and then we've got a number of positions that are in the process of being filled. So, we have more positions filled, there are just not people that are moving. So we've got, as I said 20 people committed (Multiple Speakers). Well by definition, I guess whosoever left we have close to 68 to 70 full-time employees, again almost half of those are in administrative and non-real estate professionals.

All right, sure. And so we've talked a little bit in this call about tangible and intangible benefits being realized due to the relocation. Over what time period do you expect these benefits to realize and over what time period do you think that shareholders will recoup the expense of the $20 million?

I think pretty quickly, I mean, again I don't think you can try to put a total cost on real estate talent, but one or two people can make a huge difference in terms of decisions that they make in your portfolio, again that's not to disparage the team that we have here in Scottsdale, I don't want to suggest that, but the reality is that when we're looking, we had open positions here in Scottsdale, we have the same open positions in Dallas. The reality is we're getting five greater group of individuals who are interested in the same position there than they are here. So I don't think you can underestimate the impact of what again a small group of employees could do for shareholder value for this Company, which is ultimately why we're in the business and so I can only expect that the returns to our shareholders -- we're committed and this decision was made with the Company and its shareholders in mind and we expect to produce those returns for our shareholders. [Take a date] and it's probably -- and I'm not sure that would be productive, but we certainly believe that it will be there, and we'll be there reasonably quickly.

All right, sure. And then just with the shareholders' benefit in mind, earlier in the call you had talked about M&A transactions or other ways in which you could realize value for your shareholders. On that same note, is there a reason that Spirit has not opted out of provision MUTA that would enable to stagger its board without a shareholder vote?

Yes. I think the - we have not opted out of MUTA. That is a decision the Board of Directors has made, it reviews Corporate Governance at least annually, if not more all of the procedures of Corporate Governance. And it believes it has -- first of all, we have I think one of the best independent boards in the industry, a board I'm proud to be part of. I happened to be the only non-independent member of 9% vote base Independent executives and their collective judgments that's our governance criteria today is it puts the Company in the best position to produce shareholder value going forward.

So, how would shareholder value potentially benefit from Spirit staggering its Board without shareholder approval? I think if you look at it from a Corporate Governance standpoint, It is a good way for management to entrench themselves in the case of a hostile takeover or something along those lines. So, I'm just not clear how having that in place helps shareholders?

I'm not sure I have anything to add other than what I said.

Sure. Alright. So, I'll move onto the next question. This quarter, you initiated on stock repurchase program or you put one in place, it's a little bit confusing on our side in terms of what you use as guidelines to determine your capital allocation? So, specifically, let's take an example. Let's say, cash on hand, you have the options, buyback shares, pay down debt or to go buy assets, what are the guideposts you actually look at to make that decision?

Well, I think the first thing you have to be careful is you don't have rigid guideposts, those decisions or facts and circumstances are driven by capital market conditions, they're driven by judgments associated with capital utilization. And I think that from my perspective, and I realize this as my perspective, but this Company has been public for three years. This management team is in essence has been in place for three years, obviously Phil just joined us within the last year.

But I think our allocation of capital in terms of the decisions that we've made -- when we've accessed the debt markets and in what fashion, when we've accessed the equity markets? How we've recycled capital? I think all of those decisions in hindsight have been universally respected and applauded in many cases by the investors who watch us make those decisions. So, I think we do have a -- with better seasoned, well I think, respected capital markets orientation in terms of the management here. And those are judgment calls in terms of what market conditions are and how we can best produce shareholder value when capital becomes available and how you spend it.

Right. But again, are there any specific guideposts you look at, so where your shares, so for example, where your shares are trading relative to NAV or whether something is accretive on an earnings basis. What specific guidepost you look at?

First of all, Tyler, we have other people in the queue, so I want to add some questions here, but you hit it right in the head. When we look at it, we look at it holistically, we look at it from what could be the most accretive from an AFFO per share perspective, what's going to be -- what's going to near to our benefit from a debt to EBITDA perspective. And we obviously also look at our stock currency where it's trading relative to NAV. We look at all those three things. So again, I agree with what Tom said, I mean, I think we've been a very disciplined allocator of capital and I think we're going to continue to do execute the plan in that regard.

