Feb 25, 2016
Executives
Mary Jensen - VP, IR Tom Nolan - Chairman & CEO Phil Joseph - EVP & CFO Mark Manheimer - EVP, Asset Management Gregg Seibert - EVP & CIO
Analysts
Alexander Goldfarb - Sandler O' Neill Ki Bin Kim - SunTrust Juan Sanabria - Bank of America/Merrill Lynch Landon Park - Morgan Stanley Collin Mings - Raymond James Vineet Khanna - Capital One Securities Vincent Chao - Deutsche Bank Tyler Grant - Green Street Advisors Daniel Donla - Ladenburg Thalmann Amit Nihalani - Oppenheimer Rich Moore - RBC Capital Markets Ross Nussbaum - UBS
Operator
Welcome to the Spirit Realty Capital's 2015 Fourth Quarter and Year-End Earnings Conference Call. [Operator Instructions].
I will now turn the conference over to Mary Jensen, Vice President of Investor Relations for Spirit Realty Capital. Please go ahead.
Mary Jensen
Joining us on the call today are Tom Nolan, our Chairman and Chief Executive Officer; Phil Joseph, our Chief Financial Officer; Gregg Seibert, our Chief Investment Officer; and Mark Manheimer, our Executive Vice President of Asset Management. During the course of this call, we will make forward-looking statements.
These forward-looking statements are based on the beliefs of assumptions made by and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or our ability to predict.
Although we believe that our assumptions are reasonable, they are not guarantee of future performance and some will prove to be incorrect. Therefore our actual future results can be expected to differ from our expectations and those differences may be immaterial.
For a more detailed description of some potential risks, please refer to our SEC filings which can be found in the Investor Relations section of our Website. All the information presented on this call is current as of today February 25, 2016.
Spirit does not intend and undertakes no duty to update forward-looking statements unless required by law. In addition, reconciliation to non-GAAP financial measures presented on this call, such as FFO and AFFO, can be found on the Company's quarterly report which can be obtained on the Investor Relations section of our Website.
During our prepared remarks today, Tom Nolan, our Chairman and CEO, will provide a review of our operating results and an update on our current business activities. Phil Joseph, our CFO, will then discuss our quarterly and annual financial results that were released last night.
After our prepared remarks, Tom and Phil, along with Gregg Seibert and Mark Manheimer will be available to take your questions. With that, I would like to turn the call over to Tom Nolan.
Tom?
Tom Nolan
Thank you, Mary and thank you everyone for joining us today to discuss our fourth quarter and year-end 2015 results. I would like to begin this call with a topic, I know it was front and center in the minds of investors that is shareholder value and how to maximize it.
There's been much discussion lately in the REIT sector including about Spirit Realty, about the relationship between the current stock prices of publicly traded REIT's and the value of the underlying real estate they owned our NAV. When these NAV discounts occur the dialog quickly turns to how public companies can best capture this value, be it through M&A, privatization or staying the course through a well-conceived and executed business plan.
We find this dialog welcomed, healthy and appropriate. And I can state without reservation that this management team and Board of Directors are committed to following the path that generates the greatest value for our shareholders.
As I will discuss today, we believe we have a clear strategy and business model that will create attractive and sustainable long term value for our shareholders. At the same time, this Board is fully aware of its fiduciary duty and routinely evaluates whether changes to our strategy are appropriate.
Spirit's Board of Directors has ensured that the interest of the Company's management team are highly aligned with those of shareholders. I can assure you that we recognized the relative discount to NAV compared to peers that has reflected in our current stock price.
Whether it is reflected or not however our strategy and business model are delivering excellent operating results, that are dependable stable and predictable. These results are achieved through a strong diversified and actively managed portfolio, as well as a flexible capital allocation strategy.
Nowhere is this better demonstrated than in the fourth quarter and year-end results we just announced. As you can see in our press release, we reported strong results for the fourth quarter capping off a solid year for the Company.
I hope you recall that we announced specific objectives at the side of 2015 for our operating and financial performance and we met or exceeded those on all fronts. First, we said we would reduce the revenue concentration of our largest tenant to below 10% and as of year-end that tenant represents 9.1% of our total portfolio.
In the fourth quarter alone, we sold approximately $56 million of properties associated with this tenant at a cap rate of 7.32% and we expect to continue to reduce that concentration over time. Our long term objective is a portfolio in which no tenant represents more than 5% of the total portfolio.
Second, we said we would continue our drive to have an industry-leading balance sheet. We committed to a debt to EBITDA ratio that would be less than 7.0 times at the end of the year and it was.
We expect further improvement in 2016. Also, we continue to pursue an investment grade rate and while we cannot presuppose the actions of the credit rating agencies, we believe we're making good progress down that.
Keep in mind that our lack of an investment grade rating in the past isn't simply a reflection of the amount of debt we have had, but rather that type of debt. At that time this Management team began its fair, we were essentially a 100% secure by log.
We had very little unencumbered collateral which is a key attribute of an investment grade profile. Today, our unencumbered asset pool stands at over $3 billion in this growth and it is fifth transformation that is now allowing us to pursue an investment grade rating.
Finally and perhaps most importantly, we provided specific AFFO guidance at the start of 2015. We've raised that guidance probably through the year and today or now I think AFFO results at the top end of that range guidance.
Year-over-year AFFO grew nearly 17% for the quarter and nearly 18% for the full year. We feel confident about our ability to continue this track record in 2016 and beyond.
In the three years since our IPO, our asset base has become significantly larger and our portfolio has become significantly more diversified but our strategic priorities have not changed. This Management team is focused on generating stable and dependable cash flows even in the uncertain markets which we believe will in turn create superior value for our shareholders.
We're confident in the predictability of our cash flow and social because of the quality of our portfolio and our active approach to asset and portfolio management. Our portfolio consists of more than 2,600 properties including United States, broadly diversified among the wide range of high quality tenants across many industries.
Our portfolio remains essentially fully occupied at 98.6% up 20 basis points from year-end 2014. With an average remaining lease term of approximately 10.7 years.
At December 31, 2015, approximately 40%, 46% of our normalized rental revenue is derived from Master Leases and approximately 88% of our single-tenant leases provide for periodic rent increases. For the trailing 12 months, our unit level coverage was a healthy 2.9 times.
Even with our portfolio was [indiscernible] as it was in one of our top five tenants Haggen filed for Chapter 11 last year. We remain confident in the resilience of our portfolio in individual assets.
Of course, we wish the Haggen bankruptcy hasn't happened on [indiscernible]. And we understand the uncertainty, it created about the potentially negative financial impact on Spirit, it also created uncertainty about our underwriting process in general, well beyond the impact of that one transaction.
That uncertainty coming as a deed on top of other macro issues in the triple net lease sector, but certainly a contributor to be underperformance of our stock price against our closest peers. Today, I'd like to bring you up to date with some facts on the Haggen transaction that should help dispel some of that uncertainty.
For those of you who have follow the corporate proceedings you're aware that the process is not completely run its course. However, we're at a point in the proceedings where we're increasingly confident in a likely range of outcomes.
So, let me summarize where we're. When we first commented publicly on the Haggen transaction, I noted that this was some of the best quality real estate we have had the opportunity to acquire.
When Haggen sought bankruptcy protection, that underwriting is certainly put to a quick test. We originally invested $224 million and 20 properties, the tenant sought protection and we immediately and aggressively pursued a course of action to protect their interests.
Ultimately, we negotiated a very favorable settlement with the bankruptcy estate that splits the portfolio into four categories. The first is nine stores they were immediately leased to new tenants on the substantially the same attractive lease terms that we've negotiated with bank.
There wasn't even one day of lost revenue on those stores. The second category comprises five stores on which Haggen are from existing lease and that are now included in the final stages of an auction to a new owner operator as part of the sale of Haggen's core operating business.
Once again, there was no disruption in the rental stream Spirit. The third contained six stores that we agreed to allow Haggen to vacate and we took that free and clear.
