May 7, 2015
Executives
Mary Jensen - VP of IR Thomas Nolan - Chairman and CEO Phil Joseph - CFO Mike Bender - CAO Gregg Seibert - CIO Mark Manheimer - Executive VP Asset Management
Analysts
Juan Sanabria - Bank of America/Merrill Lynch Collin Mings - Raymond James and Associates Vik Malhotra - Morgan Stanley Vincent Chao - Deutsche Bank Ryan Peterson - Sandler O Neill Daniel Donlan - Ladenburg Thalman Chris Lucas - Capital One Securities
Operator
Good afternoon, ladies and gentlemen and welcome to Spirit Realty Capital's 2015 First Quarter 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 our speakers' remarks, there will be question-and-answer period [Operator Instructions].
I will now turn the conference call over to Mary Jensen, Vice President of Investor Relations for Spirit Realty Capital. Please go ahead.
Mary Jensen
Thank you, operator. Joining us today on the call today are Tom Nolan, our Chairman and Chief Executive Officer; Phil Joseph, our Chief Financial Officer, Mike Bender, our Chief Accounting Officer, Gregg Seibert, our Chief Investment Officer; and Mark Manheimer, our Executive Vice President Asset Management.
During the course of this call, we will make forward-looking statements. These 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 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 immaterial. For a more detailed description of some potential risks, please refer to our SEC filing which can be found in the Investor Relations section of our Website.
All the information presented on this call current as of today May 07, 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 presented on this call such as FFO and AFFO can be found in the Company’s earnings release which can be obtained on the Investor Relations section of our Website. During our prepared remarks today, Tom Nolan, our Chairman and CEO will discuss our first quarter operating results, providing update on how we are progressing on our operating plan and provide an overview on the net lease package funds.
Phil Joseph, our CFO will then discuss our quarterly financial results that were released earlier today. After our prepared remarks, Tom and Phil along with Mike Bender, Gregg Seibert and Mark Manheimer will be available to take your questions.
With that I would like to turn the call over to Tom.
Thomas Nolan
Thank you Mary and thank you everyone for joining us today. To begin, I would like to welcome Phil Joseph to Spirit as our new Chief Financial Officer.
Phil is a great addition to the team and brings extensive capital markets expertise and a proven financial acumen that will allow us to continue building on our recent successes. As I have noted in prior calls, I am confident we have a deep and talented management group and we’re happy to add Phil to the team.
Among Phil’s many responsibilities one item that Phil and I have agreed for him to turn his attention to is our quarterly reporting package. As such, we have targeted next quarter to implement certain changes including the addition of a supplemental reporting package.
As for our Chief Operating Officer position, I continue to execute those responsibilities and will happily continue to do so until a suitable individual is in place. Now turning to our quarterly results, Spirit had an excellent and very productive quarter across the board.
Our financial results were right on target with our plan. We delivered AFFO of $0.21 per diluted share in the first quarter of 2015.
We have made substantial progress in our stated tenant diversification objectives, our acquisition activity was robust in terms of volume, pricing and asset quality, finally we continued to strengthen our balance sheet to optimize flexibility, pricing and terms which we believe will position us for long term success. Let me touch briefly on each of these points.
From operations, as I’ve noted we delivered AFFO of $0.21 per diluted share in the first quarter of 2015, which represents a 5% increase from the same period a year ago. Occupancy remained above 98% and our property revenues increased 12.4% year-over-year.
In addition, we paid a quarterly dividend of $0.17 per common share. Phil will get into greater detail on these numbers in a moment.
As to our ongoing diversification program, I am pleased to report that we have reduced the normalized revenue contribution from our largest tenant Shopko from 14.0% at the beginning of the year to 12.1% after giving effect to sales during and subsequent to the end of the quarter. Since we began this program through today, we have sold 13 Shopko stores for total gross proceeds of approximately $103 million.
We have been pleased with the broad investor interest in these Shopko assets and believe it is reflective of the positive real estate and credit characteristics of the individual stores and the tenant. As you were aware, we do not disclose cap rates on individual purchases or sales.
