Mar 2, 2015
Executives
Mary Jensen - VP of IR Thomas Nolan - Chairman and CEO Michael Bender - CFO Gregg Seibert - CIO
Analysts
Juan Sanabria - Bank of America Vikram Malhotra - Morgan Stanley Alexander Goldfarb - Sandler O Neill Vincent Chao - Deutsche Bank from Rich Moore - RBC Capital Markets Cedrik Lachance - Green Street Advisors Chris Lucas - Capital One Dan Donlan - Ladenburg Thalman
Operator
Good afternoon, ladies and gentlemen and welcome to Spirit Realty Capital's 2014 Fourth Quarter and Year-end Earnings Conference Call. At this time, all lines have been placed on 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, can be obtained from the Investor Relations section of Spirit Realty's website at www.spiritrealty.com. After the speakers' remarks, there will be question-and-answer period [Operator Instructions].
At this time, I will turn the conference call over to Ms. Mary Jensen, Vice President of Investor Relations for Spirit Realty Capital.
Ma'am, please proceed.
Mary Jensen
Thank you. Joining us today on the call today are Tom Nolan, our Chairman and CEO; Mike Bender, our Chief Financial Officer, Gregg Seibert, our Chief Investment Officer; and Mark Manheimer, our EVP of Asset Management.
During the conference 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 unknown and known risks, trends, uncertainties and factors that are beyond of our control or abilities to predict. Although we believe that our assumptions are reasonable, they’re not guarantee of future performance and some approve the beginning correct.
Therefore our actual future results can be expected to differ from our expectations and those differences made in material. For more details of some potential risks, please refer to our SEC filing which can be found on the Investor Relations section of our Web site.
All the information presented on this call current as of today February 26, 2015. Spirit does not intend and undertakes no duty to update forward-looking statements unless required by law.
In addition reconciliation of non-GAAP financial measures on this call such as FFO, AFFO, and FAD can be found in the Company’s earnings release which can be obtained on the Investor Relations section of this Web site. I will now turn the call over to Mr.
Tom Nolan, our Chairman and CEO, who will thoroughly review of 2014 and overview of the triple net lease long-term environment and their current transaction and portfolio activity. Michael will then discuses the 2014 financial results that we released earlier today and after our prepared remarks we will be happy to take your questions.
Tom.
Thomas Nolan
Thank you Mary and thank you everyone for joining us today. Before we review our quarterly and yearend results I would like to take a moment to discuss the additional news that we released this after.
As you may have read, our President and CEO Peter Mavoides is leaving Spirit Realty. This was a mutually agreed upon decision.
I have personally enjoyed working with Pete and during his tenure he has made numerous contributions which have supported Spirit’s success and we wish him well in his future endeavors. I assumed Pete’s responsibilities on an interim basis as we conduct a search for his successor.
Spirit remains focused on maintaining the quality of our portfolio and executing on a stated business plan. We have a deep and seasoned management team in place that will work closely with me to ensure business as usual while we conduct our search.
Now I will like to turn to our 2014 fourth quarter and yearend operating results. With an improving economy and a robust acquisition market, we had another strong year in positioning Sprit as one of the premier companies in the triple net industry.
During the year we continue to strengthen and diversify our real estate portfolio. We accretively invested on this $1 billion and single tenant net lease properties and recycled the capital from the sale of 38 non-core properties totaling 121 million.
We also continue to proactively evaluate our geographic and tenant concentration as such as we announced in December that we amended and extended the ShopKo master lease, which lengthened the weighted average lease term by 5 years and importantly allows us to unilaterally sell properties and the newly executed leases which paced the way for us to reduce its tenant concentration, it’s remain our intention to have no single tenant represent more than 10% of Spirit’s total revenues by the end of 2015 and I am pleased to report that we’ve begun to make progress on this standard goal. Earlier this month, we’ve sold four ShopKo assets for approximately $33 million.
There is a healthy appetite for these assets from a variety of buyers and we are currently in active negotiations with multiple parties on a number of additional transactions. Turning to our balance sheet through a combination of debt and equity transactions, we were able to fund our acquisition activity throughout the year and continue to focus on the strength and flexibility of our balance sheet.
During the year we extinguished approximately 600 million of high coupon CMBS debt as well as approximately 100 million subsequent to the end of the year. As such we have become a more active unsecured borrower generating net proceeds of approximately 726 million from the sale of convertible senior notes and the two separate issuances.
Further we issued 510 million of investment grade; A plus investment rated net based mortgage notes, all through our master funding program. These transactions contributed to lowering our debt cost and extending our maturity profile.