The fourth and final piece is a $21 million damage claim, the estate agreed to pay to us in exchange for Spirit allowing Haggen to remove those six stores from the vast in Vacant. Let me quickly summarize the value we expect to realize in each of these four groups starting the reversal.
Groups three and four are related, since the $21 million damage claim with negotiated directly as a result of our acceptance of the lease rejection on the six stores. The damage claim is an unsecured claim of the estate today and the Company has not yet completed the bankruptcy process.
However, we have a high degree of confidence. We will receive all or most of that amount.
So, our expectation is we will break even on the six stores or most likely post amount of gain. Two of those six vacant stores have already been sold.
And the five stores still leased to Haggen over the group two amendments, we expect to be able to sell those and price higher than our basis. How much higher will depend on the final outcome of the course store auction, but we're increasingly confident from our oscillation of the process that we have significant value in those stores.
Finally, we believe we have substantial value appreciation on the nine stores that are now leased to new heads. In aggregate, we expect to realize a meaningful financial gain from the resolution of the Haggen situation.
When we aggregate all four categories of assets, we estimate the total value likely to exceed our original basis by close to 20% or approximately $40 million. We have posted this summary on our updated Haggen Fact Sheet and you will note this figure have had the conservative end of the valuation range.
I'm the first to admit that the path we had to go down to realize this return was painful and convoluted. And clearly, our assessment of Haggen's ability to execute operationally was inaccurate.
I realized that this is not the way investors expect us to make money and it is inconsistent with the stability theme you referred to me so often that this outcome does demonstrate. The expertise of our real estate acquisition and underwriting team it's on both the value and the risk of these properties and structured the transaction that would protect Spirit from damage in the case of the negative credit.
I would like to take a moment to move beyond again specifically and address our overall acquisition performance. We have a seasoned and experienced acquisition team led by Gregg Seibert is here in the room with me today.
When this management team joined Spirit, the Company had approximately a $3.1 billion enterprise value of which almost one-third was leased to Shopko. You may hear us from time to time referred to that portfolio as the legacy assets.
Since then, we have purchased more than $5 billion of additional assets. This new portfolio on the two times larger than that on the legacy assets has performed exceptionally well since we acquired, in a significantly enhanced the overall portfolio quality as compared to the legacy assets.
In fact, of the very few defaults on impairments, we have experienced in the past three years, the vast majority of those where legacy properties. I realized there are some who believe, the triple net industry is just safe enhanced vehicle and not a real estate platform.
I'm not one who shares that view [indiscernible] that the cyclical economy tend and likely will test the business acumen of our tenants and those of our peers. Having operationally essential good quality and well under is real estate can make a meaningful difference and how well a portfolio absorbs such a challenge.
In addition to the diversity and strength of our acquisition platform another important differentiator for Spirit is our active approach to portfolio management, unlike some other industry Spirit continually manages our portfolio to refine improvement position it for the long term. We carefully analyze the fluctuating valuation for specific property in the market conditions in our tenant end markets.
That means that sometimes we're a net acquirer and sometimes we're a net seller. We buy when its marked to buy and when it's not we position our balance sheet to capitalize on opportunities when they arise.
In 2015, we sold approximately $547 million of properties from our portfolio, we had a weighted average cap rate of 7.22% while acquiring approximately $889 million of property at a weighted average cap rate of 7.68%. Our future acquisition activity is highly dependent on market conditions however, we will not make acquisitions just for the sake of doing so, we will make acquisitions, when we find high-quality assets at appropriate prices that will improve the quality and diversity of our portfolio.
That is why we don't provide acquisition guidance because we believe market conditions will not probably allowed for smart acquisitions. We certainly can see period in which there may be a net seller of asset.
In fact, given that we're almost 2/3 of the way through Q1, we currently expect that we will likely be a net exposure of assets this quarter. These two qualities combined are large diversified portfolio in our active approach to portfolio management, a critical factors to our track record of dependable performance.
They have enabled us to report strong AFFO growth in a steadily increasing dividend. We also believe that we add value through our capital allocation strategy which provides us the flexibility to consider a spectrum of options depending on market conditions.
On one end of that spectrum, we can make acquisitions and we remain well positioned to do so when we spot the right opportunity. In the middle of that spectrum is deleveraging, reducing debt to strengthen our balance sheet which lowers our cost of capital.
And on the other end of the spectrum, a share repurchases such as we just announced. They give us yet another way to return cash for shareholders if market conditions want.
We will also invest in our future to best position ourselves for growth and performance. That's why we're excited that we're establishing our new consolidated headquarters in Dallas.
I don't have to tell you how important location is in our business. We have long had a presence in Dallas.
And given the transformation of Spirit Realty in recent years into a large geographically diversified leader in the industry, we're confident that this location will enable us to operate very efficiently and effectively. Dallas part of fourth largest metro here in the U.S.
is a centrally located business center with an extensive travel infrastructure and a well-established real estate community and it offers an attractive location from which to manage our growing portfolio. We also expect the cap into the deep real estate experience in this market, as we complement our team.
It is also worth noting that our largest concentration of assets is in Texas. The cost of relocating is not insignificant, but we believe the investment will be well worth it in the long term.
And like any investment, we expect to see a return on it as we realize both strategic and future cost benefits. Phil will go into the fourth quarter numbers in more detail, but before I turn the call over to him, I want to briefly give you an idea of how we did this past quarter.
We reported AFFO per diluted share of $0.22 in the fourth quarter which was a 6.3% increase over the comparable period of last year. Our full year AFFO per share was $0.87 above our initial guidance of $0.84 to $0.86.
These strong results demonstrate the effectiveness of our business model quarter-after quarter. I don't think it's a coincidence that institutional capital has rotated into the triple net sector, including into Spirit in the first two months of this year.
The overall economy in capital markets have become more volatile and uncertain and we offer results that are dependable, stable and predictable. Our 2016 guidance envisions continued growth in AFFO and we expect to continue to improve the quality of our portfolio and our financial position.
We're confident we can deliver on this promise and as I mentioned earlier, we have a history of meeting or exceeding the goals we set out. As always, we appreciate your support and look forward to reporting our progress with you in the future.
Before I turn this over to Phil. I would like to comment on one other commitments Spirit made in 2015.
And that is when we hired Phil, I asked him to review our supplemental reporting package and to establish ourselves a big leader in that area. I would hope you agree that we've made substantial progress in that regard and we look forward to continue to improve that going forward.
With that, I'll turn things over to Phil, who will walk you through our fourth quarter financial highlights. Phil?
Phil Joseph
Thanks, Tom. We're very pleased with our fourth quarter financial results.
Our reported AFFO per share growth compared to the same period in 2014 is particularly notable given our much improved financial standing. 2015 has clearly proven that we're well disciplined allocator of capital, to highlight through mid-April of last year, we raised net equity proceeds of approximately $347 million at a weighted average share price of $11.90 per share.
In addition during the year, we acquired $889 million of properties in the initial weighted average yield of 7.7% and sold approximately $547 million of assets and a weighted average cap rate of 7.2%. In summary, our net acquisition activity of approximately $340 million for the year was largely pre-funded by well-timed equity issuance and accretive capital recycling.
Furthermore, since our IPO, permanent capital sources have funded approximately 69% of our property acquisitions, including the Cole merger. In 2016, we will continue to capitalize on the embedded organic growth inherent in our portfolio and specifically seek out accretive portfolio capital recycling and liability management opportunity to drive shareholder value.
As Tom alluded to during 2015, we made considerable progress in 40 year areas, portfolio diversification, financial standing, access to capital and financial disclosure. Page 4 of our financial supplement provides a good backdrop on our projects.
From a portfolio perspective, we have outperformed our year-end goal of reducing our Shopko exposure to below 10% of our normalized revenues which now stands at 9.1%. More importantly, our top five and top 10 tenant concentration compares very favorably to our net lease peers.
