Spirit Realty Capital Inc (SRC) 2019 Q4 法說會逐字稿

Greetings. And welcome to the Spirit Realty Capital Fourth Quarter 2019 Earnings Conference Call. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Pierre Revol, Senior Vice President of Strategic Planning and Investor Relations. Thank you. You may begin.

Thank you, operator. And thank you, everyone, for joining us today. Presenting on today's call will be President and Chief Executive Officer; Mr. Jackson Hsieh; and Chief Financial Officer, Mr. Michael Hughes; Ken Heimlich, Head of Asset Management, will be available for Q&A.

Before we get started, I would like to remind everyone that this presentation contains forward-looking statements. Although the company believes these forward-looking statements are based upon reasonable assumptions, they are subject to known and unknown risks and uncertainties that can cause actual results to differ materially from those currently anticipated due to a number of factors.

I'd refer you to the safe harbor statement in today's earnings release and supplemental information as well as our most recent filing with the SEC for a detailed discussion of the risk factors relating to these forward-looking statements.

This presentation also contains certain non-GAAP measures. Reconciliation of non-GAAP financial measures to most directly comparable GAAP measures are included in today's release and supplemental information furnished to the SEC under Form 8-K. Both today's earnings release and supplemental information are available on the Investor Relations page of the company's website.

For our prepared remarks, I'm now pleased to introduce Mr. Jackson Hsieh. Jackson?

Thanks, Pierre. And good morning, everyone. 2019 was a phenomenal year for Spirit and our shareholders in terms of operating and financial results. We capped off 3 years of tireless effort by our entire team and Board with substantial improvements to our operations, portfolio, leadership, balance sheet and technology.

These changes resulted in Spirit becoming a simplified triple-net REIT that can generate predictable earnings and dividend growth. You'll have noted in our earnings release, that we're increasing our previously stated 2020 full year AFFO per share guidance, which Mike will lay out in his remarks. As we look forward into 2020, we have a solid pipeline of acquisition opportunities and are seeing positive momentum from the changes we made to our acquisition process, with the collaboration between our acquisition and asset management teams.

I'm grateful that we were able to provide investors with a comprehensive view of our team and our business approach at our Investor Day event this past December. We're utilizing the systems, tools and processes that we presented on a daily basis, enabling us to consistently produce solid operating and financial results. Other notable accomplishments in 2019 were investments of $1.34 billion in real estate assets that were aligned with our views on industry, credit and real estate underwriting. Our successful return to the capital markets, issuing over $700 million in common equity and $1.2 billion of unsecured bonds. Receiving credit upgrades from both S&P and Fitch to BBB and delivering total shareholder returns of 48%.

As a result of our success over the last 3 years, Spirit has a favorable cost of capital, which makes us competitive in a much larger pool of potential acquisitions. With our current team and platform, we are well positioned to achieve our strategic and operating goals for 2020 and beyond.

Now onto a rundown of our fourth quarter operating results and key metrics. We generated AFFO per diluted share of $0.76 and ended the quarter with annualized contractual rents of $461 million.

We had strong operational performance on all fronts, with portfolio occupancy of 99.7%, lost rent of 0.3% and 1.4% property cost leakage, which is a reflection of our active asset management and portfolio quality. Our adjusted debt to annualized adjusted EBITDAre was 4.9x. Our public tenant exposure was 49%, and our weighted average lease term was 9.8 years.

Our systems, operations, refined processes and people give us keen insights into our tenants, their financial health, operating performance and industry dynamics. We're seeing the benefit of consistently ranking, evaluating and monitoring the real estate markets, credit fundamentals and trade areas that underpin the 1,752 properties that we own.

All of this critical data is accessible through our technology platform and shapes our capital allocation decisions.

Turning to capital allocation. We acquired 139 properties, totaling $574.8 million and invested an additional $14.8 million in revenue-producing capital, with an initial cash yield of 7.55%, an economic yield of 8.18% and average annual rent escalators of 1.8%. The investment activity represented key tenant attributes that we are looking for, including publicly listed tenants, existing relationships, favorable industries, solid lease structures and organic rent growth. The acquisitions this quarter represented 18 different industries and were accretive to our property rankings. Approximately 39.4% of the total investment was derived from public issuers and our properties represent key real estate for their underlying businesses. Our top 20 tenancy remains very diversified with our largest tenant only accounting for 2.9% of our contractual rents. Since last quarter, our top 20 tenant exposure fell by 160 basis points to 36.9% and our top 10 exposure fell by 170 basis points to 22.2% of contractual rents.