The slight temporary uplift in our leverage ratios at the end of the year was a result of a combination of factors. The impact of the 510 million of net leased mortgage notes we issued late last year and the fact that the EBITDA contribution from the income producing properties we acquired with the proceeds from these notes was not in place for the entire recording period, had that EBITDA been normalized, the debt to EBITDA ratio would have been substantially unchanged for the quarter.
On the equity side, during the year we issued approximately 41 million common shares through a follow on offering in our ATM program which generated approximately 435 million in net proceeds. Today we’re one of the leading net [leased REITs] with an enterprise value of over 9 billion, with a proven operating platform and a strong balance sheet.
We have taken Spirit a long way from the 3.1 billion enterprise value at the end of our IPO in September of 2012. Looking to our financial results, we reported fourth quarter 2014 AFFO of $0.21 per diluted share, representing a healthy 10% increase from the same period a year ago.
Further, we continue to pay an attractive quarterly dividend and in December increased the dividend 2.3% to $0.17 per share of $0.68 per share on an annualize basis. As I said earlier, we’re an active require throughout 2014 in the fourth quarter we invested $399.5 million in real estate through 27 separate transactions acquiring 120 properties.
The investments had a weighted average initial cash yield of 7.4% and a weighted average initial lease term of 16.7 years. 78% of those transactions consisted of direct sale leasebacks.
Of the entire year, we acquired 361 properties, investing almost 1 billion in 82 separate transactions, again primarily through sale leaseback transactions. These investments had a weighted average initial cash yield of 7.5% and a weighted average lease term of 15.7 years.
The market for net leased transactions remains active and the credit worthiness of our tenants continue to improve. We did see some cap rates impression throughout the year, but with the low interest rate environment and our improving cost of capital; our investment spread remains robust by historical standards.
We are disciplined with our underwriting and are confident in our ability to source new transactions that continue to produce healthy spreads or cost of capital. As we begin 2015, we have a robust acquisition pipeline which should allow us to remain an active and accretive acquirer.
This pipeline reflects the strength of our acquisition platform and our disciplined underwriting delivered negotiations in there due diligence. Our investments in asset management team personally sell us each deal and as a going competitive research on each property we acquire as well.
This involves the merit of things and putting property of every asset and ongoing discussions with our existing prospective tenants. As a result of this focus approach, we’ve established a solid track record of maintaining a high quality portfolio that supports sustainable earnings growth.
Since our IPO, exclusive of the Cole II merger, we have organically grown the portfolio and have invested over $1.5 billion in new acquisitions representing more than 127 transactions. This prove an operating sign is thoughtful, delivered and granular, has been developed and refined over the last decade and tested through various market conditions.
Now turning to our portfolio, we are proactively managing the portfolio by selectively selling non-core assets and reinvesting proceeds into assets more consistent with our investment philosophy. During the fourth quarter, we sell 19 properties generating growth sales proceeds of 76.4 million.
For the period ended December 31, 2014, we sold 38 properties generating growth sales proceeds of 1.2 million with a weighted average cap rate of 7.6%. Subsequent to year-end, we sold eight properties for 62.3 million at a 7.5% cap rate on the income producing properties, which includes the four Shopko assets we sold for 32.6 million that I referred to earlier.
As of December 31, 2014, we had 2,509 properties which were 98.4% occupied, representing a 20 basis point increase from last quarter and a 40 basis point increase from last year. At year-end, we only had 37 properties available for lease and our portfolio consists of 454 tenants representing more than 27 diverse industries across 49 states as well as the U.S.
Virgin Island’s with a weighted average lease term of 10.8 years. Since our IPO, we have maintained consistently high occupancies north of 98% and have maintained a relatively consistent average remaining lease term of approximately 11 years.
Only three states contribute more than 5% of our total rent our largest states Texas, Illinois and Wisconsin accounted for 12% 6.7% and 5.5% of the annual rent contribution of our real estate portfolio respectively and no one can other than Shopko contributes more than 3.7% of our total revenues. The top three industry tax represented by 454 tenants as of December 31 2014 the general merchandize accounting for 15.9% followed by casual dining at 9.8 in quick service restaurant at 7.5.
Now as of December 31, 2014 approximately 45% of our rent is contributed from mass releases and approximately 89% of our single tenant properties provides for periodic rent increases. As part of our asset management strategy we continually review our tenants cooperate and unit levels financial statements which was again healthy in the fourth quarter.
For the trailing 12 months our unit level rent coverage was 2.8 times for our reporting tenants and consistent with what we reported a year ago. As you know we view this as a valuable indicator of how essential our properties are to our tenants' operations and their ability a rent.
Finally I will like to comment on our lease renewal activity for the year which consisted of 64 properties, 51 of those properties were renewed or released to new tenants and one of the properties was sold. The 51 properties that were renewed or released recaptured approximately 105% of the expiring trends on those properties.