In terms of our financial standing our leveraging cash flow metrics continued to show a notable improvement. In this regard leverage remains below our year-end target of sub 7 at 6.89 times.
Our $3.2 billion unencumbered asset base represents 38% of our total gross real estate investments and our fixed charge coverage ratio stands firmly at 2.9 times. With respect to access to capital, we're organically positioning the balance sheet to strategically access capital more efficiently.
During the quarter, we closed and upsized our senior unsecured term loan to $370 million. The term loan facility has an accordion up to $600 million which when combined with our currently undrawn $600 million line of credit which has an accordion to $1 billion, well positions the Company as we lag into refinancing our near term, high cost debt maturities.
On the financial disclosure front, we continue to enhance our supplemental financial disclosure with your help and look forward to continuing the dialog with the investor community. As Tom said, this afternoon we reported AFFO of $0.22 per diluted share for the fourth quarter, including adjustments for restructuring charges associated with our corporate relocation.
This performance represents an increase of 6.3% compared to the fourth quarter of 2014 and an approximate 1.9% increase from the 2015 third quarter. As to the recent prior quarters, the year-over-year increase is largely due to higher rental income, as a result of our strong acquisition activity over the last 12 months.
Moderate same-store rental growth, consistent operating expenses and interest expense savings on debt retirement and refinancing. Total revenues for the 4th quarter of 2015 increased approximately 9% to $168.7 million, compared to $154.8 million in the fourth quarter of 2014.
Also during the current year of fourth quarter, we recognized approximately $1 million in lease termination and settlement fees that we recognized $2.2 million in lease termination fees in the current year of third quarter. Same-store rent growth for the quarter when compared to the prior year fourth quarter increased 0.3%.
Rent growth was negatively impacted by a lease restructuring related to our legacy investment on tenancies that represented approximately 0.4% of our annualized cash rents. Our same-store performance excluding the impact of these tenants would have resulted in a 1.1% increase year-over-year.
On the expense front, you will notice that this quarter we had separately disclosed expenses attributable to the relocation of our corporate headquarters to Dallas. The $7 million in expenses recognized during the fourth quarter relate primarily to retention and separation benefits that we have reserved for those employees that have elected to not relocate to Dallas.
We expect to incur other costs related to the move, certainly which will be expensed as incurred primarily employee relocation costs as well as hiring and redundant personnel costs. Lastly, we will capitalize certain of our costs relate to our office build out.
In total, we expect the total cash impact related to the move to approximate $12 million. From an AFFO prospective, the anticipated add back adjustment to AFFO for non-capitalized items will approximate $15 million or $3.4 per share.
Total expenses in the fourth quarter of 2015 increased to $158.8 million from $131.7 million in the same period of 2014. Approximately $22 million of this variance is attributable to certain non-cash items, namely asset impairments, depreciation and amortization, non-cash interests and non-cash G&A.
Additional items contributing to the increase in the operating expenses are the aforementioned relocation cost and moderately higher property cost. With respect to G&A, it represented 6.5% of total revenues for the quarter below our internal target of 7%.
Cash interest decreased by 5% or approximately $3 million compared to the fourth quarter of 2014, primarily as a result of the repayment and refinance of high coupon CMBS debt. On the defaulted loan front subsequent to quarter end, we extinguished approximately $14 million of debt and look to make more progress over the course of the year in resolving our non-performing loans which today represent less than 2% of our total debt.
We clearly make great progress on lowering our debt cost of capital. Our weighted average cash interest rate decreased by approximately 31 basis points to 4.72% for the prior fourth quarter principally due to the repayment and refinancing of high coupon debt.
Now turning to capital structure and liquidity. As I mentioned previously, we have been a disciplined allocator of capital and continue to be well positioned for prudent growth.
We have delivered AFFO per share growth above our initial 2015 guidance range of $0.84 to $0.86 per share. This is a notable accomplishment in light of our focus on organically reducing leverage in a challenging capital markets environment.
During the fourth quarter, our acquisitions totaled approximately a $175 million at a weighted average initial cash yield of approximately 8%. In addition, during the quarter we disposed of a $103 million of properties at a weighted average cap rate of 7.1%, resulting in an overall gain on sale of $7 million.
On the liability management front, during the fourth quarter, we extinguished approximately a $158 million of high coupon secured debt with a weighted average coupon rate of 5.95%, increasing our unencumbered asset base to approximately $3.2 billion which represents 38% of our gross real estate investments. Post year-end, we repaid $25.5 million of debt maturing in 2016, with a weighted average interest rate of 5.65%.
As of today our remaining 2016 debt maturities, excluding approximately $68 million of defaulted loans transitioning to debt forbearance totals a $159 million with a weighted average interest rate of 6.15%. Our 2017 outstanding debt maturities currently approximate $711 million and have a weighted average interest rate of 5.8%.
We're very focused on these debt maturities and we'll look to address them proactively well in advance of their scheduled maturities. As I mentioned previously, during the quarter we closed our $370 million senior unsecured bank term loan, this facility is an important step in our goal of diversifying our access to the institutional unsecured debt markets.
We will continue to utilize the facility in tandem with our strong corporate liquidity and access the capital markets to address these maturities in an accretive manner. From a credit metric perspective, we're well positioned for prudent growth and to leverage at the end of the fourth quarter our net debt to adjusted EBITDA was 6.89 times in line with our communicated target of sub-7.
Our leverage adjusted for restricted cash balance is available for acquisitions resolve defaulted loans and debt repaid subsequent to quarter end would have approximated 6.74 terms. From a cash flow and a capital access perspective, our fixed charge coverage ratio improved 2.9 times and our ratio of unencumbered assets to unsecured debt at three times remains strong.
As I've mentioned on prior earnings call, our 2016 and 2017 debt maturities represent a tremendous opportunity to significantly lower our cost of capital and improve our capital structure. We have approximately $870 million of non-defaulted CMBS debt maturing during this period that has a weighted average interest rate north of 5.8%.
In addition, we have approximately $1.5 billion of assets encumbered by this debt. Some of this tenancy includes Walgreens, buybacks and CVS among other highly valued credits.
These debt maturities represent a meaningful potential earnings driver as we seek to lower our cost of capital to accretively recycle assets and to significantly increase the size of our unencumbered asset base. During the quarter, you may have noticed that S&P raised our corporate credit rating to Double-B plus and more importantly, maintain their positive outlook.
We continue to maintain an active dialog with all three agencies and we're optimistic that continual progress will be made throughout the year. Now turning to corporate liquidity; as of December 31, we had nothing drawn on our $600 million unsecured credit facility.
Currently, we have approximately $24 million in unrestricted cash and cash equivalents on our balance sheet and nothing drawn under our $600 million line of credit. In addition, with approximately $51 million of liquidity available in our 1031 Exchange and Master Trust Notes release accounts that are available to fund real estate investments.
In summary, our strong corporate liquidity position, well positions us for prudent and accretive growth. During the quarter, we increased our quarterly common dividend by 2.9% and declared dividends to common stock holders of $77 million which represented an AFFO payout ratio of 78% compared to $70 million representing an AFFO payout ratio of 83% in the comparable period a year ago.
In conclusion, we're affirming our 2016 AFFO guidance range of $0.88 to $0.91 per common share. With that we will be happy to take your questions.
Operator
[Operator Instructions]. Our first question comes from Alexander Goldfarb of Sandler O' Neill.
Please go ahead.
Alexander Goldfarb
First question, Tom on the stock buyback announcement, can you talk a little bit more about it? Just given where your stock is trading?
On our numbers we're sort of close to NAV, so it doesn't sort of make sense to do it. And then also on the acquisition front, you guys seem to be able to accretively recycle.
So, is this a statement about the investment opportunity or is this - was this just something to have out there, just to have out there?
Tom Nolan
I think, I know I read one other comment. It's a good tool to have in the toolbox and I think that's exactly the way we looked at it.