However, I can report that in the aggregate , these 13 sites have sold at a weighted average cap rate less than the rates we have achieved on our acquisition during the comparable period, or in other words, we’ve been able to achieve our diversification objectives while doing so on a mildly accretive basis. For those who may be concerned that we are selling only the better performing or premium Shopko assets, I am pleased to report that the aggregate rent coverage ratio of the assets that remain in our portfolio is higher today than the entire portfolio achieved when we began this sales exercise at the beginning of the year.
As you know the industry regards this ratio as one of the most important measures of how operationally essential each given location is to the tenant’s profitability and therefore how attractive a given site is to a perspective purchaser. Moving onto our investment activity, during the quarter we acquired 53 properties for $265.5 million.
The initial cash yield on these investments was approximately 7.7% and the average remaining lease term was 17.2 years. 77% of our acquisition activity was achieved through direct sale lease pact transactions and we obtained mass releases on 64% of them.
Finally 94% of these leases provide for rent escalations over the term. We continue to execute on what we believe is the proven investment strategy acquiring a diverse group of net lease properties that are operationally essential to our tenants.
Principally, middle market in terms of credit underwriting and well located geographic areas and across various industries. This quarter’s acquisitions represented a variety of different industries including grocery stores, restaurants, convenient stores, automotive service as well as general and speciality retail.
Going into the second quarter we have a similarly robust acquisition pipeline with several transactions already closed or under contract. The market for net lease properties while still competitive is essentially unchanged from last quarter and we continue to underwrite attractive acquisition opportunities.
You will note our reported cap rate on acquisitions is a little higher this quarter over the last, I would add that I do not believe this is reflective of any general market trend but rather it’s purely a result of the investment mix this quarter. Turning to our existing portfolio.
We continued to derive predictable cash flows from our stabilized portfolio due to the credit quality of our tenants and our active asset management. As noted earlier, we again maintain high occupancies above 98% during the quarter and our average remaining lease term increased to 10.9 years from 10.2 years in the first quarter of 2014.
At March 31, 2015 approximately 40% of our – 46% of our annual revenues were derived from asset leases and approximately 89% of our single tenant leases provide for periodic rent increases. We believe that disciplined underwriting is the first step to acquire high quality, diversified tenant roster, but it doesn’t end there.
As part of our active asset management plan we continually review our tenant’s corporate and unit level financial performance, which helps us monitor our tenant credit risk as well as semi-underlying business and market trends. For the trailing 12 months our unit level with a healthy 2.8 times for our reporting tenants in consistent with what we reported a year ago.
A quick comment on our lease renewal activity for the quarter, while it was not a large sample, tenant retention remain near a historical average at approximately 80%. We generally engage in renewal discussions with our tenants well in advance from an expiring lease term to allow ourselves every opportunity to actively manage the lease of property repositioning efforts.
During the first quarter we had only 11 out of 2547 properties come up for renewal. Eight of these of the properties were renewed or release the new tenant and one property was sold.
The eight properties that were renewed or released, we captured approximately 100% of the expiring events on these properties. The remaining two properties are currently being marketed for lease or sale.
Now, I would like to turn to our balance sheet. From the last year we have materially increased the size of our unencumbered asset base and have taken steps to further unencumber our real estate portfolio.
At March 31st, we had 628 unencumbered properties valued at $2.5 billion. This is a substantial increase over encumbered asset base a year ago.
During the quarter and just subsequent to it, we extinguished approximately $163 million or 5.76% coupon secured debt and raised approximately $348 million in net equity sales proceeds. In addition, we obtained a new full year term $600 million unsecured revolving credit facility that replace our previous $400 million secured credit facility.
The new facility is more flexible with better terms pricing and also allows us to potentially increase the borrowing capacity up to $1 billion through an accordion feature. As a result of our recent capital markets and portfolio management activities, our net debt to adjusted EBITDA was 7.5 times at March 31, 2015 compared to 7.6 times at December 31, 2014.