All right, and then one last question. What if something is earnings accretive, but NAV destructive, so buying assets, how would you view that type of...?

Again, I don't think we want to -- I don't think we want to speculate on math. So, not sure I want to answer that question, but I guess I am a little NAV destructive is not something I'm quite sure how I would even comment on to begin with, but again to deal in hypothetical to simply just not, it's not a productive, I think (inaudible).

All right. Well, I appreciate it, guys.

Thanks.

Daniel Donlan, Ladenburg Thalmann.

Thank you. I'll just be brief, a lot of questions have been asked today. Just wanted to dial back on the cash rent, the contractual cash rent year-over-year increase, it was only 0.3%, what should we expect next year, I mean are there any kind of big bumps that are once every 5 years, once every 10 years that we should be thinking about?

Yes and the reason, hopefully it was clear from the footnote. The reason why, it was 0.3 was we had to restructure at least with one of our movie operators from a deal done back in 2005, where the rent was just extremely high, but we are hopeful that we capture some of that percentage rent, which doesn?t flow through to our same store revenue calculation. That being said, you're going to see that for the next few quarters. So that will inhibit the same store growth that you'll see, but we'll try to make it clear, what it looks like without that. In general, we're -- about 1% to 1.5% on average bumps. It's really variable, I mean Shopko for example is 6% every three years. And so in some quarters, you are going to get a big chunk of that and in some quarters you're going to get as not as much, so it will be a little bit choppy, but with 2600 properties, we hope that it smoothes out a little bit over time and we are very focused on the acquisitions front of trying to get our rental increases annually just to try to smooth that out and it ends up helping us out with compounding.

Yes, sorry, about that, but I should remember it to read the foot note, especially in the net lease space. So as far as going back to some of Tyler's questions here, the 47 properties that expired in 2015, how many of those are renewed, how many went vacant and then how many did you -- were you able to re-lease and then kind of how does that look in 2016 with the 49 that are expiring?

Yes, so I believe we renewed just under 80% of the properties that expired the past year. And 2016, always a little bit tough to predict, but they in general, they are fairly strong properties. So, we are optimistic that will be at least at our historical average of 80%.

Okay. And then as far as [modeling] purposes, what should we assume in terms of the spread between acquisitions and sales, how high do you think you can get that?

It's going to be dependent again on timing, I don't want to speak for Gregg, but we were, it was fairly accretive, the last quarter and we do have some pretty good accretive opportunities on the disposition side, so it's tough to predict and the capital markets can always change though, and we don't want to predict too much on that front. But we do have a good chunk of the capital recycling and 2016 will be kind of in more in the accretive bucket. But I guess I would say and as bit of a shout out to both of these gentlemen, Mark and Greg, is that when you look at the REIT industry as a whole, I think we're one of the few companies that it's been able to, I think, consistently kind of quarter over quarter, be able to not make portfolio which is a combination of being able to make portfolio enhancements. Well, you're actually improving your balance sheet and do it in an accretive basis is an impressive triangle and I think that both Greg and Mark have worked hard at -- making that relative difference between our portfolio management sales and our acquisitions continue to be accretive for the Company.

Okay. So if I looked at the fourth quarter there is like 100 basis points spread. You're selling more investment grade, it sounds like potentially next year. Should we expect that to be higher than that or just kind of look for place order here?

You just asked that question?

Yes. And I didn't get an answer to it. So, I'm asking that again.

I think our range has been 32 a little over a hundred. So, we probably can stick with that range despite take that somewhere.

Okay. I think that's it for me. Appreciate it.

Thank you.

Amit Nihalani, Oppenheimer.

Hi. Just a bigger picture, has there been any changes to the watch list or anything else we should be aware of on that front?

Fortunately, the watch list got a little shorter with Haggen getting closer to resolution. But now -- and we do our watch list, I'm sure it's unique with how we do it versus everyone else, so we never disclose exactly how big it is but it's a little bit shorter now than it's been in the past few quarters.

Got it. Thank you.

Rich Moore, RBC Capital Markets.

Hello, guys. Good morning, I think it's still morning. On the Dallas side, I think if I could just to a follow-up on that, want to make sure I understand. So, the roughly 50 people Tom, in the Company that are staying, are they being paid the $7 million in severances? Is that how that works?