Clearly, if you look over the stock trading history over the last couple months, the market has been volatile and there are times that the stock price does not look as attractive as it does now. And by all accounts, we could be in for a period of volatility going forward here.
Certainly, feels that way from a capital markets perspective. So, I think the management team and the Board felt that that was a good tool to have because unless you have it and in the situation presented itself and you don't have it available to you.
But we clearly felt that this - we weren't signaling any intend. It was simply desired to have it available to it if market conditions warranted.
Phil Joseph
The one thing I'll add to that is that we're going to maintain a vigilant focus on capital structure and moderating leverage. So, this is definitely we're focused on - obviously, getting to investment grade at some point and we don't want to abandon our leverage targets.
Tom Nolan
Or to put it in other way, utilize the stock repurchase program to kind of damage our leverage.
Alexander Goldfarb
I mean, that's just why I seem puzzling because one, I mean, you guys haven't issued equity for a while and presumably you want to be able to acquire more. So, to use precious capital for something that hopes the market recognizes especially that presumably would only do when there was a really a severe discount.
It definitely stuck out and then as well as if you try to improve to investment grade balance sheet buying back stock doesn't really seem consistent with that. So, can you give us some sort of parameters like how much of a discount you would need to see or how much capital liquidity--
Tom Nolan
As you can imagine, we don't want to put pricing on effect. You've already touched on it and certainly I think hopefully our response addressed that directly, but this was purely designed to have available to us in the event of some market disruption.
But right now, it's purely sitting in the toolbox.
Alexander Goldfarb
Okay. And then the second question is on Haggen and so, a part one, if you can just comment on the auction delays, I think it's now been delayed three times March 11 [indiscernible] is one that's been delayed too.
And then two, what's the timing to ultimately recoup the $40 million that you guys outlined of potential proceeds above your original investment?
Tom Nolan
Yes. Let me, I'll answer the second part and I'll let Mark Manheimer touch on the first part.
I mean, we have at this 18 stores left, I think we're going to be, I mean we're not, there's not an enormous rush with uncertainly, we're not a motivated co-seller. But, those type of asset, those 18 assets are very consistent with, from our perspective, how we look at portfolio management.
They have got a lot of demand there, the cap rates are very aggressive and we look at those potential proceeds coming back to us and say, we can accretively reinvest those and we feel that we can accretively reinvest them at comparable risk parameters. And so, any time you look in an asset that we see that, that delta between, what we can sell something, put it back to work.
Where you're going to act on, so I mean we're not going to just go out there and kind of [indiscernible] the market with 18 stores, but we're focused on the fact that, that they are in demand and we're going to capture that demand and so I would expect as we said that by the end of the year that we'll have most if not, all of that capital reinvested elsewhere. I'll turn it over to Mark to discuss the auction process.
Mark Manheimer
Yes and I guess I would note that the five units left that naturally that's already been assumed. And so, we're going through that, going through the auction process, it has been delayed a couple of times, now it pushed out to mid-March.
I guess what I can say there's a lot of information, we do have is privilege [indiscernible] a number of the unsecured creditors committee. I guess what we can say is there has been a lot of interest both from strategic buyer and financial sponsors and this has come in for the assets, but now it has to get through the process as to be blessed by the unsecured creditors committee and part of that is going to be to remove all contingencies as part of this offer, so that everyone knows exactly what they're getting.
But we're optimistic that, that should be resolved shortly.
Operator
Our next question comes from Juan Sanabria of Bank of America. Please go ahead.
Juan Sanabria
Just following up on the buyback question that Alex kind of alluded to. So we shouldn't assume that the proceeds from Haggen dispositions which seem to be a low six cap rate, it would necessarily be used to fund the buyback that you'd rather notwithstanding a greater discount, reinvest those into acquisitions, is that fair?
Tom Nolan
Well, I guess the way I would respond to one is, they kind of mutually exclusive decisions, I mean the stock buyback is the decision under its own kind of decision-making to, is that a good use of proceeds and capital is fundable whether that profit came from cash flow or it came from Hagen proceeds. So we certainly don't link them, there wasn't any intentions to link them and we're obviously pleased that we're going to be able to raise significant capital available for reinvestment in the Company through the Hagen portfolio.
But no, I wouldn't, I wouldn't link them, I don't think that's certainly not the way we look at it.
Juan Sanabria
Okay. And then on the balance sheet side, you alluded to kind of wanting to continue to bring down the leverage, what should we be thinking of sort of a more medium or shorter term target for 2016 and what should we be thinking about it from a refinancing perspective that is assumed in guidance?
Phil Joseph
Yes, Juan. It's Phil here.
So I would say from a leverage perspective, we're definitely still starting sub-7 and I would like to end the year, I would say probably in the six to eight range, is kind of what I think would be prudent for you guys to think about. And then from a refinancing perspective, I do think pricing has widened out a little bit across the space be it from the ABS market, be it from the institutional corporate debt market.
So I would assume something probably in the four and three quarters range and in turn as the long term cost of debt perspective and even that number does assume some new issue premium like [indiscernible] Noble issue, we're seeing it in the private placement market or in the high-grade corporate market. Once we get to investment grade, I think a pretty safe assumption.
Juan Sanabria
Okay. And just on the, a quick question on the dollars costs of the $20 million you flagged or guided to, is the fourth quarter figure of $7 million is you've already incurred is that part of $20 million or is it $20 million on top of that?
Phil Joseph
That is part of the $20 million.
Operator
Our next question comes from Ki Bin Kim of SunTrust. Please go ahead.
Ki Bin Kim
In turn of your balance sheet, the unsecured term loan that you did this quarter about $370 million or so. What kept you from going longer duration on that debt, especially given that you're signing leases with the duration of 15 years to 16 years?
Phil Joseph
Well, bear in mind that that facility has an initial maturity at three years and that we have two one-year extension options that our options. In terms of when I look at our debt capital structure from a more long term basis, we're better served not having bank capital being a longer term source of capital from us --from a debt perspective.
We're focused on access in the high-grade corporate bond market where we can get tenders of around 10 years. And I think it's more important for us to focus on diversifying our access to capital.
The bank term loan market right now is very favorable and I think the more we could demonstrate access the different sources of debt capital be at the high-grade corporate bond market, perhaps the private placement debt market that just clearly near to our benefit.
Tom Nolan
I guess, I would elaborate where we recognize, we invest long term, we also on the right side of our balance sheet to be durable and long term. We're very focused as Phil talked about, ultimately achieve investment grade rating over time and that changes the whole dynamic of when and how you fix your capital going forward and we believe we'll be able to fix this going forward at more attractive pricing as we ultimately achieve those objectives.
But we're very cognizant about what percentage of debt that we have that is short term debt and it's very, very modest relative to our entire capital structure.
Ki Bin Kim
And that's sloppy there right?
Phil Joseph
That is not sloppy, it is not.
Ki Bin Kim
Okay. And in terms of how much you want to buy back and thus back in this year, next year?
Looks like this quarter you paid about a $5.5 million prepayment penalty which is about 3% of the total amount of that debt back, when you go through the math of - when it becomes an advantage is to pay debt penalty and buyback that. Can you just talk a little bit about that versus waiting as they become due or the penalty is little bit less?
Tom Nolan
Right. So, I mean ordinary course what we've been doing is we've been paying off this debt and it's early as to open to pre-payment at par which is typically three months in advance of the maturity.
Now what from a proactive liability management perspective, we only have a $159 million of debt coming due this year when you exclude the defaulted loans and that's very expensive debt, that 6.15% and that's six, start to the six, weighted average coupon. I think and you've seen this across the REIT space in the past, if we're proactive on the liability management side and we incurred some early extinguishment of debt cost, some decedent cost on that, the benefit to us is that we're crystallizing our lower cost of debt capital going forward.
So, it can be based by on the facts and circumstances at the time, the access to capital that we have. And again if we have the access to capital be it from the asset sales that markets go to regarding Haggens, more vibrant capital markets environment, we're going to be very proactive on that.