However, as a further point of reference at our recent follow on equity offering occurred a couple of weeks earlier as of March 31st our adjusted net debt to adjusted EBITDA would have been 7.0 times. We believe this ratio or perhaps even slightly lower is where we expect to position the balance sheet through the remainder of the year.
With that, I’ll turn things over to Phil, who will walk through our first quarter financial results. Phil.
Phil Joseph
Thanks, Tom. We are pleased with our strong first quarter financial results.
As Tom said, this afternoon we reported AFFO of $0.21 per diluted share for the first quarter ended March 31, an increase of 5% compared to the first quarter of 2014 and a 5% increase from a 2014 fourth quarter. This year-over-year increase is mostly attributable to higher rental income as a result of our acquisition activity over the last 12 months coupled with consistent operating expenses.
Total revenues for the quarter ended March 31st increased 12.7% to $162.3 million compared to a $144.0 million in the first quarter of 2014. Sequentially revenues grew almost 5% in the first quarter when compared to the fourth quarter.
Total operating expenses in the first quarter of 2015 increased 9.4% to $146.9 million from $134.3 million in the same period of 2014. Of this $12.6 million increase approximately $9.6 million was due to an increase in non-cash items, notably non-cash interest, depreciation and amortization and G&A expense.
The remaining $3 million of incremental operating expenses is primarily attributable to higher property and cash interest expense. Property cost increased $2.1 million over the prior period with approximately $1.3 million of this increase recaptured through tenant reimbursements, while cash interest modestly increased over the first quarter of 2014 by approximately $1 million.
It is important to note that our weighted average cash interest rate decreased by approximately 64 basis points to 4.89% from the prior first quarter. On the G&A front, I also want to highlight that the $1.5 million increase from the same period last year is mostly due to severance related expenses of $1.4 million, excluding the $1.4 million of severance related expenses, our operating expenses were approximately 7% of our total revenues for the first quarter of 2015 compared to approximately 8% of our total revenue in the same period last year.
This clearly illustrate our highly scalable platform, which contain considerable growth with very modest increases in G&A related expenses. Moving on to our capital structure and liquidity, as Tom mentioned earlier, we were very active in the capital market in the first quarter and our second quarter remains on pace as evidence by our follow-on offering in April.
Further, Spirit’s corporate credit rating was raised to BB by S&P in March, while a small victory we are keenly focus on our long term goal of creating a more balance debt capital structure with a more thorough focus on unsecured debt combined with opportunistic use of our existing Spirit master funding ABS structure. We believe having a well balanced capital structure will enable us to strategically access capital across all market cycles in addition to providing us with a best pricing and asset management flexibility to a previously acquired and recycle assets and attractive spread to our cost to capital.
During the quarter we made significant progress in support of this objective. As Tom stated earlier, we extinguish to $162.8 million of high coupon secured debt with a weighted average coupon rate of 5.76% which unencumbered approximately $335.4 million of assets.
On the equity capital front we raised $78.6 million through our ATM program during the quarter and since the program inception we have generated net proceeds of $242.4 million. The ATM have very efficient to match fund acquisition activity and attracted cost to capital.
Cost we put on April 14, we raised net proceeds of approximately $268.9 million and a follow-on equity offering which was use to repay the outstanding balance under our revolving credit facility, to fund acquisitions and for general corporate purposes. As a result of these capital market transaction and as Tom mentioned earlier we reduced our net debt to adjusted EBITDA from the previous quarter to 7.5 times.
However, we had our April 14 follow-in equity offering closed on March 31 our adjusted net debt to adjusted EBITDA would have been 7.0 time. Adjusting further for severance related expenses during the quarter our reported net debt to adjusted EBITDA would have been under 7.
Now, turning to corporate liquidity, as of March 31, we’ve had approximately $170 million drawn on our new $600 million unsecured credit facility. As Tom mention, this new facility replaced our previous $400 million secured facility.