The remaining 12 properties are currently being marketed for lease or sale. With that I'll turn things over to Mike who will walk you through our fourth quarter and year -end financial highlights.
Mike?
Michael Bender
Thank you Tom. We are pleased with our fourth quarter and year-end financial results.
As Tom said this afternoon we reported AFFO of $0.21 per diluted share for the fourth quarter ended December 31, 2014 an increase of over 10% compared to the fourth quarter of 2013. This increase is primarily attributable to higher rental income with consistent operating expenses.
We also reported AFFO of $0.82 per diluted share for the full year ended December 31, 2014 compared to $0.81 in 2013. Total revenues for the fourth quarter and year ended December 31, 2014 totaled $154 million and $602.9 million resulting in 11.2% and 43.7% increase compared to the quarter and year ended December 31, 2013 respectively.
New investments combine with contractual rent growth drove the increase in the fourth quarter. The increase for the year was primarily driven by properties acquired in the Cole II merger as well as the $971.7 million of non-merger real estate investments and contractual rent increases in 2014 partially offset by property sales during the year.
Total operating expenses were in line specification for the fourth quarter and year-ended December 31, 2014. Property expenses were slightly higher in 2014 primarily because of reimbursable costs incurred in connection with non-triple net leases acquired in the Cole II merger completed in second half of 2013.
General and administrative expenses in the fourth quarter totaled $10.8 million or 6.9% of revenues. For the year G&A totaled 44.3 million which includes 1.7 million onetime expenses that was noted last quarter.
Absence that expense G&A for the year would have been 7.1% of revenue. Although we do not provide specific G&A guidance we continue to focus on accumulating capital needs in 2015.
As such we expect our G&A as a percentage of total revenue should be in the low 7 throughout 2015. The increase in interest expenses fourth quarter was driven primarily by debt units to find the acquisitions during the last 12 months debt card in the merger also contributed to the increased interest expense for the full year 2014 compare to 2013.
Similarly the fourth quarter and full year increase in depreciation and amortization was driven by acquisitions in the merger. Moving on to our capital structure and liquidity, as Tom mentioned we are very active in the capital markets during the year the proceeds from these transactions were used to fund acquisition and provide greater flexibility in our balance sheet.
In November we issued $510 million of 8 plus rated net lease mortgage notes under our Spirit Master Funding program also known as our ABS structure. The notes have a blended coupon rate of 4.42% and weighted life of 9.4 years, recall that earlier in year we also completed an exchange offer for $912.4 million of outstanding notes which are now A plus rated also.
As we continue to be an active acquirer our ABS structure will provide the flexibility in pricing we seek to effectively acquire triple net properties in attractive spread to our cost of capital. In addition during the year we generated net proceeds of approximately $726 million through the issuance of convertible senior notes.
The shorter tranche totaled $402.5 million at 2.875% and is due in 2019. The other tranche totaled $345 million at 3.75% and is due in 2021.
At the time we issued the convertible notes we also issued 26.5 million common shares in our first follow-on equity offering since the IPO resulting in net proceeds of $163.8 million. During the fourth quarter, we sold 12.8 million common shares through our ATM program resulting in net proceeds of approximately $148 million.
For the year in total we sold 14.4 million shares resulting in net proceeds of $164 million. These equity and debt transactions in combination with our assets sales during the year allowed us to fund our acquisition activity in 2014 and have also created a strong financial position to fund our acquisition pipeline going into 2015.
For example our cash and cash equivalent balance totaled $176.2 million at December 31, 2014 and our $400 million revolver was undrawn. Our dividend continued to grow in 2014.
We increased our quarterly cash dividend on December 15 to $0.17 per common share, a 2.3% increase from the previous quarterly rate of 16.62 per common share. The new dividend represents an annualized amount of $0.68 per common share and based on our closing price today of $12.33 our divined represents accretive yield of approximately 5.5% and an FFO payout ratio of approximately 83%.
Concluding with guidance, we are affirming our 2015 AFFO guidance range of $0.84, $0.86 per common share. And with that, we’ll be happy to take your questions.
Operator
Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] And our first question comes from Juan Sanabria from Bank of America.
Please go ahead with your question.
Juan Sanabria
Just with regards to our Peter's departure, I was wondering if you could give us a little more color, was there and not compete that will keep them out of the competitive situation. Can you say where he's going, if possible, and if you can comment on any sort of vesting of stock rewards that may have taken place?
Thomas Nolan
Sure I am happy to comment on all of those. I know those who had -- first all from Pete’s perspective, this is a personal decision.
For those that have had the pleasure of working with Pete, I think you know he is a dedicated family man. When he joined Spirit some years ago he moved his family here to Scottsdale.
At the end of the last year, Pete made the decision that he wanted to return his family back to his native Northeast roots, a family decision I certainly respected. And it’s really these, quite simply these geography challenges that were instrumental in the mutual decision that we reached.