The percentage of our tenants with flat rents fell by 200 basis points to 11.2% of our contractual rents. Our top 20 tenancy will continue to evolve as we execute our investment and disposition strategy. And in the fourth quarter, CarMax was a new addition to our top 20.

During the quarter, we disposed of 4 occupied and 7 vacant properties totaling $23.8 million. The occupied properties were sold at an 8.73% cap rate. Over 60% of the gross disposition proceeds were related to the sale of a shopping center in Broadview, Illinois. This shopping center had approximately 12.4% leakage on the in-place rents, as there was some vacancy, and we were able to carve out the -- and retain The Home Depot that anchored the center. This is a great example of the targeted dispositions we spoke about when we initially set our 2019 disposition guidance. The gravy on this disposition is that it both enhances our portfolio, while keeping a target tenant like Home Depot.

Before I pass it off to Mike, I want to reiterate what we're solving for here at Spirit. It's predictable earnings and dividend growth with a competitive cost of capital. We have a very high-quality portfolio, defined and disciplined investment strategy, a fortress balance sheet, strong operating systems and outstanding people that are working together to achieve this goal for our shareholders. With that, I'll turn it over to Mike. Mike?

Thanks, Jack, and good morning. I think I speak for everyone at Spirit when I say that we are very pleased with the quarter and a strong finish to the year. I hope that all you listening today had the opportunity to attend our Investor Day in New York where we did a deep dive into our processes, our underwriting, technology and people. If you missed it, fear not, the entire 5-hour webcast is still available under the Investor Relations tab of our website.

Starting with the balance sheet. We ended the year with leverage, which we define as adjusted debt to annualized adjusted EBITDAre of 4.9x, near the low end of our guidance range. During the fourth quarter, we did issue 2.7 million shares of common stock under our ATM program for gross proceeds of $140.6 million, which allowed us to maintain low leverage despite robust acquisition activity.

In December, we repaid 1 CMBS mortgage with a loan balance of $42.4 million. The loan carried an interest rate of 4.67% and was scheduled to mature in September of 2022. As a result of the repayment, we unencumbered 12 properties with a gross book value of $80 million and recognized debt extinguishment costs of $2.8 million. At year-end, 90% of our debt, 93% of our rents were unsecured. In addition, we maintained $698 million of liquidity, consisting of cash and availability under our revolving line of credit.

Now turning to the P&L. We reported fourth quarter AFFO per share of $0.76 and full year AFFO per share of $3.34, both at the high end of our guidance range. Annualized contractual rent, which annualizes the contractual rent in place at quarter end, grew $39.8 million compared to last quarter. Approximately $43.8 million of the increase was attributable to acquisitions and contractual rent increases, offset by a reduction of $3 million attributable to dispositions and $1 million to vacancies. As Jackson mentioned, operations are running very smoothly, with high occupancy, minimal lost rent and low leakage, as our portfolio continues to experience very minimal tenant disruption. While our financial statements were fairly straightforward this quarter, I do want to provide some color around a couple items on the income statement. First, we recognized $11.7 million loss on the sale of a multi-tenant power center, which warrants a little explanation. And that asset was acquired and the purchase price was allocated equally across the square footage and land acreage of the entire property. However, when we sold the property, we carved out and retain the anchor tenant, which as Jackson mentioned, was Home Depot.

Since the actual market value of the anchor tenant was far greater than the residual value of the remaining power center, but the book value was spread equally across the asset. The sale resulted in a book loss. Now I point this out because this is a case where the book loss was not representative of an actual loss of economic value.

And second, we recognized an income tax gain during the fourth quarter of $229,000, which was also a bit unusual. The gain was a result of a reduction in taxable income for taxable losses incurred during the fourth quarter, which related to the income tax expense of $11.2 million recognized during the third quarter, following the $48.2 million management termination fee payment from SMTA to SRC. Now generally, we are only subject to state and local tax, which on a normalized run rate basis should equate to approximately $200,000 per quarter. So please keep that in mind for your models going forward.