The new line of credit has an initial borrowing rate of LIBOR plus 170 basis points compared to the previous secured facility which was incurring interest at LIBOR plus 250 basis points. The new credit facility matured on March 31, 2019 was an option to extend it till March 31, 2020 and includes an accordion feature which can increase the size of the facility up to $1 billion subject to any additional lender commitments.
Currently we have approximately $86 million an unrestricted cash and cash equivalent on our balance sheet and nothing drawn under our line of credit. In conjunction with our prior $747.5 million issuance of unsecured convertible notes last year, we believe this new unsecured facility provide us with greater operational flexibility and better position the company towards establishing a more balance capital structure with a more thorough focus on unsecured debt.
During the quarter we declared dividends to common stockholders of $71.1 million which represented an AAA payout ratio of 81% compared to $61.6 million representing an AFFO payout ratio of 83% in the comparable period a year ago. In conclusion, we are affirming our 2015, AFFO guidance range of $0.84 to $0.86 per common share.
With that, we will be happy to take your questions.
Operator
Thank you. [Operator Instructions] Our first question comes today from Juan Sanabria with Bank of America/Merrill Lynch.
Juan Sanabria
Hi. Good afternoon.
I was just hoping you could give us a little bit more color on the G&A line, what run rate we should expect and if you could remind us, I know, you gave some detail on the severance charges that ramp through and if those were backed out to get to AFFO?
Thomas Nolan
On the severance charges relate to AFFO we include that in our non-cash stock comp, so that was include in there. I think I can’t remember the amount.
It was about maybe $1.2 million or so, $1.4 million. So the – as it relates to G&A as Mike said last quarter we feel pretty comfortable for the year with the 7% by total revenue as a good run rate for us.
And again as you – as I’ve said in my prepared comments we really view our business model highly scalable based upon our current G&A and headcount, so I think we feel very comfortable with that level.
Juan Sanabria
Okay. Great.
And then, with regards to the search for replacement for Peter [ph] kind of where are in the process? When do you could expect that announcement?
What are the key attribute you’re looking? Should we expect somebody with tripe net that experience or something outside that room?
Thomas Nolan
The process is ongoing and I don’t want to give specific date, but process is ongoing and we’ve got a number of interested parties. As to the capabilities, I want somebody who is a skilled real estate professional, who is going to compliment the executives that we have here in the room and elsewhere in the company.
Obviously it feels just getting his feet under him. He has been here for a few weeks now and so we’re looking for somebody to further complement the team.
I do not believe that necessarily needs to be a triple net lease executive that maybe, but I don’t certainly believe that it needs to be. I am very confident and comfortable with the triple net lease capability that this Company has really throughout the organization, so I think that it could come from that space or it could come from the broader real estate space.
Juan Sanabria
Okay. And just one last one from me.
On the balance sheet, how should we be thinking of funding transactions going forward given your sort of target I know, I guess assume to be sort of between 6.5 times to 7 times, should we be thinking 60/40 equity. That’s where if you could provide any color and the way you think about things?
Phil Joseph
Yes. I would just say in terms of on a go forward run rate, its going to be managing to our leverage target of I would say around 7 turns on debt to EBITDA and from an equity perspective its really depends on how we view the market and we have the flexibility with the ATM program as well.
So, we’re going have to over time keep that equity component in check to get to our target level, but again when we look at where our debt to EBITDA target is now. We feel pretty comfortable with it.
Juan Sanabria
Okay. So…
Phil Joseph
Just to further – and further I guess I remind everybody that we have an aggressive target on our diversification program and we announced $100 of sales today, but given the target that we have indicated, clearly that process is going to be ongoing. So, we will be not only looking at debt and equity but we will be recycling proceeds coming from there, the sale of Shopko as well as any other assets that we have identified for portfolio recycling.
Juan Sanabria
Great. Thanks for the time.
Phil Joseph
You’re welcome.
Operator
The next question is from Collin Mings with Raymond James and Associates.
Collin Mings
Hey, good afternoon. I guess first question, Tom, I think in the prepared you’ve highlighted again that what drove the uptick in yield a little bit on what you bought was really just the mix.