Operator
Our next question comes from Vikram Malhotra of Morgan Stanley. Please go ahead.
Landon Park
This is Landon on for Vikram. Congrats on the quarter.
Just wanted to start out by asking some of your peers has commented recently about their willingness to be any level buyers in the current market. I was wondering what your take is on and your willingness on the selling side and would you be willing sellers and under what kind of conditions?
Tom Nolan
Sure. You probably asked that question realizing, I guess, what my answer would be which is - that's just not productive or I think appropriate.
It sounds like hypotheticals. I think my opening comments or an attempt to address I think the very issue that you raised which is an open investors appropriately focused on shareholder value.
And again, on behalf of this Management team and the Board expressed our view that we're here to produce shareholder value and to find the most efficient and effective way to do that. But it's just not productive to discuss what could occur or what might occur or what someone else might do.
So, I don't really have anything to offer other than that.
Landon Park
Okay. You're not able to comment on your willingness to entertain discussions--
Tom Nolan
I think my opening comments that for themselves.
Landon Park
And moving on to the Dallas move originally you sort have indicated that you didn't expect the cost to be particularly material. I was just wondering, did the cost end up becoming a bit higher than you originally expected?
And in terms of the severance and retention, have you lost any significant personnel on the asset management or acquisitions.
Tom Nolan
Sure. I think, in terms of the cost, I guess a couple of things, I mean first of all, those are the cost that we provided in this disclosure, their estimates for costs going forward, just like anything that we do, now we want to be conservative in terms of the way that we do it.
And so when we look at these customer disclosure standpoint, we wanted to make sure that we capture everything that possibly could happen and certainly our desire we'll be to bring it in, hopefully at less than those conservative costs, that's number one. And number two, just on the cost.
I guess, I would also say that the nature of the financial reporting and we wanted to be completely transparent in an open book and what it is going to cost us and I hope that people find that information useful; one concept that doesn't really exist is that there is no kind of concept we're discussing in an opportunity costs or what might be, what's really the incremental cost versus what is and isn't and I say that and I'll use that the real estate as an example and we've disclosed the kind of what is the high end and what's the cost could be from our real estate position relative to our new offices, but what doesn't get incorporated in that is, what is the alternatives and what alternative cost could exist, if we didn't move in that direction or we've made a different decision. And I say that because, the office space here in Scottsdale, we signed a leased prior to the Company even being public, I think we have less than 30 employees at the time what we signed this lease, we've expanded it, we've made it work as best we could, but the reality is, it really doesn't work from an employee standpoint and we were going to have to address, this real estate, going forward if in fact, we didn't make the decision we made.
So there again that is, I mean that doesn't really work as well in to this analysis. So if, what it is in terms of the numbers lease, we think we're at the high end of the range and we're determined to make it look go more efficient.
As to the individuals, we've been analyzing this for some time that the Board engaged a consulting firm associated directly with moving companies to seek advice on this, they gave us some general parameters and studied our Company as to be in the likelihood of a the capture rates so to speak or the people to move. We really bifurcated it between what I would call, talent [indiscernible] but still back office support and we have over 2,800 properties as folks know and that's a lot of back office support and that type of talent and individuals and really [indiscernible] subjective, that's not the type of position that would likely move.
So, when the consultant look at this and they gave us some parameters. I think we've been pleased with the outcome, we've got [indiscernible] of our real estate professionals, clearly the executive leadership team is sitting in this room is committed to move which is from my standpoint, obviously important.
And then we have executives from asset management and acquisitions that are committed to move and I believe at this point we're just over about half of the actual real estate talent. Again what I would consider to be real estate versus back office support talent are committed to move.
And so, that's actually a little higher than what our initial projections would be. And I would also say, I'm actually pretty pleased with the energy level and the enthusiasm of the people that are coming.
They're excited about this, it's going to be a - they're excited about what the company is doing, they're excited about the location and they're excited to be part of the beginning of putting a new culture and team together. So, so far so good, it's not easy moving a company, we put a lot of that into this, again we engaged themselves [indiscernible] in the process, who have been assisting with us and to mitigate the cost and disruption.
So, we're - that's the status where we're at the moment.
Landon Park
And then just a quick one for Phil. Just on the debt prepayments, some of that was coming out of stuff that was 2017, 2019, does that free-up certain assets that you think they are particularly marketable and the environment is that why you chose those particular pools?
Tom Nolan
So, I mean, I'm sorry, you talk about the 2016, 2017 debt maturity, the underlying assets encumbered by that debt.
Landon Park
All right. It looks like you prepaid some of like the 2017 and 2019 maturities.
I was just wondering if there was - are there's assets in those pools that, that you want to sell, is that why you maybe chose those particular pools to repay?
Mark Manheimer
So, kind of the way that we looked at what we already repaid. As we had some assets that we wanted to get to a little bit earlier, as well as the 84 Lumber had a CMBS loan, half of which was a - securitization that was held by like a hedge funds.
And we were able to buy that back at less than what the [indiscernible] was.
Operator
Our next question comes from Collin Mings of Raymond James. Please go ahead.
Collin Mings
Just following up on the prior comments, as it relates to the Dallas move. I think one of the benefits Tom that you have talked about in the past, it is potential to right size some G&A expenses.
So just maybe looking past the cost as certainly with the move. Could there be any sort of net reduction in G&A going forward?
Tom Nolan
Well, I certainly think that's our objective and now so far, it is a little early to recent inclusion, but I do think moves, if you think about a moving a house yield look at everything you got house and decide, why you bring it in with you or the process that you're bringing with you. We're looking at each of our process, we're looking in terms of the people that we have to replace it's given us an opportunity to ask ourselves whether we're doing the right things, whether we're doing the right processes whether we're doing them the most efficient way that we can do them and really a move going to create that methodic necessity to do all of that and so I do think that our current plan is that where we're likely to be able to do the same amount of work that we're doing here with probably less buying in the - now it is not material amount, but that is our current thinking at the moment.
And obviously the second piece is that some of the money that is associated with this move is that we're upgrading systems and we're getting kind of state of the art, new systems that we're putting in place that again and likely we would have been spread over time and spent over time and we're going to do it kind of all at once to create an sufficient in operations as we possibly can. So I think in that case, we're kind of front-loading the expenses that we're going to benefit moving forward.
So yes, I think that the - our judgment is that we're going to have both tangible benefits and then anything than the intangible on the harder one's right to the value, that the talent will management succession that travel quality of life and employees, traveling from Dallas, they are supposed to traveling from Scottsdale which is not an ideal places to travel from. So we look at the intangible benefits and we look at the tangible benefits.
Phil Joseph
Yes, the one thing I'll add to that is the well, just some empirical data, as we did engage Mercer to do a complete time studied across our entire population, go forward employee base in Dallas. And to Tom's point, we're not expecting a material increase, if any increasing solid related G&A.
when we've added every physician by professional or proxy organizations. So, wanted to at least like you know that we went through a thorough study in that regard as well.
Collin Mings
I think just maybe just relates these comments that just maybe help clarify, when you retain the consultants where they being advised as far as how to manage cost and manage this process or whether kind of they go no-go decision as far as the move?
Tom Nolan
Well, I think it was the Board of Directors with the ones who have the go no-go decision, they're the ones who engaged these consultants and the genesis of the word or the mandate was explained the risks and benefits to remove. What we have as the benefit of company, what are the risks associated with it, how do we mitigate the risks and how do we capture debentures?
That was the mandate that our consulting firms were given by higher board as they obsessed really the alternatives that they were looking at.
Collin Mings
And then just going back to the comment about being a net seller here in 1Q, can you quantify just maybe how much you've sold year-to-date? And just beyond Shopko, can you touch on where you really focusing the disposition efforts right now?
Phil Joseph
No, I mean we've never got in the habit of kind of providing interim statistic because first of all, it can be a little misleading as you said in the middle of the quarter and then literally somethings would be happening two days or now. So, we don't tend to do that.