Now I want to spend just a few minutes highlighting some of the changes to our disclosure materials that we rolled out this morning. These changes were implemented to address shareholder feedback, improve the presentation of key metrics and remove duplicative information. As you've hopefully had the chance to see this morning, the earnings release has been significantly streamlined by removing year-to-date references, financial results, portfolio and balance sheet highlights and other information is duplicative with the information now provided in our earnings supplemental. The streamlining will save time and cost, and is based on shareholders' feedback that they would rather see all important information consolidated into the earnings supplement.

Our earnings supplemental received a major overhaul this quarter with a refreshed look and improved layout. Some important additions to note in our new supplemental are the addition of an earnings highlights page; an overview of key portfolio, operational and balance sheet metrics; the disclosure of lost rent and leakage, which we feel are important metrics; a reconciliation to net operating income; a breakdown of the current quarter's acquisitions by industry as well as our average annual rent escalations; our property count by state; a breakdown of our portfolio by real estate values, square footage and annualized rent; expanded credit metrics disclosures; a new portfolio breakdown disclosure by asset type and industry; and a new organic rent growth disclosure that shows our average rent escalations for our entire portfolio over the next 12 months. There are a couple of important subtractions to note as well. First, we are now disclosing only our top 20 tenants in our earnings supplemental. Given the competitive environment that we operate in, we feel that continuing to disclose our top 100 concepts every quarter puts us at a competitive disadvantage vis-à-vis our public peers and private competitors, all of who are seeking new tenants every day.

Keep in mind that we will still disclose all of our concepts annually in the Schedule 3 included in our 10-K. Second, we removed our disclosure of same-store rent growth. After much thought and deliberation, we concluded that the same-store metric was not meaningful for several reasons.

It was backward looking, captured less than 80% of our contractual rent, a year had to pass before newly acquired leases could be added to the metric and it did not provide insights into the portfolio's health. Now same-store rent growth has been replaced by the aforementioned disclosure forward 12-month lease escalations, which captures 100% of our leases at each reporting period and provides investors with a forward-looking growth rate that is actually relevant for their forecasting. With regards to portfolio health, as we have mentioned many times, our management team focuses on lost rent. Simply put, loss rent is the difference between what we are owed by tenants and what is paid, which we believe is the ultimate lead indicator of tenant issues. As mentioned before, we added that disclosure to our supplemental package. We hope that you'll find all these changes useful.

Now turning to guidance. Due to the steady operations we are experiencing across our portfolio and the stability in our tenant base, we are updating our full year AFFO per share guidance previously provided in December.

We are raising our projected AFFO per share range from $3.12 to $3.17, up to $3.14 to $3.18. All other guidance ranges remain unchanged with capital deployment, comprising acquisitions, revenue-producing capital and redevelopments from $700 million to $900 million, dispositions from $100 million to $150 million and leverage from 5x to 5.4x. One other item I want to point out for your models relates to interest income for this year. Now I mentioned on our last earnings call and at Investor Day that we anticipated receiving an early mortgage repayment from a borrower during the fourth quarter. That borrower ultimately revoked their prepayment notice and the early mortgage repayment did not occur. Therefore, we ended the year with $34.5 million in mortgage receivables. However, all of our remaining mortgage receivables are scheduled to mature this year, which will result in less interest income compared to a fourth quarter 2019 run rate. The largest mortgage receivable, the balance of $23.7 million matures in the third quarter, with the remaining mortgages maturing in the fourth quarter. Just under $1 million of interest income is forecasted in our guidance for 2020.

And finally, I want to provide some color regarding our thinking around our common dividend for this year. While we feel our dividend is well covered and is very sustainable, over time, we would like to migrate toward a more conservative AFFO payout ratio of 75%. We believe it will better position the company for long-term growth and better total returns for our shareholders. We intend to reach this payout ratio through earnings growth. Therefore, I would anticipate keeping our common dividend payment as current annualized rate of $2.50 per common share for the intermediate term.

As always, our ultimate common dividend payment will be determined by our Board of Directors. And with that, I will open up the call for questions.

(Operator Instructions) Our first question is coming from Greg McGinniss of Scotiabank.

Mike, just want to clarify one of your opening comments. So it sounds like AFFO per share guidance was raised due to less than expected tenant fallout? Am I interpreting that comment correctly?