Yes. I mean as I think first of all, Rich, one of the mandates that the Board worked with me was that this Company has been in Scottsdale for a long time. We have a long tenure there to be well respected and well treated if either family position or the job really isn't transferable and so that's the approach that we have taken. And so yes, the majority of severance dollars that you see there are in fact people that will not be transferred. And again, those individuals that have been great employees of the Company and we're starting to lose some of them.

And it's important also to mention that a portion of that has also transitioned to ensure business continuity. That was the clear focus of ours as well.

Okay. So, is that -- I guess, I didn't understand exactly, Phil, the use of the term retention and severance, I mean, retention is in what sense, what do you mean?

Retention in terms of ensuring business continuity.

Right. So we're -- I mean not only are we offering employees severance when they depart, but we're also offering them incentives to make sure that they remain here for as long as the transition requires. And to put procedures in place to make sure that and we have business continuity that's the core element, obviously the transition like this. And I would say the employees here have been fabulous to work with on that score.

Yes. Okay. I got you, Tom. That makes sense now. The other thing, the other question I have was on the theaters that you guys, you redid the leases on handful of theaters, I think that and restructured the rent. Can you tell us about that, what exactly happened there, and how comfortable you feel what you put into place?

Yes. So it was a tenant that from a sale leaseback done in 2005, the rents that were set were extremely high, well above what we believe to the market. And it's a tenant that really struggled ever since that deal was done, I mean they filed bankruptcy I believe in 2012, they actually kept the Master Lease, so it's just lucky there was a Master Lease that we are able to get assumed through the bankruptcy process, but they were subsequently bought by another operator and was held in kind of still in that subsidiary entity and without the corporate guarantee. And they did not have a very good year and just weren't able to pay rent. So what we did is we set the rents down, to what they could afford, which is still I think above market. But then we also put in a percentage rent clause, so that if operations do turn around in the future, we can recapture and share in some of that upside, but we're extremely comfortable where we set the rent, and as part of that, we got a longer lease and got the corporate guarantee and the tenant is putting in a substantial amount of TIs into the property. So, we feel like we fixed the problem, and we don't have too many more like that, because obviously that's hit the income.

Alright. Very good. Thank you, guys.

Ross Nussbaum, UBS.

Hi, guys. On the movie theater leases that you restructured, were those properties that were purchased by the current management team or those legacy pre-IPO assets?

Those would be legacy assets, that were purchased back in 2005 and as the last question, really just the rents were set a lot higher than what we would have set them at and we think we fixed the problem on a go-forward-basis.

Okay. And I might have missed this before, your office same-store revenues were down year-over-year, can you remind me what was behind that?

Yes. That was a large part of why the same-store revenues were down is because we took a big hit to the annual rent, that we received. We are hopeful that recoup a lot of that percentage rent, the percentage rent doesn't flow through our same-store revenue calculations.

No, I was talking about the office. The office assets looked like it was down 80 bps year-over-year. Just the office?

Yes, and I believe that was related to a couple of properties -- hold on a second. This is kind of just kind of a funkier deal where we paid for some [DIs] a while back and there is a -- it was more like a lump and so it got -- when it got paid off, it was long through its rent and now that that's been paid off, the rent actually shows up lower, but they weren't any defaults or anything funky, which is the way that we booked the DIs that as rent versus income from interest.

Got it, okay. Lastly, somebody asked you about your watch list. Can you quantify in anyway, like what percentage of your revenues are under, say, one in a quarter rent coverage, just give us sort of an idea of what we're talking about?

I think, we don't disclose that, but that number is our unit level coverage, it is a focus of ours and it has part of our disposition plans, so we do expect that number to that part of the portfolio that continue to decrease over time.

Okay, I appreciate it. Thank you.

And this concludes our question-and-answer session. I would now like to turn the conference back over to Tom Nolan for any closing remarks.

Thank you, operator and thank you everyone for your time, questions and interest in Spirit Realty. We believe, we had an excellent year in 2015 and we are looking forward to the future. For those of you that are attending the Citi 2016 Global Property CEO Conference in March, we look forward to seeing you there. Until then, good morning and thank you again for your time.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.