I was just I think trying to give kind of a perspective on - first of all, capital things. One week or away we look at value and how to create it and also just kind of a comment on the market, the market in general I think first quarter tends to be historically slow quarter for us in acquisitions anyway, but where an interesting time where the market is a little volatile and so we were being very cautious I think in terms of the acquisitions that we're looking at.
And the ones that we've done I think we feel very, very good about and yet at the other end of the spectrum - I think you know we have a very granular efforts overall. And the 1031 market, it's on fire because of the fact that the people are talking about negative rates on the TVs.
It's really hard to find you and so we're able at this point we've got a lot of interests in some of our assets like I will give one example, I know I certainly wouldn't get the aggregate numbers, but we sell the Taco Bell, AFC happened to be in one unit profit capital and closed yesterday at a 5.7% capital and we're a seller of [indiscernible] at a 5.7% cap rate, because we're going to take that money and we're going to put it to work at a significant, in the spread differential to that. So I don't think and I mean, we try not to project further beyond and the lend that we can see in terms of what our activities, it is for the year.
So I certainly wouldn't read into whereas - what I said for the first quarter and they are all in our Tom's prognostications for the year, that's not, I would simply giving you a kind of the facts as they're still today but we like what we see in our pipeline, we like where we're buying, we're beneficious, we're confident of our cost of capital and we've got a very robust acquisition market for the type of assets we own.
Tom Nolan
Yes and I guess I would add just in terms of that, I guess, what kind of disclose are we looking at and I've always kind of put them in the four buckets, one being the obvious strategic type of dispositions which usually focused on diversification, Shopko being the obvious one, but we also what our geographic diversification in our industry diversification and there is a non-core sales which have a multi-tenant sales from the [indiscernible] a lot of different things from really three separate portfolios that are very kind of melted together, they don't really have what we consider to be core and really what a lot of what we've done in the past or what I call derisking cells which is really getting out ahead of the risk, probably that we're worried about where we think we get a better return on sale versus a default scenario and that's also includes [indiscernible] as well as removing industry exposure where we think it's a more cyclical industry. As we went through a process where we underwrote all of the assets that we, inherited and from the legacy portfolio as well as the coal portfolio and really try to figure out what assets would we buy today versus what's in the portfolio and what could we actually get, if we want absolute with that process as more or less run its course, I think when I'm more excited about doing is more of alluding to which is - are accretive sales and that's really where the 1031 market values some of our more than we do and that is typically going to be very accretive to our acquisitions and with the debt towers coming due here in 2016 and 2017 a lot of that - a lot of those assets are encumbered with that, that the CMBS that we haven't really been able to start.
And as Phil alluded to in his opening remarks, there is a lot of assets there, that don't really fit our investment philosophy that we're going to be able to reap accretively recycle and then obviously, [indiscernible] there's going to be a lot of opportunity there to accretively recycle capital.
Collin Mings
This one last one for me, just in context of the Sports Authority issues, can you just update us on your thoughts and views that relates to Academy Sports?
Tom Nolan
I'm sorry, could you repeat that?
Collin Mings
As you said it relates to the Sports Authority issues out there, can you just maybe update us on your views and thoughts on Academy Sports?
Tom Nolan
On Academy, I'm sorry. No.
They had do a very different business models - they're in the same space, I think that may really create more opportunity for Academy, they continue to accelerate their EBITDA growth, while Sports Authority obviously a struggle then. Sports Authority is a credit that we as always spared away from.
So, we don't have any for [indiscernible] in our portfolio, but we actually view the Academy trajectories likely improving with Sports Authority at a minimum eliminating opportunity to stores.
Operator
Our next question comes from Vincent Chao of Deutsche Bank. Please go ahead.
Vincent Chao
I just want to stick with the investment markets here for a second. So it sounds like the 1031 market still very strong, so cap rates not still very low there, you guys in the quarter though, the cap rates on your acquisitions a bit higher than it's been in while and just curious if the disruption that we're seeing, I mean, I would think that there would be some more opportunities, maybe some expansion cap rates, but just maybe if you give us your thoughts on that, outside of the 1031?
Gregg Seibert
Yes. I mean, I think last year, second half of the year, we start to see an uptick in cap rate mostly as you say due to a little bit of uncertainty in the capital markets, especially on the CMBS availability and the cost of that capital to a lot of our competitors and also there is a number of REITs in the marketplace, although still active, there was obviously a one large player who was not in the market.
Last year though, that's really seen by the third and fourth quarter to have an impact on the direction the cap rate. And I think so far this year we're seeing that not seen its upward - that trend at much, but we're seeing kind of stability, what we witnessed in the third and fourth quarters.
Vincent Chao
And then just maybe a couple of final questions on headquarters move Tom you mentioned the expect to get a return on that investment, I mean obviously $20 million is not very much relative to the overall company, but I'm curious how you think about returns on that given the tangible benefits that you talk about and then also how to define intangible benefits?
Tom Nolan
Yes. It's an excellent question and obviously depends on how much you allocate to intangibles.
Again, we do believe that we will have tangible benefits and that will benefit itself over time. On the intangible one, those are again hired to that, but again on our - all the employee surveys that companies do occasion and the opportunities that people have associated with their jobs that are becoming increasingly important.
And in our recruiting and hiring as we look at and bringing in younger staff, those elements are way too much higher today than they probably did a few years ago. And so from our perspective that intangible benefit in terms of just having an access to a talent that is incredibly diverse today, but not only diverse today and brought it today and what we have, but it's also in a location that by all accounts looks like we will continue to have that opportunity going forward.
I think there is a reason that I think so many jobs have migrated to Texas over the last five to 10 years. It is a job magnet and just because it offers things to companies and employees and benefit that people find important in their quality of life.
And so at one point, I'm sure we will try to do and that's a mathematical calculation when this often done, but we certainly way those intangible benefits that we hired.
Operator
Our next question comes from Vineet Khanna of Capital One Securities. Please go ahead.
Vineet Khanna
Just acquisitions during the quarter were weighted towards sale leaseback and is that due to a change in approach or is it just kind of quarter sort of came together?
Tom Nolan
I think if you look back historically which we've gone public, I think we're always at least 50%. I think the range is kind of 50% to 90% sale leasebacks.
It's obviously, our business model is financing the middle market company across to over 13 different industries mostly retail and it's very consistent with what we've done since the IPO in 2012.
Vineet Khanna
Okay. And then just staying on acquisitions, can you comment sort of quantitatively or qualitatively how spreads are today versus how they were in the fourth quarter and throughout 2015 and net spreads on your investment?
Tom Nolan
I would say, they are about the same, I mean, it may be slightly down but about the same compared to the fourth quarter. No real significant change.
Vineet Khanna
Okay. And then just finally, can you provide some additional color on the type of businesses you guys are investing in mostly and what percentage of those have located in the top and 100 MSAs?
Tom Nolan
It's not clearly MSAs, I don't have that data relatively available. I can tell you the - obviously, the hedging transaction last year was mostly all in top 20 MSAs that we did in the first part of the year that we discussed.
So, outside of that it varies. If you look at the type of industries we're financing, I mean, if you look at our list of top 13 or 14 industries currently in our portfolio, I think with a section of building materials which we're not really active in any longer.
The rest of the categories are consistent with where we're investing, quick service restaurants, convenient stores, general merchandise, grocery, fitness where all categories that we added to our portfolio around 2015 and specifically in the fourth quarter.
Operator
Our next question comes from Tyler Grant of Green Street Advisors. Please go ahead.
Tyler Grant
Couple of questions for me today, so in the fourth quarter there were 13 new vacancies in the same property pool, Haggen represented six of these, what were the other seven?
Tom Nolan
Yes. So, one of them was a property that did not renew.
And then the others were related to in which goes back to a question I answered earlier which was we had some properties that were encumbered with CMBS which we partially defused because probably they were not performing very well and we had other tenants that were interested in buying those assets. And so we partially defused their loan and sold their properties.