Yes. If you remember back at Investor Day, kind of walked through reserves that we put in place within our guidance just to account for things that happened. And we're just seeing better stability in our tenant base than our reserves within our guidance. So it's -- things just going well. And so as a result, we took up our guidance based on a really good operation.

Okay. And then, Jackson, you mentioned the top 20 tenants is going to continue to evolve. What should we expect that evolution to look like? Is that just a shift towards more of the public tenants, the B and BB-rated companies that you had mentioned at the Investor Day? Or is this kind of a different type or size of asset? Any insight there would be appreciated.

Yes, thanks. it's more or less the same as we talked about at the Investor Day. We're -- our top 20 tenants, as you know, are pretty tight relative to percentage difference between our #1 tenant and #20. They're very close together. What I would tell you is some of the things that we're sort of focused on right now, obviously, our industrial assets, QSR, grocery, home improvement, dollar stores, auto service, warehouse clubs, education and auto parts.

So we're seeking those currently. We're not going to shy away from C-stores or Healthcare -- health and fitness or casual dining as well. But that's just generally kind of what we're going to focus on, public tenants in those categories within our heat map that we're focused on. And we feel like there is adequate opportunity out in the market right now. But I do expect some shifting in that top 20 as we continue through the year.

And that's going to be just based on additional -- based on acquisitions, not on dispositions?

Yes, probably more -- definitely more on acquisitions. There might be some slight -- we're always looking to try to improve the portfolio. And so when we get an opportunity to -- you have a very liquid portfolio and it's granular. So when we see an opportunity to move an asset out that we think doesn't really rank well within a master lease or opportunity like that or we do a blend and extend, we're trying to monetize that because the market is obviously very liquid right now in terms of buying and selling at the moment.

Our next question is coming from Haendel St. Juste of Mizuho.

So was hoping you guys could talk a bit more about some of the investment opportunities that you are looking at that align with your heat map, your improved cost of capital. I guess I was more intrigued about the recent outparcel deal with Washington Prime. Curious if you could comment around that, how intense the bidding process was? Are you inclined to do more of these types of deals? And maybe some commentary on the split between ground and fee simple? But interested in that can you comment overall on the acquisition marketplace and what you're looking at as well?

Sure, Haendel. Look, the Washington Prime deal, to be honest with you, is a relatively small transaction, and we're in the kind of legal documentation due diligence portion of it at this point. I wouldn't call that like a bright yellow, new strategy for us. It's just in the normal course. We're talking with owners of property, we're talking with tenants, and we have opportunities like that will continue to evolve as we roll out our acquisition program. But we're looking for pretty consistent, as I mentioned on the previous question, highlighted some of the real priority industries that we're looking at that I just mentioned. And other things that I didn't mention that we still like, carwash, we still like auto dealers. To be honest, that we're not afraid of home decor and furnishing. It's a very small portion of our portfolio, and we like what we own. We're not going to increase it dramatically, but we're sort of set up right now, Haendel, if you look at our kind of tenant exposure and just proportion of contribution from our top 20 tenants, we just have a lot of ability to sort of move and influence the portfolio. If you look at what we've done in the last year, we reshaped about 30% of our portfolio. We bought $1.3 billion of assets, sold $260 million. So for us, we can dramatically change and shape this portfolio. That's one of the opportunities, I think that's exciting for us, good cost of capital, not too small, not too big. And yet by kind of doing the business like we did last year, we can have a meaningful influence on the shape of this portfolio. So I would expect if we can do 20% to 30% reshaping as we're going through over the next few years, this is going to be a pretty exciting portfolio and balance sheet going forward.

Appreciate that. And maybe a bit more on what you're looking at today, just curious how the range -- the sizing of the opportunity compares to maybe a year ago? And do you have anything under contract, in discussion, LOI that you're willing to share?

Well, on the LOI, no. We talked a little bit about Washington Prime, right, so we'll just leave it that. But I mean look, if you kind of think about this past year, I was kind of chuckling with the team. Last year on this call, we mentioned SMTA 26 times on our prepared remarks. And the other S company was Shopko, which filed bankruptcy right around January of this year -- earlier last year. So when you think about our cost of capital back in January last year was around 7%. Today, it's just under sub-5%. So our opportunity bandwidth of what we can look at from a cap rate range has widened dramatically.

