Nov 3, 2016
Executives
Tom Nolan – Chairman and Chief Executive Officer Jackson Hsieh – President and Chief Operating Officer Phil Joseph – Chief Financial Officer
Analysts
Rob Stevenson – Montgomery Scott Vikram Malhotra – Morgan Stanley Vineet Khanna – Capital One Securities Daniel Santos – Sandler O'Neill John Massocca – Ladenburg Thalmann
Operator
Good morning ladies and gentlemen, and welcome to Spirit Realty Capital's 2016 Third Quarter Earnings Call. At this time all lines have been placed in listen-only mode.
Please note that today's conference call is being recorded. An audio replay will be available for one week beginning at about 1:00 P.M.
Eastern Time today, or one hour after the conclusion of the call. And the webcast will be available for the next 90 days.
The dial-in details for the replay can be found in today's press release, and can be obtained from the Investor Relations section of Spirit Realty's Web site at www.spiritrealty.com. After our speakers' remarks there'll be a question-and-answer period.
[Operator Instructions] I will now turn the conference over to -- investor relations at Spirit Realty.
Unidentified Company Representative
Thank you, Operator. Hosting the call today are Tom Nolan, Chairman and Chief Executive Officer; Jackson Hsieh, President and Chief Operating Officer; and Phil Joseph, Chief Financial Officer.
During the course of this call, the Company will make forward-looking statements. These forward-looking statements are based on the beliefs or assumptions made by information currently available to us.
The Company's 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 guarantees of future performance, and some will prove to be incorrect.
Therefore actual future results can be expected to differ from expectations and those differences may be immaterial. For a more detailed description of potential risks, please refer to our SEC filings which can be found in the Investor Relations section of the Web site.
All of the information presented on this call is current as of today November 3, 2016. 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 may be found in the Company's quarterly report, which can be obtained on the Investor Relations Web site. During the prepared remarks today management will provide a review of operating results, an update on current business activities, and quarterly financial results.
Following the prepared remarks, the team will be available to take your questions. With that, I would like to turn the call over to Mr.
Tom Nolan. Tom?
Tom Nolan
Good morning. Thanks everyone for joining our third quarter 2016 earnings call.
Today, I will start with an update on Spirit and our accomplishments during the quarter. I will briefly summarize our financial performance, and take a few moments to introduce Jackson Hsieh, our President and Chief Operating Officer.
Jackson will then discuss his role and provide an update on the company's operations, including acquisition and disposition activity. Finally, Phil will provide more detail on our balance sheet, financial results, and guidance.
We will then open the call to your questions. For those of you that have followed Spirit since our IPO, you have consistently heard me present a three-point strategic plan to position the company as the best-in-class [technical difficulty] triple net REIT.
Number one: Through a combination of targeted acquisitions and aggressive portfolio management, improve our tenant quality and revenue diversification. Number two: Enhance our balance sheet, both in terms of credit metrics and selectability.
And finally, build a best-in-class management team. I'm pleased to report that the company has made substantial progress across all of these objectives during the quarter, and subsequent to quarter end.
First, we significantly enhanced our portfolio quality and revenue diversification, most notably with the recent sale of the 84 Lumber portfolio; our second largest tenant, which virtually eliminates our exposure to the cyclical home building industry, and adds to our diversification metrics. At the time of our IPO, our top two tenants represented over 35% of our revenue.
Today, our top 10 tenants represent less than 25% of our revenue. Second, we further diversified and strengthened our balance sheet and meaningfully lowered our cost of capital with the completion of our inaugural offering of senior unsecured notes in August, through which we raised $300 million, which we then used to retire a comparable amount of higher cost in flexible secured CMBS debt.
Finally, we strengthened our management team with the addition of Jackson Hsieh as our President and Chief Operating Officer. With these efforts now behind us, we are ready to capitalize on what we see as a large opportunity set within the net lease sector.
We believe that more and more companies will choose to unlock capital by selling their real estate assets, and that Spirit can be a natural partner for these companies. With our disciplined investment strategy that focuses on single tenant operationally essential real estate, we believe we can continue to significantly grow and diversify our portfolio, and generate long-term cash flow growth and appreciation for our shareholders.