Can you maybe put a little bit more color around on that on specifically was it particular sector or something like that you have little bit more exposure do they drove that?
Thomas Nolan
I really don’t it were, I mean, because we are so granular and we do so many transactions that, I think our reported cap rate is going to move kind of 20, 30 basis points, you know mid 7s, lower 7s, higher 7s and its really just going to come down to what happens to get close that particular quarter. I don’t think as I look at the portfolio, and I’ve studied this every time in terms where cap rates are going and the types of investments that we’re looking at.
There were really no trends there. It just happened to be what closed in March from perhaps what might have closed in April.
It was a pretty consistent group of assets and the type of assets that we have been buying really over the last six months.
Collin Mings
Okay. And then, just as far as the deal pipeline, you started pretty bit in the prepared remarks and recognizing that I know you probably give explicit guidance but just as we go into – where we’re still right now as far as in 2Q do you think you’re going to see more transactions closed in the 265 in 1Q or less or just how you think about that in near term?
Thomas Nolan
Well, and I appreciate you regarding we don’t give guidance and again I won’t repeat my philosophy on that. But what we do try to do is on every call is to give really the market holds, where we see it, because we can see out obviously a quarter just because of the nature of the way these transactions work.
And I think you correctly identified by comments up beat we did think we had strong first quarter and we believe that the transactions in front of us are also equally compelling. And while I don’t want to give an exact number, I think, we’re feeling that the run rate that we had in the first quarter is probably plus or minus what you’re likely to see in the second quarter where we fit in the quarter and how we’re looking at our pipeline.
Collin Mings
Okay. And then while I guess for Phil, congrats on the new role.
Maybe just talk a little bit on again looking at introducing a supplemental next quarter, any other particular disclosure you think that will help as far as communication with the history [ph] going forward, any thoughts again as far as maybe, Mike moving the needle little bit more with some additional guidance. If you can talk a little more that, that will be helpful?
Phil Joseph
Yes. I think its refinement around the edges initially and again we went through that for lodges where I was at before and it’s a good year to get into a place where we really thought that about the supplemental.
So, I mean, in the number of different refinements, for example like a debt capitalization table, debt maturity profiles, schedule and things like that. And then, over time I think what that’s going to help us with this kind of refining our disclosure and guidance as well.
It kind of goes hand in hand, but stay tune, definitely next quarter we got our hands for looking at Mike and Mary right now because they’re going to be big help in terms of putting that product together. But over the course of the year it will improve and we will have an active dialogue with all view in that regards as well.
Collin Mings
Okay. And then one last one from me and I’ll turn over, but just on the deal flow front, just any particular sectors or you’re just seeing more flow or on the -- Phil [ph] maybe getting little bit more cautious about completing deals then?
Phil Joseph
Maybe Gregg Seibert, Our investment officers are sitting in the room, maybe I’ll this one over to Gregg.
Gregg Seibert
Thanks. In the first quarter we reference, I think Tom reference the bulk of sectors where we complete a transactions, it was heavy kind of retail quarter in a mix that’s consistent with our current pipeline experience, industries we have success [Indiscernible] in the past.
Grocery stores retail, convenience stores, restaurants, so it’s very consistent with our existing portfolio. There’s obviously certain sectors that we have done in the past.
They were not as of today. But I think for this last five or six quarters you will find the bulk of our acquisitions are mostly in the sectors I just mentioned.
Collin Mings
Okay. I guess, I’ll sneak one more on that front, Gregg, just you and Tom just remind us your appetites as far as looking at industrial or office here?
Gregg Seibert
I guess I have some other numbers that some flows in the quarter. We’ve did in some industrial.
It’s not as much on the office side. We did a little industrial metro markets, market rent, newer properties not as staying away from tertiary markets, older properties, older product, the companies that makes money and that kind of our industrial.
It’s not a large percentage of our new acquisitions, but percentage is probably also consistent with the current mix in our portfolio.
Collin Mings
Okay. Great.