And so we're kind of diligently kind of going through those opportunities right now. That's the thing that's most interesting, I think, for our platform. We're trying to match up -- simply said, we're trying to buy assets where the tenants can pay rent through the entire term. And at the end of the term, be able to release it at a comparable rent, either the guy we -- extends his renewal option or we can find a new tenant. So it's sort of a simple idea, but industries matter, credit matters, buying good real estate matters, all those things. So I would just describe it with our cost of capital improving are many of things that we can look at is much wider. And so we're still being diligent and careful and all the normal things that we should running a company like this.

Got it. Got it. And if I could, Michael, can you follow up -- clarify the comments on the dividend? Is it your intent to lock in the payout at a fixed 75% of AFFO? Or are you just giving a guidance what you want to get that payout ratio to on a longer-term basis?

Yes. I'm not trying to be rigid and format a lockstep policy, but just my philosophy is -- and a similar philosophy that I've taken to the balance sheet, it's a little bit more conservative than I think Spirit has been in the past is just to migrate towards that 75% payout ratio. So we have enough free cash flow to create a lot of organic growth, which I think would create a lot of long-term total return for our shareholders. We're a little high now. We're just above 80%. And I think as we get through this year, we'll definitely migrate down to 70%. So I don't think it'll take us too long to get to that point. But it's more of a philosophy to get to that 75% range. And then from there, we can work around that range, and the dividend will go up over time, more in lockstep with earnings growth at that point. It won't be perfect, but we'll definitely stay right around that number once we hit it.

Our next question is coming from Shivani Sood of Deutsche Bank.

Just taking Haendel's question in a slightly different way. Can you give us some color on the cadence we should expect throughout the year from an acquisition or investment timing perspective?

I mean we don't give quarterly guidance, as you know, for acquisitions, Shivani. But I -- what I will tell you is in the fourth quarter I think we closed 8 transactions. Our medium-term goals are to try to get that number somewhere between 15 to 20 transactions closed per quarter. I believe this quarter we'll have more than 8 transaction, I can tell you that, that will close. Feel pretty confident about that. But no, I mean we're -- it's hard to -- we're pretty specific about what we want. And so it's really hard to try to say, hey, we want to buy x amount per quarter because we really don't want to get forced into buying things. That's one thing I would say to you. The other thing is, we obviously want to do more business with our existing tenants. If you remember from our Investor Day, one of the things that we really want to do is further integrate that asset management and acquisition platform, trying to really utilize our large tenant base where there's really good opportunity because that creates a better predictable pipeline.

I'd say the other thing that we're doing is once again, just trying to pick our spots. Like if we think there's an opportunity that's going to have like 10 bidders, I mean that's probably -- we're not going to spend time there. We're trying to be more selective in terms of what we want to buy, like how we want to spend our time. We're not just going to go pay the most or over market because we've got attractive cost of capital. We are just -- so that's -- I don't know if it's a great way to answer the question, but that's -- we don't really sort of try to fill it straight line across the year.

Fair enough. And then just the recapture rate for the year, can you share that?

Yes, Shivani, this is Ken. We ended 2019 a shade under 100%, I think, came in at 98%.

Our next question is coming from Brian Hawthorne of RBC Capital Markets.

Can you talk about your expectations for broker versus relationship deals this year?

Look, we'd love to categorically do more relationship deals, but part of it is -- sometimes relationship tenants don't need money. So you have to -- so I think that's an aspirational idea that we want to try to develop and it's hard to put a predictor on what it is. I mean put it this way, I would rather do a broker transaction that's a good piece of real estate in the right industry versus a relationship deal that's over-rented and not in the right industry. You know what I mean? So I would say of our 290 tenants, we don't want to do repeat business with all of them. Just not saying that we don't like all of them, but some we have higher priority and because of where they sit kind of in our industry map and just generally what's going on with those tenants.

But I would say overall, all the work that we're doing with operationally -- in terms of working collectively with our asset management team and acquisition team together is to attack that ability to do more relationship business. It's clearly better, more predictable. But hard -- I couldn't put a hard and fast percentage. I mean I think one quarter, it could be really high, and the next quarter it could be low. It really -- like I said, we're pretty diligent on the types of things that we're trying to buy. And then I would say relationship is also really important.