Turning to third quarter results, we reported net income of $0.06 per share, and AFFO per diluted share of $0.22, which represents growth of approximately 2.6% over the prior year quarter. Phil will provide additional details on our financial results.
Let me take a quick moment to make one non-Spirit related comment. I'd like to congratulate Craig Macnab, the current CEO of National Retail Properties, and someone who I've had the pleasure of knowing for many years, on his upcoming retirement.
Craig has been a terrific steward for the company and has [indiscernible] over the last 12 years. I'd also like to congratulate Jay Whitehurst on his upcoming appointment as the new CEO of their company.
Now, I'm delighted to introduce our new President and Chief Operating Officer, Jackson Hsieh. Jackson joins us from Morgan Stanley, where he was managing director and vice chairman of the investment banking division.
When I thought about the criteria for this important position I looked for an individual who would deepen our bench of talent, and add a complementary skill set to our team. Jackson has had immense success throughout his career, not just on the transaction side, but in building and managing high performing professional teams.
Jackson will oversee credit underwriting, new investments, and portfolio and asset management. Having worked with Jackson in various capacity over the years before he joined us here, I look forward to working alongside him as we refine our investment and portfolio management strategy, and work to position this company as a leader in the net least sector.
With that, I'll turn the call over the Jackson.
Jackson Hsieh
Thanks Tom for that introduction, and good morning everyone. I'm extremely excited to be here at Spirit at this moment in time, to help be a part of growing this vibrant company.
As one of the former senior investment bankers who worked on Spirit's IPO, in 2012, I joined the company because I believe Spirit is well positioned to take advantage of a significant growth opportunity in the net lease sector. The quality and diversification of the company's tenancy and cash flows has been much improved, making Spirit a stronger company.
The company's balance sheet has come a long way in terms of debt reduction and flexibility since the 2012 IPO, and its cost of capital is significantly lower. And finally, the company has completely revamped its operations, and has a culture that is razor-focused on growth, asset management, and shareholder value creation.
I'll be working alongside Tom to find and execute the strategy, and support the efforts that are already in place at Spirit. Since I started in September, I've completed a detailed asset review of our entire real estate portfolio with our asset management team.
We are focused on enhancing the portfolio to further increase the quality of our cash flows, further diversify our tenant and industry base, and begin to accelerate growth in the years to come. As of September 30, our portfolio was 98.4% occupied, and had an average remaining lease term of 10.5 years.
46% of our normalized rental revenues were derived from mass releases, and 89% of our single tenant leases have built-in rent increases. Our cash flows remain durable and predictable.
And for the trailing 12 months our unit level rent coverage was approximately 3.0 times on those tenants that report unit financials. During the quarter, we had nine of nine tenants renew leases whose base lease term expired, the renewal rental rate for those leases with 100.7%.
Turning to acquisitions, we continue to source and close opportunities to grow our portfolio, while recycling capital and refining portfolio quality and focus due to dispositions. During the quarter, we acquired $215.9 million of acquisitions which had a weighted average cap rate of 7.5%, and a weighted average least term of approximately 15 years with annual escalators.
Additionally, approximately 65% when through sale leaseback transactions, 85% have master lease restructures, and most of the new transactions provide unit-level reporting. Our year-to-date Q3 acquisition volume is $456.5 million at a weighted average cap rate of 7.64%.
On a disposition front in the quarter, we sold 14 properties for $58 million at a going-in cap rate of 6.18%. Two properties were sold vacant for $2.1 million, and one property was a deed in lieu transaction.
Our year-to-date through Q3 disposition volume was $313.3 million at a weighted average cap rate of 6.33%. Finally, subsequent to quarter end, we're proactively negotiated an agreement with 84 Lumber, our second largest tenant, which represented 2.8% of our normalized income at the end of the third quarter, and who had a purchase option in their lease contract with us.
We recently closed on the sale of all 108 properties that 84 Lumber occupies for total proceeds of $205.7 million inclusive of a $5 million amendment fee to accelerate the timing of their purchase options from April 30, 2017 to the end of October 2016, which will be reflected in our fourth quarter results. This transaction was executed at a cap rate of approximately 8.7%.
84 Lumber had a contractual right to purchase these assets at a set price. However it was our belief that we could reinvest this capital into more attractive assets, while reducing our exposure to the cyclical homebuilding business.