As to his departure, the economics of his arrangements were set out in his employment contract and the economics will merit what is outlined there relative to severance and acceleration. And as to his ultimate where he ultimately goes, I am not aware of anything at the moment, he hasn’t shared anything but I sure wherever he goes he will be successful and there his employment contract also set forth not only the severance and acceleration but there is also language concerning the non-compete.
Juan Sanabria
Could you just comment on how long that is?
Thomas Nolan
It is 12 months.
Juan Sanabria
Okay thanks, that's very helpful. And then on ShopKo, I know you gave a little color there.
What are the types of buyers that you're seeing? Is it mainly people interested in one-off assets, private buyers or is it also mixed with larger vehicles?
It may be looking into two multiple assets acquisitions that position this from you guys.
Thomas Nolan
I think we’re seeing the whole mix, the first transaction we just happened to do without related to timing easily, but on another transaction but happened to be the portfolio four assets so in that case somebody buying, so we have people looking at small pools and we have many people looking at individual assets.
Juan Sanabria
Okay and if I could just back to Peter’s departure, is that you intention to at least temporarily relocate to Scottsdale and I think you’re currently based from a living perspective?
Thomas Nolan
No, well, I have lived here in the past so Scottsdale is the second home to me. Yes, my commitment is to be here as much as required.
I would tell you I spend people in this room know, I already spent a substantial amount of time in Scottsdale and I will continue to do so to meet the obligations I had as well as the existing interim obligations that I have. So I will certainly spend all the time here I need to spend.
It is not a difficult commute and obviously I have other responsibilities around the country representing Spirit, but it is not difficult to spend time here.
Operator
Our next question comes from Vikram Malhotra from Morgan Stanley. Please go ahead with your question.
Vikram Malhotra
I just wanted to clarify that cap rate, I may have missed this, but did you say the cap rate on all the assets sold in this year was 75 or was it -- was that Shopko?
Thomas Nolan
It was all.
Vikram Malhotra
Do you know what the cap rate -- could you let us know with the cap rate on Shopko was?
Thomas Nolan
Well, no and I again need to be clear in the sense of saying no, I think what we’ve said in the past and is that the pricing around Shopko given it's the fact the quality credits in it that we expect the pricing to be consistent with the assets that we’re buying and selling in other area of the business. We do not -- in general comment on any particular transaction, we never comment on specific transactions we always give aggregate numbers for purposes of one, confidentiality and two, we have as you can imagine we have many, many Shopko assets that are currently in various forms of negotiation, they are in different location, their cap rate sum and will be different then it really isn’t helpful or productive to the process of selling them by to be releasing and individual cap rate which then folks can get kind of tide into.
So, I think it will be again our approach, we want to give you the best transparency that we can give you which obviously we would try to do here by aggregating and with the other sales that we had, but I think again the main message is that the cap rate here is very consistent with other sales and purchases to our lifetime property.
Vikram Malhotra
Okay and then just, I mean I'm sure all of you’ve been involved, but I believe Pete was fairly involved in this processes as well in terms of, just obviously the renegotiation but more also on the process of divesting some of this, would there be, just interim, just as you resume more of this responsibilities, maybe just a little bit more of an elongated process in terms of selling Shopko as is departure has no bearing on it?
Thomas Nolan
No, I would actually with all due respect, I think Pete's contribution and there were many, we don’t expect this to that have any impact on our marketing efforts relative to Shopko, our market Mark Manheimer is sitting here in the room with me, he has been the principal architect of our sales strategy and where we expect it to remain as we anticipate it.
Vikram Malhotra
Okay and then just last one. Assuming that you're whatever you have baked into guidance initially when you first gave ‘15 guidance in terms of Shopko and other assets, assuming that is similar now, I'm just wondering kind of, are you, is it just because of obviously limited visibility into the acquisition side of things for ‘15, but I would assume that given the acquisition number that you printed in 4Q, it would be pretty easy for you to kind of get the guidance number.
I'm just wondering, are you, what kind of stopped you from maybe just taking the guidance up a bit?
Michael Bender
Yes, Vikram its Mike and I just want a couple of things, as you pointed out first of all, we have the Shopko sales that are a piece of the 2015 plan and as Tom said, we’re endeavoring to get that exposure down below 10% by the end of the year, so that has an impact. And then secondly, it's our plan at this point to reduce our leverage somewhat during 2015 as well and when you add those two things together and then couple it also with the fact that there are four quarter acquisitions, fourth quarter is always a little bit high relative to the other three quarters during the year, so when you add all that up this is the guidance that we feel comfortable.
Vikram Malhotra
But just to clarify whatever you have baked in, in terms of Shopko sale that has not changed this past quarter?