Tyler Grant
All right. Sure.
And then in your press release you do say you released seven of eight properties that came due which would suggest pretty good operating performance on internal growth basis, but you don't mentioned the new vacancies in the same property pool. Is there a reason that you choose to present it that way?
Tom Nolan
I mean, whether there is lease expirations and then there are to fall. I mean, that's kind of the [indiscernible] or restructuring that we had - that probably baked in and then we had a restructuring of a tenant where we ended up selling some of them we had one that was a non-renewal.
Tyler Grant
Right, sure. I guess, I'm just more saying in terms of presenting a full picture on your internal operations.
The re-leasing is one half of it, but then you also have the same property pool which you don't comment on. So I just want to understand why you do choose to not comment on that?
Tom Nolan
Yes, I think our thought is that as we choose that, I think you kind of backed into it, but I think it shows up where you've had, we show the renewals that and then the vacancy number of account.
Tyler Grant
All right. And then Spirit seems to sell more assets, vacant than to its peers, is there a reason for that.
So for example, this quarter is sold 14 assets vacant, if I were to look at it, if I'm the buyer on the other side of that transaction and I'm about to buy a property that's vacant, it would likely be because, I've got future tenant in my back pocket. So why is it that Spirit is not going out there finding that tenant before the future buyer of the property finds it and don't you think leaving economics on the table by not doing so?
Tom Nolan
Yes. So and I think there are some different schools of thought on it, but in our experience both of Spirits and other companies, we tend to find ourselves in our credit line, I mean talking that the same property repeatedly.
And whether it would be property that, we look and try to find a new tenant and so I guess, I would say we're actively most of the things that don't show off on the realized, are often times where we know that tenants are not going to renew and then we find another tenant and if we don't find a tenant before we're getting the property back or shortly thereafter. It is an adversely selected property, so in our experience when we have found another tenant down the road call it six months, 12 months, 18 months later, its usually real estate that's not very good and we end up dealing with more to defaulting and sometimes we put money into the property, then you've got some defaulting again.
And in some cases, we've had the same property coming for pipeline, you kind of watch and our thought is that, we'd rather upgrade the portfolio and start to eliminate the properties that have already been adversely selected and over time, I think that's going to improve our portfolio.
Tyler Grant
Just, so moving on to new topic, regarding your decision to relocate to Dallas, it was kind of touch upon earlier in the call, in terms of the bulk of the real estate, people have decided to relocate, but in terms of absolute numbers, the regardless of job responsibility. How many employees have decided to move and how many employees have decided not to move?
Tom Nolan
Well I think, I didn't think all of it, I think, I said about half and in terms of the real estate professionals, but at this point we've got 20 employees that are committed to move and then we've got a number of positions that are under process of being built. So we have more positions filled, there just not people whether they're moving.
So we've got, as I said 20 people committed. Well by definition, I guess there's overlap that we have closed 68 to 70 full-time employee, again almost half of those are administrative and non-real estate professionals.
Tyler Grant
And so we've talked a little bit in this call about tangible and intangible benefits being realized due to the relocation, over what time period do you expect these benefits to realize and over what time period do you think that shareholders will recoup the expense of the $20 million?
Tom Nolan
I think pretty quickly, I mean, again I don't think you can or try to put a total cost on real estate talent but one or two people can make a huge difference in terms of decisions that they make in your portfolio, again that is not a disparage the team that we have here in Scottsdale, I don't want to suggest that, but the reality is that when we're looking, we had open positions here in Scottsdale, we have the same open positions in Dallas, the reality is we're getting five greater group of individuals who are interested in the same position there and they are here. So I don't think you can underestimate, the impact of what - again our small group of employees could do for shareholder value and for this Company which is ultimately what we're in the business and so I can only expect that the returns to our shareholders, we'll where committed and this decision was made with the Company and its shareholders in mind and we expect to produce those returns for our shareholders, that they could get, it's probably and I'm not sure that would be productive, but we certainly believe that it will be there and we'll be there reasonably quickly.
Tyler Grant
And then just with the shareholders' benefit in mind, earlier in the call, you had talked about, M&A transactions or other ways there are other ways in which you could realize value for your shareholders. On that same note, is there a reason that Spirit has not opted out the provision on mute that would it able at the staggered its board without a shareholder vote?
Tom Nolan
Yes. I think we have not after that amative.
That is a decision the Board of Directors has made, it reviews Corporate Governance at least annually, if not more all of the procedures of Corporate Governance. And it believes it has - first of all, we have I think one of the best independent boards in the industry and I'm proud to be part of.
I happened to be the only non-independent member of the 9% vote today Independent executives and their collective judgments that our governance criteria today puts the Company in the best position to produce shareholder value going forward.
Tyler Grant
So, how would shareholder value potentially benefit from Spirit staggering it's Board without shareholder approval? I think if you look at it from a Corporate Governance standpoint, [indiscernible] is a good way for management and trains themselves in the case of a hostile takeover or something along those lines.
So, I'm just not clear how having that in place out shareholders?
Tom Nolan
I'm not sure I have anything to add other than what I said.
Tyler Grant
So, I'll move onto the next question. This quarter you initiated on stock repurchase program or you put one in place, it's a little bit confusing on our side in terms of what you use as guidelines to determine your capital allocation?
So, specifically, let's take an example. Let's say, cash on hands, you have the options, buyback shares, pay down debt or to go buy assets, where you look guideposts you actually look at to make that decision?
Tom Nolan
Well, I think the first thing you have to be careful if you don't have read the guideposts, those decisions of facts and circumstances driven by capital market conditions, they're driven by judgments associated with capital utilization. And I think from my perspective and I realize this as my perspective but this Company has been public for three years.
This Management team is in the essence - has been in place for three years obviously, Phil just joined us within the last year but I think our allocation of capital in terms of the decisions that we've made - when we've accessed the debt markets and in what fashion when we've accessed the equity markets? How we've recycled capital?
I think all of those decisions in hindsight have been universally perspective and applauded in many cases by the investors who watch us make those decisions. So, I think we do have a little bit of seasoned, well I think respected capital markets orientation in terms of the management being here.
And those are judgment calls in terms of what market conditions are and how we can best produce shareholder value when capital becomes available and how you spend it.
Tyler Grant
Right. But again, are there any specific guideposts you look at, so where your shares are, so for example, where your shares are trading relative to NAV or whether something is accretive on an earnings basis.
What specific guidepost you look at?
Tom Nolan
First of all, Tyler, we have other people on the queue, so I [indiscernible] have some questions here, but you hit it right in the head. When we look at it, we look at holistically, we look at it from what could be the most accretive from an AFFO per share perspective, what's going to near to our benefit from a debt to EBITDA perspective.
And we all obviously also look at our stock currency where is trading relative to NAV. We look at all of those three things.
So again, I agree with what Tom said, I mean, I think we've been a very disciplined allocator of capital and I think we're going to continue to do execute the plan in that regard.
Tyler Grant
And then one last question. What if something is earnings accretive, but NAV destructive, buying asset, so how would you view that type of...
Tom Nolan
Again, I don't think we want to speculate on that. So, not sure anyone can answer that question, but I guess I am a little NAV destructive is not something I'm quite sure or we'd even comment on to begin with, but again to dealing hypotheticals to simply just not, it's not a productive, I think you'd withdraw.
Operator
Our next question comes from Daniel Donlan of Ladenburg Thalmann. Please go ahead.
Daniel Donlan
I'll just be brief, a lot of questions have been asked today. Just wanted to dial back on the cash rent, the contractual cash rent year-over-year increase is only 0.3%, what should we expect next year, I mean is there any kind of big bumps that are once every five years, once every 10 years that we should be thinking about?