While there will be some short-term delusion, eliminating the uncertainty regarding their multiple purchase options over the duration of the lease will be beneficial over the long term. Overall, we continue to make strong progress on all aspects of our strategy, and we believe Spirit is very well positioned to accelerate its growth in the coming years.
I'll now turn over the call to Phil.
Phil Joseph
Thanks, Jackson. During the third quarter we made substantial progress on positioning our capital structure to ensure prudent and accretive growth.
We now have three investment-grade ratings which enabled us to complete a de novo 144A bond offering with public registration rights. This same-day bond execution was two times oversubscribed, and is an important step towards driving shareholder value, and improving our cost of and access to capital.
In the third quarter, we maintained our disciplined capital allocation focus, while improving our capital structure efficiency. Our $300 million senior unsecured 10-year bond offering priced at a coupon of 4.45%, and was primarily used to retire $322 million of secured debt, with a weighted average coupon of 5.63%.
As previously mentioned, we continue to be a net acquirer of asset in the third quarter, as well as opportunistic on the accretive capital recycling front. During the quarter, we acquired $216 million of assets at a 7.5% cap rate, and we disposed of $69 million of assets, including assets transferred to [technical difficulty] at a 6.2% cap rate.
Lastly, on the capital allocation front, we raised approximately $45 million via our ATM program at a weighted average share price of $13.66. Heading into the end of the year, we are encouraged by our opportunities set of acquisitions and are positioning to be a net acquirer in the fourth quarter.
Despite the strategic 84 Lumber transaction as Tom mentioned, last evening we reported AFFO of $0.20 per diluted share for the third quarter, including adjustments for restructuring charges and other expenses associated with our corporate relocation. This performance represents an increase of 2.6% compared to the third quarter of 2015, the increase is primarily attributable to our disciplined capital allocation focus during the year-over-year period and moderate net acquisition activity, specifically we have significantly improved our cost to capital, having repaid and/or refinanced over $1 billion of debt during the last four quarters that had a weighted average coupon of approximately 6%.
We continue to maintain a vigilant focus on improving our cost to capital as we accretive grow and strengthen our portfolio, the means by which we seek to establish this is via continual stakeholder engagement, prudent balance sheet management and disciplined capital allocation. Total revenues for the third quarter of 2016 increased approximately 2.4% to $172.5 million compared to $168.4 million in the third quarter of 2015, primary drivers were moderate net acquisition activity during the year-over-year period and higher fee related other income which was offset by loss rent related to lease restructuring and tenant credit loss.
Same-store rent growth for the quarter when compared to the prior year third quarter increased 0.2%. Rent growth continued to be negatively impacted by legacy theater chain and casual dining investments.
In addition an investment in the C store has continued to underperform and our remediation plan is underway. While none of these tenants represent more than 1% of our annual in place rents, we continue to be proactive on the portfolio management front to maximize return on investment.
On the expense front, excluding restructuring charges and other expenses associated with our corporate relocation, included in G&A. Total expenses in the third quarter decreased by $149.9 million from $159.5 million in the same period of 2015.
Prior to the aforementioned adjustments, total expenses decreased 3% or $4.8 million from the prior year third quarter. Driving this improvement was lower non-cash impairments and lower cash interest expense, which were offset by corporate relocation and restructuring charges, with respect to run-rate G&A, excluding corporate relocation charges, severance expense and bad debt expense recorded to G&A, it represented 6.4% of total revenues for the quarter, inline with our target of at or below 7%.
We continue to make great progress on lowering our debt, cost to capital, cash interest expense decreased by approximately 17% or $8.7 million compared to the third quarter of 2015, solely as a result of our proactive secured debt liability management. In addition, our weighted average cash interest rate improved by approximately 56 basis points from the prior third quarter to 4.31%.
In terms of our financial standing, our leverage and cash flow metrics remain strong. Our third quarter reported leverage at 6.2 times improved by a 1.6 times from the prior third quarter period.
We would expect leverage to moderate for the remainder of the year and expect to end the year at or below 6.3 terms. Our fixed charge coverage also notably improved at 3.5 times, compared to 2.9 times in the prior third quarter.