Thanks.
Operator
The next question is from Vik Malhotra with Morgan Stanley.
Vik Malhotra
Thank you. Just on the transaction slows in the first quarter, it seem just on the disclosure that there seem to be a large grocery store transaction given the increase in the exposure there.
Was there one large transaction there?
Phil Joseph
We had a larger grocery store of portfolio that we’ve done that’s actually in the first quarter and it’s continue into the second quarter. So yes, there was a good size grocery store component for this particular quarter.
Vik Malhotra
Okay. And then just on the shop.
Sorry, go ahead.
Phil Joseph
I was just going to mentioned we did have– I think we did business with approximately 25 tenants in the first quarter, so that kind of gives you more of guidance that’s also consistent with what we’ve done in the past. So there is about 25 tenants in the $265 million.
Vik Malhotra
Okay. Okay.
I really just seem from some of the market data it seems that was about 100 million or so grocery store transaction, but I guess if you look at the exposure that kind of foots there, but on the Shopko sale trends I mean, I know the target is around that 10% mark, but how should we think about it just from a modeling standpoint for the next, for the balance of the second, third and fourth quarter. Do you anticipated being kind of this call it five to 10 assets or do you anticipate any quarter being lumpy?
Thomas Nolan
You know it can always be lumpy I guess I mean that’s one of the reason we set the target as of the end of the year, so that we didn’t find ourselves necessarily being in a position where we felt we had that close something on any given quarter, but clearly with a sub 10% objective at the end of the year and getting to be able to report that we were half way there in the first quarter’s call, I think we look at that that being a positive development and clearly I think indicative of the fact there was a significant appetite for these assets which does not surprise us and that we’re likely to get to that goal before the end of the year. Now whether will have as many of report next quarter as we had this quarter, it’s too early to say.
And again we never want to be in a position where we have gun to your head and we’re negotiating with the perspective purchaser who knows we have got ahead of bogey. But I think that again the demand is strong, its diverse demand, and there is not reason that we shouldn’t continue to see this reduction in the revenue construction to be able to report quarter after quarter.
Vik Malhotra
And just a reminder, if you do have the opportunity to take it down kind of under 10% is the goal to kind of stop around that 10% or is there an opportunity or willing to take it down even further?
Thomas Nolan
Well, I think that the – we set a goal that we felt was an important kind of milestone, obviously as everybody or probably perhaps not everybody remembers, but you know with the IPO we were over 30% and it seemed like the goal to get to you know certainly ameliorate a lot of the concern around it is at 10% or less than 10% is still you know twice as large as our largest investment, and so I think our ambition, our stated ambition that we have here at the company is to have the most diversified top ten tenant roster in the industry and to have the most diversified tenant roster through the entire company, excuse me through our entire portfolio of assets and so my expectation is that once we get beyond 10 provided there still is considerable interest that that number will likely continue to decline. But from our standpoint the goal we have that we set out and the bogey we set out was less than 10.
So that’s kind of will – clear I guess many victories when we get there and then we’ll access how to move on from there.
Vik Malhotra
And just last one again I know you don't give the acquisition guidance, but given historically at least 4Q seems to be seasonally better than most of the other quarters and 2Q seems to be strong as well. Given that you're on pace at least to meet the 1Q acquisition volume.
Would you be surprised if you kind of reach close to lets called it a billion dollars in acquisition this year?
Thomas Nolan
No I wouldn’t be surprised. We were at 960 million last year, so you know we’ve I think we have kind of proven that we are in – we are kind of capable of that at that range and as you said the fourth quarter historically tends to be the quarter that you guess so.
We’ve seen a lot of reasons there seem to be those year ends transactions. So -- but you know one of the reasons we don’t give guidance is fourth quarter is a long way away, and you know we’ll continue to access the market and if we can make accretive smart investments and it works with our capital structure then we are going to make it.
But would I be surprised if we were a billion? No, not after hitting 265 million in the first quarter.
Vik Malhotra
Okay, thank you.