Sure. Okay, that makes sense. And then how comfortable are you with your movie theater assets? And do you have the unit level coverage for them?

We do. I mean I'd say on, overall, most of our movie theater -- well, let me answer the question. So we like the dine-in concept. And as you know, as part of the spin-off, we were able to move a lot of what I'd call big box movie theaters out of the portfolio, a lot of the Carmikes. We did acquire a regional portfolio as part of the SVC transaction in the fourth quarter. It's a private operator.

And so generally, I would say that our sweet spot is dine-in type concepts. We're not really looking at megaplexes anymore at this point with the big operators. I would say that in that movie theater portfolio we bought with SVC, we priced that appropriately for what it is. I mean I don't think we would normally go buying things like that, but as part of a portfolio, we understood it, and were willing to buy it and we thought we got it at an attractive price. But I would say, yes, we've got a good balance of unit coverage and things like that in our portfolio. But we don't have, as you know, a lot of movie theaters relative to some of our -- where we were before, in terms of just overall rent contribution.

Got it. Okay.

One other thing. Just one last thing on that, just as a follow-up, too, on the regional. There's some of the antitrust laws are changing in the movie industry that were passed historically. So one of the things that we -- you might see going forward in the future is possibly more consolidation of regional operators by the big 3, because there's been some antitrust changes relative to the movie distribution laws and things like that. So that could be also -- hopefully, it may be a potential tenant upgrade in some of our regional operators.

Would you look to acquire more movie theaters then in that scenario?

I think it -- well, I think we are looking at movie theaters, but the type we are doing are kind of more of the studio movie [go] type where it's really experiential dine-in. We think that it's really important to have that dine-in experience. We also like those types of venues because they tend be smaller where they can rent the space out for corporate use, which is kind of -- they're just different than sort of these large megaplexes in terms of different types of use and different profitability margins in those units.

(Operator Instructions) Our next question is coming from Adam Gabalski of Morgan Stanley.

Just given some of the recent headlines about Art Van, just kind of wanted to see if you could talk a little bit more about your thoughts on the furniture space? And if you've seen any changes in unit level coverage with At Home?

Yes. Okay. So on -- first of all, it's kind of a big question, but on Furnishing & Decor, we're just under 5% in terms of exposure from a contractual rent standpoint. We actually like the business. As it relates to kind of the difference the way we see it between Home Furnishing & Decor, where decor for us is interesting because it's lower rent per square foot generally in the boxes, they've got generally 10x the SKUs in home decor versus like furniture. Like for instance, like At Home, the average basket is about $65 versus, home furnishing unit is about $1,300. And they generally, in home decor units, they operate it at 2x of the margins than furnishing. So those are all kind of good things. Our home decor bucket At Home generates about 85% of our total rent. We still like At Home. We think the -- we like the real estate they operate in. We've got 12 units there. They are in 2 master leases with 3 single site properties. So we're very comfortable with the rent per square foot of what they're doing. I would say on the Art Van question, we only own 1 of those units.

And it's a legacy asset that was part of the Cole acquisition. The Art Van is attached to a shopping center, 1 of our 4 power centers that we own. So and then the -- and the rent is less than $600,000, so we're generally pretty comfortable. We haven't bought an Art Van. So that's -- and one of the reasons, like I said, we like home furnishings and we like home decor. It's just that if you look at sort of what we own in those units, in furnishings, it's Big Sandy, which we picked up in the SVC transaction, which is a regional operator, it's privately owned, very high coverage, Raymour, LA-Z-BOY and Ashley and they're pretty -- that's pretty -- they're generally equal contribution in terms of rent.

So we don't have a lot of Art Van, but we do like Home Furnishing & Decor, and we'll continue to selectively look at it. The one other thing I would say is within that portfolio of Home Furnishing & Decor, we only have 2 PE-backed owned companies in the portfolio. One of them is obviously the Art Van one unit and then we have another operator that's PE-backed on the home decor side. So we sort of like our exposure at this point. And if we see opportunities, we'll be very selective about it.

Got it. That's really helpful. And then just one more. Were there any sort of onetime acquisitions or any things that moved the needle as far as the initial yield on the acquisitions this quarter that seemed to jump up a bit?