Michael Bender
Right.
Operator
Our next question comes from Alexander Goldfarb from Sandler O Neill. Please go ahead with your question.
Alexander Goldfarb
Yes, we'll miss Pete he is a good guy. So first question is, I just covering off on that, can you see what this out is there a severance that will be like, is there something we should put in our first quarter FFO or expect when you guys print first quarter earnings?
Thomas Nolan
Well, there is a severance arrangement as I said set out in this contract it includes the severance and the non-compete in most kind of industry standards tend to go hand-in-hand and so Pete has a year severance but the reality is given our G&A number and our enterprise value those type of charges don’t have a meaningful little material impact on any guidance numbers or really any quarterly AFFO or FFO numbers.
Alexander Goldfarb
But that's not the guidance range that you guys provide excludes that's correct?
Michael Bender
Well, you point out the thing Alex, the AFFO is after adjustment for equity compensation, but to the extent that there is any severance that's equity related it doesn’t impact the AFFO.
Alexander Goldfarb
Okay. And then you guys did a little of ATM issuance and ATM has been an active topic this quarter.
So can you just one, tell us what you're assuming in your guidance for ATM issuance and two, how you guys think about ATM versus an overnight offering?
Thomas Nolan
Well we don’t issue capital market guidance, so unfortunately I can't offer anything there. As to the use of the selection of the method of raising equity and I think that’s purely factions circumstances driven Alex.
I must say I find ATM exceptionally efficient and if you have good volume and particularly because we're a granular buyer of real estate given the way that we operate our business and we have so many transactions and matching principle here could be really, really effective. I am not to say we wouldn’t over broad deal and overnight deal and marketed deal we'll look at all of those but at least most recently the ATM is just proven to be an exceptionally efficient and well matched source of trends.
Alexander Goldfarb
Okay. And then just finally, given that enough time is settled on the ARCP issue, just sort of curious now that the markets have settled out what impact if any, it's had with them not being there anymore.
Have you noticed any change in, in cap rates or people coming back to you or anything or is it as though just this big entity disappeared, and it hasn't made a difference at all as far as you guys are concerned in the acquisition or disposition space?
Thomas Nolan
I'll let Gregg elaborate but I guess my comment would be I don’t think it didn’t have a huge impact on our cap rate per se. I would tell you that we picked up transactions both the outflows and I think perceptively will closed that we might not even the opportunity to do because I think there would have been a more aggressive capital source available whether now not available.
But I'll let Gregg elaborate.
Gregg Seibert
Correct Jon really has much impact on cap rate and may be have a little impact on volume. But we're still seeing a robust pipeline it's not like its kind get back down.
So whether the transactions are still and times as we've seen in the past two years. Over the fourth quarter has translated might heaviest quarter we're still seeing a lot of activity cap rate this year we did not seen be heading any lower at least for now subject to change.
But we still see that a big pipeline would like this spread or accounts to capital.
Operator
Our next question comes from Vincent Chao from Deutsche Bank. Please go ahead with your question.
Vincent Chao
Hey, good afternoon, everyone. Most of my questions have been answered, but I was just curious if I missed it may be, but did you share with us the unit level coverage for the quarter?
Thomas Nolan
Yes the rolling 12 is 2.8.
Vincent Chao
Okay. And I guess going back to Shopko a little bit, I mean, I guess so the target by year-end is [no greater] than 10%, obviously Shopko would be down to 10%.
Once you get there, I guess if there was enough demand, because you've talked about them as being comfortable with the credit risk, but obviously you have a lumpy mix there. Just curious, would you be willing to go to zero if there was enough demand or would you want to keep some level of Shopko exposure just because you think it's a good credit?
Thomas Nolan
I would miss talking about it so I couldn’t bring myself to go to zero. So I think that clearly there is a spread between if we left less than 10 in our next large tenant at 3.7%.
So I would expect overtime that given if provided that the volume continues to be there that we would bring that exposure more in line overtime. But we wanted to create kind of a bright line objective that people can get their arms around and this approach seemed to be the way to go which was set a date, set a target and let people know that we were going to get there.
But I certainly don’t see any reason to go to zero I mean there are a good tenant and they continue function consistently quarter after quarter as they have really since I've become familiar with them when I came here in 2011. So I don’t expect it to go to zero I don’t think it needs to go to zero I would not be surprise again overtime if it's works its way down from 10 close to [December other] exposure.
Operator
Our next question comes from Rich Moore from RBC Capital Markets.
Rich Moore
The announcements about Pete it seems sort of afraid to me Tom. And I'm curious why wouldn’t you guys you and Pete both wait until the spot is been filled wait until you've already identified the successor and then make the announcements or then having go at that time.