Thomas Nolan
You’re welcome.
Operator
The next question is from Vincent Chao of Deutsche Bank
Vincent Chao
Yeah, hey good afternoon everyone. Just wanted to go back to your question about the sort of funding sources we are talking debt and equity and you mentioned the Shopko dispositions being recycled.
Just curious given more cap rates have trended particularly for some specific tenants you know if you be willing or interested in selling some of your Walgreen stake to fund acquisitions and also how you are thinking about the most attractive funding source today between debt equity and dispose?
Thomas Nolan
I think that we are always looking at our portfolio and asking ourselves whether there is an appropriate recycling opportunity. We sold a couple of Walgreens last year that we thought were very good recycling opportunities and we did it.
And so, you know that’s kind of an ongoing process and it’s something that they were always looking at. You know as to the our objective on our balance sheet management is to be in a position to have the optimum optionality that’s kind of been my mantra from day one which is have as many opportunities to access capital and pick the best one, have the appropriate time you know given where the market conditions are.
It could be debt, could be equity, could be debt equities, could be asset recycling and I think we study that pretty closely and I would hope in over the three year history of the company that the market would consider that I think we’ve been pretty shrewd in terms of accessing the what we saw as was the best opportunities for the best cost of capital at any given time.
Vincent Chao
Okay and I guess just a clarifying question from coming from earlier. I think it was when you were talking about the rent coverage in the portfolio today being higher than at the start of the year, was that the entire portfolio you reference or is that specifically the Shopko coverages?
Thomas Nolan
That was purely a Shopko factor.
Vincent Chao
Got it. Thanks.
Thomas Nolan
And so in other words after we sold the 13, the coverage ratio of the ones that are remaining is higher than the coverage was when you included the 13 at the beginning of the year.
Vincent Chao
Got it, okay thank you.
Operator
Our next question is from Ryan Peterson with Sandler O Neill.
Ryan Peterson
Hi thanks. Your talks about going to a using more unsecured debt, I’m just wondering if you give us an idea of what the magnitude of those and possible sources would be for your next kind of unsecured deal?
Thomas Nolan
Yeah I mean it clearly going to be a process. So I mean obviously there is a lot of things termed as capital about their unsecured basis that that’s the most obvious.
And then ultimately we like to get to a place where we are able to issue public unsecured debt, but as you can imagine it’s going to be a process in terms of engaging with the agencies as well if you look at our debt capital structure, we don’t have any really significant secured debt coming due until 2017 which is going to significantly increase the size of our unencumbered asset base. So I would say initially bank term debt capital will be the first source and then with the goal of eventually longer term issue public unsecured debt.
Ryan Peterson
Okay, great and just…
Phil Joseph
Because I like to talk about history a little bit and you know companies coming up in its three year anniversary in September but at the time of the IPO we had effectively a few hundred million dollars of unencumbered assets in the company today we have $2.5 billion of unencumbered assets in the company. So, again to work on that absolute optionality of in a way you can source potential capital I think the company is in a far stronger position today than it was a year ago, and certainly a far stronger position than it was at the time of the IPO almost three years ago.
Ryan Peterson
All right. Great, that’s helpful and thank you.
Thomas Nolan
You’re welcome.
Operator
[Operator Instructions] Our next question comes from Daniel Donlan with Ladenburg Thalman
Daniel Donlan
Thank you and good afternoon. Just really one question from me, you know Tom if you guys want a public company would you want to bring Shopko down from kind of where you are to where you are looking to go or do you think it’s kind of just you get penalized for it on multiple basis and which case you kind of want to bring it down to just make the market feel a bit more comfortable?
Thomas Nolan
That’s a great question. Yeah I think that I like the credit, and I think the people who are buying it like the credit.
And I think that’s one of the reasons that we are moving them as efficiently as we are. And Dan, the reality is that you know we spend a lot of time talking about one tenant in our portfolio and if this was a private company, we wouldn’t be spending that amount of time and we are at a multiple discount to our peers.