I mean really, it's that portfolio that we bought that made a big difference. Like I said, we -- if you were at the Investor Day, we're very excited about that transaction. We thought we -- the seller needed -- kind of had an objective to close before year-end. We were able to pick up tremendous amount of QSRs and casual dining units that we knew really well.

And yes, one of the cost of doing business was we had to pick up a movie theater portfolio, which we talked about in the last question. But overall, yes, that one drove lot of the -- obviously, the activity in the fourth quarter. But I think you'll see more sort of, I'll call it normal sized transactions going forward, which are, I'd call them the -- somewhere in the circa $10 million to $20 million range.

Our next question is coming from John Massocca of Ladenburg Thalmann.

So as you think about kind of -- I think about the acquisition volume outside of the SVC transaction, I mean what kind of were the big tenant industry thrusts there?

I mean we focused -- we did -- obviously, we bought the At Home portfolio last year. We bought some restaurant portfolios, carwash portfolios, we bought distribution assets, they were pretty diversified. If you think about it outside of the SVC transaction. And as I kind of laid out to you, our real focus point this year is -- I talked about our -- I'll call it, my green category, which is -- I laid out on earlier question, things like QSR, grocery, home improvement, dollar stores, auto service, warehouses -- warehouse clubs. We've got more bandwidth and interest in those areas. So I would think that based on what I said on that earlier question, we're going to try to fill those buckets. But -- and once again, we want to make sure that the credit's right, real estate is good, granular and liquid. So those would be the principal things that we'll look at.

Okay. And then it looks like the Carmax -- additional Carmax assets came from SVC. But one other place -- one other tenant that you saw kind of move up a couple ranks in total exposure was GPM. I mean how did you source that transaction?

John, this is Ken. That was that -- the movement of GPM up was actually a result of us putting -- assigning an existing CNG lease with a different tenant over to GPM. We felt like it made a lot of sense. We greatly increase the strength of our tenant for those properties. So that technically wasn't, I wouldn't call it an acquisition. It was more an existing tenant that assigned their lease to GPM.

Okay. That makes sense. And then touching on another industry that's been in the news recently. From a tenant credit perspective, what is your long-term view on franchise restaurants? And has that changed at all given some of the recent struggles in that space?

Well, I mean look, we like restaurants. And what's critical about restaurants is get the right tenant, get the right credit, get the right real estate, get the right rent per square foot. In the SVC transaction, we picked up 78 restaurants. What I can tell you is that today, we don't have any Krystal Burger in the portfolio, we don't have any Granite City Brewery, we don't have any American Blue Ribbon, we don't have any SB Holdings, you know Sonic. We don't have any NPC, and we have no Pizza Huts in the portfolio. So I mean look, our restaurants are -- we like them. But you've got to be really selective on who the operator is.

Last year, we did a transaction up in the Salt Lake area with a portfolio. It was one of the -- it was the Chuck-A-Rama portfolio. Those guys were there at -- with Trident, they were at our Investor Day. We're looking for quality niches and operators and balance sheets and real estate that kind of fit that parameter. So we'll continue to look for those. But we have to be -- we want to be really selective. We've got a very nice portfolio of restaurants and casual dining. And that's an area, especially on the QSR side, we want to continue to increase.

Okay. And then one last detailed question. I know you removed disclosure. So I promise I won't ask it every quarter, but what would same-store kind of NOI growth have been -- or same-store rent growth have been in 4Q '19?

Yes, it would have been about 28%. And the challenge we're running into, that would have been 70 some odd percent of our portfolio, given all the acquisition volume [intense] we've added. So 28% would have been Q4.

And John, if you look at it for the -- over the whole year, based on how we announced the quarters, the overall would have been like 1.225% for the year, rough estimate. Around 80 -- roughly 80% of the portfolio, yes.

Our next question is coming from Chris Lucas of Capital One Securities.

Just 2 quick ones for me. Mike, just as it relates to guidance for next year, how should we think about G&A for the year as it relates to percentage of revenue or percentage of assets or something?

Yes, I would think of it more just a dollar amount. I think it's going to be pretty flat in 2019. If you actually look at it, it's been flat since about 2016. So I wouldn't see any movement in that. Obviously, as we increase revenues, it'll become less of a percentage of revenue, but I think about it more just the dollar amount being flat to 2019.