Thomas Nolan
I think the Pete is Rich you make a decision and that could be a so called lined up you’re out marketing for a successor. I think what in terms of it seems rushed, let me just comment on that, and then obviously Pete and I have been discussing this and I think both of us felt strongly that we wanted to be in a position where to the extent that this was going to be the outcome that we wanted to be done in time for this call that was --because it’s good to have a deadline the decision had gone back and forth.
And it just seemed appropriate and he and I both shared that this was transparency getting this out there and this was the best time to do it because we were having an earnings call and so let’s get the news out there and Pete can move on with the personal decisions that he has made with his life.
Rich Moore
Okay got you and I mean certainly applaud the transparency I think that’s great, why a search to set a curiosity when you had said that you have a deep bench and that’s probably true, I mean I guess the search is external for the most part and…
Thomas Nolan
Well, first of all we have not -- we'll do a search but internal candidates will be considered first of all I think that’s always a good kind executive leadership to make sure. And second, again the decision as the Company has grown substantially we do have a deep bench and some of the attributes of the President and Chief Operating Officer role when Pete put this one he and I joined here four years ago the particular search that we looked for could have and probably will have quite different attributes because we’re going to be utilizing internal resources for many of the skill sets that he developed.
I would tell you when talking to Pete I think he’s very proud of the legacy that he left here. I think he is a proud of the management team that I am working with here and he feels as comfortable as I do that this organization is prepared to move on in his absence.
Rich Moore
And did you give a timeframe do you think for the search or do you have an idea how long you think it might take?
Thomas Nolan
We think that takes longer than we think, but no I mean it will be -- we’re going to conduct it and I think this is an attractive company to work for and my somewhat jaded opinion obviously, so I think we’ll get on it and I expect we’ll have a candidate do of course that I don’t think there is any extenuating circumstances that would got extended.
Rich Moore
Okay, all right, good thanks, thanks Tom. And then any aspect could on the 20 officer supply storage hand, but is there any issue in the I mean obviously you’re aware of everything going on is there any issue within your 20 year or all of your 20?
Thomas Nolan
No, I don’t think and most of the ones that we have we worked through the issues whether they would take office max or I speak out. We think we’ve got the lion share of those issues.
Rich Moore
Okay good thank and then just out of curiosity with everything that’s going on in Texas that’s your guys’ biggest market, have you see anything oil related or any issues with your tenant base in Texas?
Thomas Nolan
No, I mean, we do have a decent sized representation in Texas. I guess that's [offer] couple of thoughts, I think the Texas economy is a lot more diversified than it’s historically been in some of the other economic environments.
It’s really early to tell who in going and remember when oil started to move I mean some of this stuff takes a while to work its way through the system. I am sure if you were a driller obviously you will feel it overnight, but I think in terms of our portfolio in terms of the dialogue that we are having with the tenants we’re not seeing really any repercussions at all.
Obviously oil is lower but so are gas prices and disposable income is higher and that seems to be helping our restaurants. So I think that on balance, Rich, whatever impacts it’s having and I know people talk about officer base in Houston and like -- we have only about third of our whole entire Texas exposures in the Houston area and even there we really haven’t really seen, we haven’t seen any impact at all.
Operator
Our next question comes from Cedrik Lachance from Green Street Advisors. Please go ahead with your question.
Cedrik Lachance
Tom, you became a lot more active on the acquisition front I think the pace continue to pick up and while I am curious is whether or not the investment strategy has firmed up or has changed, when you came in into the public market or came back in the public market, I think intention was to be fairly quiet on the acquisition front, you’ve enjoyed a portfolio that was primarily leased and noninvestment greater rate of tenants then subsequent to the co-acquisitions as you add a lot assets that were leased investment grade rate of tenant and I think it wasn’t clear there where or not you’d favor assets that have higher or lower credit profit and as you pick up the pace on the acquisition where do you stand on that, what will you be primarily targeting, and how does it also influence your disposition strategy?
Thomas Nolan
Again, I let Gregg elaborate here in a moment but I think in terms of our investment strategy, yes we picked up a lot of investment grade with Cole. However, as to our fundamental investment strategy we continue to believe I think as we have since the time that of the IPO that the best risk adjusted returns where we can accomplish the best long-term returns remains in the non-investment grade rated tenants.
We have excellent either local or regional tenants well operated that do not have an investment grade rating and therefore do not have investment grade capacity to get investment grade capital. Not only do we get in our opinion better lease terms, but you -- in terms of cap rates but you also give better lease terms in terms of potential master leases.