Tom Nolan
Yes. It's not and a reason, hopefully it was clear from the [indiscernible] the reason why, it was 0.3, we had to restructure at least with a one of our movie operators from a deal done back in 2005, where the ramp was just but we're, hopefully that we capture some of that percentage rent which doesn't flow through to our same store revenues calculation.
That means that is going to - you're going to see that for the next few quarters. So that will [indiscernible] the same store growth that you'll see, but we'll try to make it clear and what it looks like about that.
In general, we're - about 1% to 1.5% on average funds it is really a variable, I mean Shopko for example is 6% every three years. And so in some quarters you are going to get a big chunk of that and in some quarters you're going to get as not as much, so it will be a little bit choppy, but with 2600 properties, we know that it is smooth little bit over time and where we're very focused on the acquisitions front of trying to get our rental increases annually.
Just to try to smooth that out and helping us out with compounding.
Daniel Donlan
Yes, sorry, about that, but I should remember it to read the foot note, especially in the net lease space. So as far as what's going back to some of Tyler's questions here, the 47 properties that expired in 2015.
How many of those are renewed, how many went vacant and then how many did you - were you able to re-lease and then kind of how does that look in 2016 with the 49 that are expiring?
Tom Nolan
Yes, so I believe we renewed just under 80% of the properties that expired the past year. And 2016, always a little bit tough to predict, but they in general, they are fairly strong properties.
So we're optimistic that will be at least at our historical average of 80%.
Daniel Donlan
Okay. And then as far as [indiscernible] purposes, what should we assume in terms of the spread between acquisitions and sales, how high do you think you can get that?
Tom Nolan
It's going to be dependent on again on timing, I don't want to speak for Gregg, but we were, it was a fairly accretive, the last quarter and we do have had some pretty good accretive opportunities on the disposition side, so it's up to predict and [indiscernible] always change though, we don't want to predict too much on that front. But we do have a good chunk of the capital recycling and 2016 will be what we keep kind of in more in the accretive bucket.
Phil Joseph
But I guess, I would say and as bit a shout out to both of these gentlemen, Mark and Greg, is that when you look at the rig industry as a whole, I think we're one of the few companies that it's been able to make that consistently kind of quarter over quarter, be able to not make portfolio is the combination of being able to make portfolio enhancements. Well, you're actually improving our balance sheet and do it in an basis this is impressive trying or I think that both Greg and Mark have and work hard at - will making that relative difference between our portfolio management sales and our acquisitions continue to be accretive of the Company.
Daniel Donlan
Okay. So if I look at the fourth quarter there is like 100 basis points spread.
You're selling more investment grade, it sounds like potentially next year. Should we expect that to be higher than that or just kind of look for place order here?
Phil Joseph
Can you just ask that question?
Daniel Donlan
Yes. And that ain't getting an answer to it.
So, I'm asking that today.
Tom Nolan
I think our range has been 32 a little over a hundred. So, we probably can stick with that range despite take that somewhere.
Operator
Our next question comes from Amit Nihalani of Oppenheimer. Please go ahead.
Amit Nihalani
Just a bigger picture, has there been any changes to the watch list or anything else we should be aware of on that front?
Tom Nolan
Fortunately, the watch list got a little shorter with Haggen getting closer to resolution. And we do our watch list, I'm sure it's unique that we have delivered [indiscernible].
So, we never disclosed exactly how bigger it was, it's a little bit shorter now than it's been in the past few quarters.
Operator
Our next question comes from Rich Moore of RBC Capital Markets. Please go ahead.
Rich Moore
I think it's still morning. On the Dallas side I think if I could just to a follow-up on that, on to make sure I understand.
So, the roughly 50 people Tom, in the Company that are staying, are they being paid to $7 million in severances? Is that how that works?
Phil Joseph
Yes. I mean I think first of all, Rich, one of the mandates that the Board worked with me was that the Company spent and it got sale for a long time.
We haven't really long tenure there to be well respected and well treated if their either family position or the job related isn't transferable and so that's the approach that we have taken. And so yes, the majority of severance dollar that you see there are in fact people that will not be transfer.
And again, I was - those individuals that been great employees of the Company and we're started to lose some of them.
Tom Nolan
And it's important also to mention that a portion of that is also transitioned when business continuity. That was the clear focus of ours as well.
Rich Moore
Okay. So, I guess, I didn't understand exactly Phil, the use of the term pension and severance, I mean, retention is in what sense, what do you mean?
Tom Nolan
Retention in terms of ensuring business continuity. Right.
So we're - I mean not only we're offering employees severance when they deprived, but we're also offering them incentives to make sure that they remain here for as long as the transition requires. And to put procedures in place to make sure that and we have business continuity that's core element, obviously the transition like this.
And I would say the employees here have been fabulous they worked on that score.
Rich Moore
The other thing, the other question I have was on the theaters that you guys you read that the leases on handful of theaters, I think that and restructured the rent, can you tell us about that, what exactly happened there and how comfortable you feel with what you put into place?
Tom Nolan
Yes. So it was a tenant that have from a [indiscernible] down in 2005, the rents that they were set were extremely high, well above what we believe to the market.
And it's kind of that's really struggled ever since that deal was done, I mean they filed bankruptcy I believe in 2012 and actually kept the Master Lease so it was just lucky [indiscernible] there was a Master Lease that we're able to get assumes through the bankruptcy process, but they were subsequently bought by another operator and was held in kind of filling that subsidiary entity and without the corporate guarantee and they did not have a very good year and just weren't able to pay rent. So what we did is we set the rents down, so what they could afford which is still I think above market.
But then we also put in a percentage rent clause, so that if operations do turnaround in the future, we can recapture and sharing some of that upside, but we're extremely comfortable where we set the rent and as part of that we got a longer lease and got the corporate guarantees. And the benefits putting a substantial amount FDIs into the property.
So we feel like we fixed the problem and we don't have too many more like that, obviously that's hit the income.
Operator
Our next question comes from Ross Nussbaum of UBS. Please go ahead.
Ross Nussbaum
On the movie theater leases that you restructured were those properties that were purchased by the current management team or those legacy pre-IPO assets?
Tom Nolan
Those were the legacy assets, that were purchased back in 2005 [indiscernible] then I hear it as the last question, really that it represent a lot higher than what we were assuming, but just imagine, we think we probably stick on go-forward-basis.
Ross Nussbaum
Okay. And I might have missed this before, you're office same-store revenues were down year-over-year, can you remind me what was behind that?
Tom Nolan
Yes. That was a large part of why the same-store revenues were down because we took a big hit to the annual rent, that we received were hopeful that recoup, a lot of that and percentage rent, percentage rent doesn't flow through our same-store revenue calculations.
Ross Nussbaum
No, I was talking about the office. The office assets look like it was down 80 bips year-over-year.
Just the office?
Tom Nolan
Yes and I believe that was related to couple of our, hold on a second and this is kind of just kind of a funkier deal where we paid for some [indiscernible] a while back and it was more like a lump and so they got one when I get paid off, it was longer as rent and now the that and paid off the rent actually shows up lower, but they were any defaults or anything funky with it, the way that we book that as a rent versus income from interest.
Ross Nussbaum
Lastly, somebody asked you about your watch list. Can you quantify in anyway, like what percentage of your revenues are under, say, one in a quarter rent coverage, just give us sort of an idea of what we're talking about?
Tom Nolan
I think, we don't disclose that but that number is our renewal coverage it is a focus of ours and part of our disposition plans, that we do expect that number to that part of the portfolio that continue to decrease over time.
Operator
And this concludes our question and answer session. I would now like to turn the conference back over to Tom Nolan for any closing remark.
Tom Nolan
Thank you, operator and thank you everyone for your time, questions and interest in Spirit Realty. We believe, we had an excellent year in 2015 and we're looking forward to the future.
For those of you that are attending the Citi 2016 Global Property Video Conference in March, we look forward to see you there. Until then good morning and thank you again for your time.
Operator
The conference has now concluded. Thank you for attending today's presentation.
You may now disconnect your lines. Have a great day.