Okay, great. And then, Jackson, just sort of a bigger picture question. I appreciate the additional disclosures, particularly as it relates to sort of where the rent and investments have gone as it relates to the size of the asset. I guess it raises the question for me, which is are you -- if you had a bias, is it to industry or is it to granularity?

To me, it starts with industry first. I'd say -- let me -- I'll give you kind of my rank is industry first, which means industry and credit; second would be good real estate, which means good locations, good rent per square foot; and then granular would be next; and then I guess liquid is always really important. Want to make sure whatever we buy, we could sell.

Our next question is coming from Ki Bin Kim of SunTrust Robinson Humphrey.

Just a bigger topic question. What's -- what are the couple of main reasons why you're not selling more? I would imagine that is a good environment to sell, cap rates are tight, interest rates are low and the economy is doing well. So why not take this opportunity to prune your portfolio even further?

Well, we're always trying to prune. I mean we sold $260 million this past year. And if you think about what we pruned, like one of the shopping centers that we sold -- we carved out The Home Depot to keep it and we sold the balance of the center for about 8.5% cap. That made tons of sense. I think we will continue to sell. And we're actually -- without getting specifically -- what we're trying to do right now is improve quality within each of the industry boxes that we invest in. So there might be an opportunity, for instance, in C-stores. We like our Circle Ks, but we think there might be an opportunity to add more recycle. So one of the things that we're doing, Ki Bin, is as we're talking about these priority sectors that we're investing in, we're also looking at -- and we can do this through our rankings to be able to take out the bottom, to the extent we can.

Now taking off the bottom might mean just selling outright or working on blending spend, selling those assets or selling weaker units or selling units that are not as favorable for us out of a master lease. So I think selling properties will continue to be an important part of what we're doing going forward.

And so yes, we are definitely focused on it. We haven't talked about it too much, but we have the tools to be able to kind of target what we want to sell. So that will be sort of a -- continue to be an important part of what we try to do.

Okay. And any quick update on your casual dining in terms of like coverage or trends in financials?

I mean, Ken, you want to take that one or (inaudible)?

Yes, yes, sure. Very, very stable. We don't have a -- all of our casual dining, we do monitor and they tend to get unit level and corporate level. And what I can tell you is that we're very comfortable with it.

Our next question is coming from Spenser Allaway of Green Street Advisors.

Just one quick one for me. Just in regards to your office exposure, can you remind us how you guys are thinking about that particular property type right now? And if there's any intention to reduce or grow that exposure?

Yes, I think you -- if you -- especially on the Investor Day, I talked about potentially office getting as high as 5%. I was really -- I was referring to professional office.

So what you would consider -- you and I would consider an office building today, the way we categorize it is about 3.1% in terms of a weighting for us, in terms of industry. The way we categorize office in our disclosures, medical office is in there, data center and others.

So yes, I wouldn't say office is a huge thrust for us. We -- like I said, like that BofA transaction was really interesting for us in Maryland, but we're -- it's not a core growth area for us. I mean we've got other areas that we're prioritizing on. But if it ever crept up, I could see it maybe someday getting up to 5% at some point.

Okay. And then maybe just one more. You did talk about in your prepared remarks, Obviously, your improved cost of capital and how that's widened the net in terms of what you guys are looking at for acquisitions. Would it be safe to say that if your cost of capital does continue to improve throughout '20, you guys could get more aggressive on the external growth front?

For us, we're constantly trying to improve the portfolio. So I mean I'd say no, to be honest with you. Like if -- we don't want to buy things that we don't think make sense where a tenant can pay rent through the term. And there's lots of things to buy. I mean it's like I'm telling you, like we -- our universe got a lot wider. But that doesn't mean we want to buy more necessarily. So we're just trying to be selective. And I think Ki Bin raised that question, we're also looking at trying to improve the quality of the portfolio. So we have a mindful eye of buying and still selling just to constantly improve.

Thank you. At this time, I would like to turn the floor back over to Jackson for any additional or closing comments.

Okay. Thank you very much, Well, look, as I reflect back, we're as a team super excited here. If you think about where we were last year during the call, I mean we had way more things that we're juggling and having to deal with. At this point, we're focused on executing our business plan, and we're excited that you all still have interest in us, and we'll try to do a good job. So thank you very much.

Ladies and gentlemen, thank you for your participation. This concludes today's event, you may disconnect and log off at this time. Have a wonderful day.