You also get ramp ups that you did not see in an investment grade rated tenants. So it is -- our investment philosophy I think has been quite consistent, again absent the Cole transaction and again as to in the -- maybe I’ll let Gregg comment on the…
Gregg Seibert
Yes, obviously to say a couple of points, we’re very -- obviously the middle market on rated credits has been our niche for 12 years [indiscernible] Spirit, we’re very heavy into retail, master leases both are comprised the majority of our transactions, unit level coverage structuring the master lease for an extra credit enhancement, but -- and we’ve -- the industries are targeting are consistent with the industries that we already have in our portfolio, which obviously gravitated towards the stronger performing industries and potentially dropped out from our history shows did not perform as well. So in summary kind of a short statement that's what we’re targeting and things will still be an active market with a lot of potential.
Cedrik Lachance
And then so from a disposition perspective given the amount of properties that you now have on your books that are not consistent with the type of assets you're trying to acquire wouldn’t this pool of investment grade rated properties that I believe are very well priced in the below curve market, wouldn’t that consist of a grade disposition pool for you guys?
Thomas Nolan
Yes, I know, we have caps with [indiscernible] Cedric and that's something we will continue to do that from a portfolio management basis, but we also have an aggressive disposition program already on relative to the Shopko exposure and I think just from a portfolio management standpoint we want to be prudent about how much we’re selling on at any given quarter, but I certainly point is taken I think some of the dispositions that we have done have been from credit worthy -- our investment grade tenants where we think we’re getting outsized pricing on sale.
Operator
Our next question comes from Collin Mings from Raymond James. Please go ahead with your question.
Collin Mings
Couple of questions, just going back to the comment about saying that you’ve seen cap rates compress a little bit over 2014, can you mention to as maybe roughly how much kind of that investment focus that you're focusing and on, how much is compressed? And then are you seeing any more opportunities on a relative basis of maybe of an officer industrial properties relative to retail, relative to call it six or 12 months ago?
Gregg Seibert
No, we’ve -- I think we’ve been pretty consistent in terms of, we do natural process, we do a small amount kind of opportunistic industrial. There is a lot of large perhaps industrial portfolios that we reviewed, it's been a lot of time and the process part over the past 18 months and we just put our reason that leases aren’t non-triple net leases.
The real estate lot of the times is treasury, it's not exactly the quality of real estate basically we’re looking for that we’re able to achieve in some of the retail kind of made and main that we’re more used to and have had more success with.
Collin Mings
And as far as cap rate compression any sort of rough estimate on how much that maybe compress over 2014?
Gregg Seibert
I mean treasury has obviously decreased and I think the spreads will remain relatively consistent over treasury, they did decrease I would say right now we seem to have stabilized in my opinion, but it kind of changes over time. So it be stabilized in the near-term.
Thomas Nolan
I mean when you look at our averages I think we’re in the mid to high sevens at about this point last year, we’re in the mid to low sevens at this point some of that mix related so you can’t attribute it all to compression but that feels like 25 to 30 basis points.
Collin Mings
That’s helpful and then just going back to going fill Peat's position sounds like you guys are focused both externally or internally, but at this point any feeling on if you are going to actually hire like a third-party search firm to help with the process or something you plan on doing internally or just can you talk just a little bit more about that search process?
Thomas Nolan
No, I mean my experience is search firms are useful particularly for the suite type of individuals and my expectation is that we will get a systems, I just think you get a better view of the playing field, so it's from our standpoint that’s money well spent.
Collin Mings
And then as far as the disposition activity sounds like you guys have a lot of potential sales Pete up or pretty far down the path as far as discussions and I recognize you probably don’t want to give an aggregate number for the year what you're targeting. But can you talk a little bit more about maybe what the mix at least the mix of that pipeline looks like versus Shopko versus everything else.
Thomas Nolan
Well at Shopko it dominates the lift I mean we will have other transactions I don’t have any back percentage but clearly the majority of our dispositions will be Shopko.
Collin Mings
Any other as you think with what you're selling any other geographic or sector bias and we talked a little about just investment strategy in kind of last question. But just geographic or sector focus at all beyond Shopko.
Thomas Nolan
I wouldn’t say geographic but we're still working last bit of multi-tenant retail portfolio over the last had some seeing [indiscernible] that we needed to get closer to the maturity so that we can pay off and mark those practices so we're getting close to down less to that.
Collin Mings
And just one last question in prepared remarks renewals in 2014, I think you said you got a 5% bump related to expiring rents. How do you think that will look like for 2015 any sense on how the renewals are going to shape for 2015?
And then I think it was a dozen properties that didn’t renew, any consistent team of properties that are -- tenants that are opting not to renew?
Unidentified Company Representative
Generally there is a one that doesn't remember the one in our current is the one that don’t like money on those locations. So pretty consistent with our past and then I don’t know if we want to get too far in predicting 201 so we expect them to be generally in line with our renewal.