One of the reasons most often given is this concentration particularly when we compare our top ten tenants to all of our competitive sets top tenants in terms of credit quality and credit history. I mean we think we have the strong portfolio in the triple net space as anybody in the industry.
And yes we do trade at this multiple discount now we’ve closed it you know materially since the IPO but there’s still much work to be done there. And again the number one reason expressed when we meet with that institutions investors and analysts is, we have a oversize concentration in a tenant that the market has concluded is not as good as perhaps we’ve concluded.
So, yes and I think the answer is that we were a private company, I wouldn’t worry about as much what we are and I’m happy we can recycle it actually accretively, I think that’s the big plus. I think that’s perhaps a bit of a surprise to the market but it’s not a surprise to us because it again it’s been a very strong tenant.
So I think they have showed us that I gave a long answer, I could have given a short answer that is yes, if we were a private company we probably wouldn’t worry about it as much.
Daniel Donlan
Okay, no I appreciate the thoughts and maybe once it goes below 10% you can institute a role that only two analysts can ask a question about it or something. Thank you.
Thomas Nolan
Stay tuned on, we’ll see.
Operator
Our next question is from Chris Lucas of Capital One Securities.
Chris Lucas
Good afternoon everyone. Just a couple of follow-up questions.
Phil, you talked a little bit about maybe some of process issues you are going to have as it relates to maybe moving to investment grade. I was wondering if you could give us some of the goals or hurdles that you see in order to get to investment grade.
And then the second part of the question would be have you looked at the insurance market as potential source for the unsecured capital as opposed to banks given their ability to write longer term.
Phil Joseph
Right, now that’s a great question. So you are obviously tied with a private placement market [Indiscernible] of the insurance companies’ right.
Chris Lucas
Correct.
Phil Joseph
So you are asking the private placement market again, I’m not a big fan of it how much they are going to give corporate buying covenants. They are very structured in their covenants so it’s not ideal for us because eventually we want to get to a place where originally in public debt so I don’t want to have a structured covenant package from them, and then again it’s not a competitive source of capital because it is [Indiscernible] as I’m sure you know.
But in terms of the process of getting to the investment grade you know it’s obviously going to take some time. The rating agencies as you know do not move on a dime and I mention the fact that we don’t have any sizeable secure debt coming due until 2017 and that’s kind of when obviously we’re going to have a significant increase in the amount of our unencumbered real estate assets and that’s going to be the primary driver that gets us to investment grades.
So, hopefully that helps you in turn to have the items that we are focussing on to get there.
Chris Lucas
Okay, thanks. And then Tom I am going to ask a Shopko question, just wondering if you would provide a little more color on the transactions you have completed so far in terms of the actual number of separate transactions and the different number of buyers for the 13 assets?
Thomas Nolan
I don’t have the exact numbers in front of me. I know that we’ve sold a couple of pools, different pools and I know we have done a number of individual asset sales but I don’t have the exact ones in front of me, I probably do but I can’t have them up correctly but if I believe we have done at this point two pools and the rest were individual separate transactions.
Chris Lucas
And were the buyers separate on each transaction or were there some repeat buyers just in separate individual transactions?
Thomas Nolan
At this point all separate individual transactions.
Chris Lucas
Great. Thank you very much.
Thomas Nolan
You’re welcome.
Operator
That concludes the question and answer portion of today’s call. I would like to turn the call back over to Mr.
Nolan for his closing remarks.
Thomas Nolan
Thank you, operator. As you heard we are pleased with our first quarter financial and operating performance, which illustrates the quality of our well diversified portfolio and our seasoned management team that has a proven track record of operating through various market cycles.
We expect our disciplined underwriting and proactive asset management capabilities will continue to allow us to source accretive acquisitions and maintain a high quality diversified portfolio. We believe these core competencies will create sustainable, risk adjusted growth that supports an attractive dividend and creates value for all our stakeholders.
Thank you for joining us today and thank you for your continued support.
Operator
This concludes today’s call. Thank you for attending today’s presentation.
You may now disconnect.