Thomas Nolan
At this point we had a 10 year renewal history and I think the 105 is above kind of our historical norm. It's been north of 80 most of the time on a consistent basis in terms of total recovery and so it feels like again this year it happened to be a little bit better than that but I think again with a 10 year history I think we've been pretty consistent that the minimum of 80 and then in some years of better than that.
Operator
Our next question comes from Chris Lucas from Capital One. Please go ahead with your question.
Chris Lucas
Just a couple of quick follow ups on the Shopko portfolio sale recognizing it's a small sample set. But wondering if you could maybe provide some additional color on the quality of the stores that you sold and their productivity compared to the remainder of the portfolio Shopko stores.
Thomas Nolan
I think one of things about the Shopko portfolio is it is fairly a margin they really from the spectrum of performance there is just not a lot of difference between the best quartile, in the top quartile and in the bottom quartile. And which we've known for some time so in terms of what we sold I would say I think we sold an average kind of the margin is group of assets consistent with what the portfolio looks like it is of all.
Chris Lucas
And then just on the ATM. Can you remind us when you're open and when you're restricted?
Michael Bender
You typically would be restricted from at least right about the time that you close your quarter through earnings. So we've been restricted down in first couple of months of this year for example through today and then I think 48 hours after that.
Chris Lucas
So Mike when you say it's closer to quarter, you're still available so in this particular quarter. You would still be open the first I don’t know 10 days of the new quarter or some period in right.
Or is it literally the cut off of the quarter?
Michael Bender
Well I think in the underwriting agreement I think it is more what you're saying that you would have the opportunity to sell into the just after the quarter, through the quarter and just after the quarter we have not done that yet.
Operator
Our next question comes from Dan Donlan from Ladenburg Thalman. Please go ahead with your question.
Dan Donlan
Just two quick one from me --- and we stop questions going this point to the call. But just curious what's crude interest on the defaulted loans what's triggering that?
Michael Bender
As you see we have a small handful and surely most a one loan -- CMBS loan on a property where the properties are under water or discussion with the lender to release that debt by virtue of giving the properties back or sell them for them. And so that will come down overtime but in the intervening period the provisions of that CMBS loan are such that it accrues interest as an accelerated or an elevated rate and so from the GAAP perspective we continue to accrue that expand.
Now the result of course will be because this is non-recourse CMBS the result of all this will be that the release of both the principle on the debt and the accrued interest will be by virtue of disposing of the properties.
Thomas Nolan
How to put is [indiscernible] use to be a account. We're basically accruing a default interest that we will never pay.
Dan Donlan
And then just looking at -- this is so small too but the portfolio and maintenance capital expenditures if we to look at your total CapEx in a given year, where does that shakeout is it fairly insignificant maybe 4 million to 5 million just kind.
Michael Bender
Yes, at most it is very insignificant and very -- what you’re seeing in that acquisition number is actually instances where we’ve made an additional investment with our tenant that’s producing revenue where the cap rate on that investment is analogues and the same of what we might have given on the original lease so that’s a real revenue producing investment. The incremental CapEx that maybe not revenue producing is miniscule.
Operator
And our final question comes from Juan Sanabria from Bank of America.
Juan Sanabria
I just had a quick follow-up question. Mike, I think you mentioned that the guidance may include some sort of deleveraging, could you just share kind of what your goals, maybe with that respect what kind of metrics you are looking at.
Michael Bender
Yes, we’re not prepared to give a hard number on that at this point it will depend as you point out on acquisition levels and our opportunities as the year unfold, but it is our intention at least in the point on to de-lever a little bit overtime and so that pro forma, if you will, 74 that Tom alluded to, we're helping to be lower than that but the end of the year.
Thomas Nolan
Yes, from my perspective, again we don’t provide capital market’s guidance but we realized because of kind of fact of circumstances and timing it will take up a little and so our intent is to have a take back down some -- sorry we can’t get more granular than that but that’s our objective.
Juan Sanabria
Okay. Major period of sale in a medium-term basis not holding into 2015 that you want to get to seven times or do you want to get below that or?
Thomas Nolan
I think we’re -- we don’t have a target but we’re definitely heading in the direction that you articulated.
Operator
And ladies and gentlemen, at this time, we conclude today’s presentation question-and-answer portion of the call. I’d like to turn the conference call back to Mr.
Nolan for any closing remarks.
Thomas Nolan
Thank you and as I began this call, let me reiterate we’re pleased with our first quarter and full year operating results as we continue to focus on growing our earnings and our dividend which creates value for our shareholders. As we embark on our third year as a public company, we plan to continue with a disciplined operating strategy and a prudent fiscal plan.
As we said in the past, we strive for the highest level of excellence and discipline at all levels of our organizations. And I have the pleasure of working with a professional seasoned management team with decades of experience in the triple net industry.
This group is dedicated to meet our ultimate goal to be the premier company and the triple net industry. I thank you for joining us today.