With respect to access to capital, our de novo bond offering puts us on a solid path to strategically access capital more efficiently. Our unencumbered asset base continues to grow at stood $4.9 billion or approximately 58% of our real-estate investments an increase of $1.9 billion from the prior third quarter.
On a liability management front, since the end of prior third quarter, we have extinguished approximately $1 billion of high coupon secured debt, included in this debt retirement is approximately $56.3 million of resolved defaulted loans that transitioned to deed in lieu. Total cash costs related to this early debt retirement of debt approximated $31 million or 3.1% of the principal amount of the debt that was retired, we have addressed all of our scheduled 2016 maturities excluding approximately $28.6 million of defaulted loans transitioning to debt for variance.
Furthermore as of today, our remaining 2017 debt maturities are manageable currently approximating only $203 million and a weighted average interest rate of 5.84%. Our strong corporate liquidity positions us well for prudent and accretive growth, as of September 30, we had $105 million drawn on our $800 million unsecured line of credit, currently we have approximately $30 million in unrestricted cash and cash equivalents on our balance sheet and approximately $772 million available under our line of credit.
In addition, we have approximately $30 million of liquidity available in our 1031 Exchange and Master Trust Notes release accounts that are available to fund real estate investments. During the quarter we declared dividend to common stockholders of $84.6 million which represented an AFFO payout ratio of 78% compared to $75 million representing an AFFO payout ratio of 78% in the comparable period a year ago.
In conclusion, during the quarter we made significant progress improving our capital structure and our access to institutional capital, as I stated last quarter, we are committed to maintaining our investment discipline to drive prudent growth over the long-term. We are maintaining our 2016 AFFO per share guidance range of $0.87 to $0.89 per common share.
In addition, we are introducing our 2017 AFFO guidance range of $0.89 to $0.91 per share embedded in our 2017 AFFO growth range are the following key assumptions. No equity issuance, no incremental proceeds from the Haggen settlement, $250 million of net acquisitions, contractual lease escalation of 1.3% on non-expiring leases, 85% rent recovery on expiring leases, refinancing 2000 debt maturities at a conservative interest rate of 4.7% all result in us achieving a midpoint in guidance, upside to the midpoint guidance are additional acquisitions ongoing portfolio management activities and out performance on capital markets execution.
With that, we will be happy to take your questions.
Operator
[Operator Instructions] Our first question is from Rob Stevenson with Janney.
Rob Stevenson
Good morning, guys. Jackson, I mean as you look through the portfolio that you put there, the supplemental shows 41 vacant assets with 10 held for sale, means that the other 31 -- are those likely to be sold or are there some re-tenanting options there, how should we be thinking about that?
Jackson Hsieh
How are you? Nice to meet you by the way.
Of that 31, I would say that there is a number that will be re-lap [ph] probably the majority, some will be sold, and there is still -- there will be a few that are a very small percentage that will be longer to take -- just too longer to be re-leased to be sold.
Rob Stevenson
Okay. And then Tom, question for you.
So the '17 guidance at this point is up just a tad, and I know that management teams are relative -- usually relative conservative at this point in the year, but how does that feed into the expectation for the dividend when the Board meets again? You guys have been raising it pretty regularly for the first quarter.
Is this level of AFFO growth likely to allow you to be able to continue to grow the dividend? Do you pause along the dividend growth for now?
How should we be thinking about that?
Tom Nolan
Sure. Good morning.
As to the dividend, as you have said, the company in the fourth quarter has consistently, since we have been public, looked at the dividend and in every case has raised the dividend modestly. I think companies get credit for being consistent in their performance, both in terms of growth and dividend expectations.
You can't presuppose the dividend declaration, as you know, but I would think that given the history that we have developed to-date and the growth that we have that you know, when the time comes in the fourth quarter for us to review the dividend policy, it will likely potentially reach the same conclusion that we have in the past, again because I think steady dividend performance, reliability on that topic is important for long-term shareholder appreciation.
Rob Stevenson
Okay. And then one last for Phil, what are you assuming in terms of the dilution on the redevelopment of the 84 Lumber proceeds?
Phil Joseph
It's probably approximating something on the order of a penny.
Rob Stevenson
Okay. All right, guys, thanks.
Tom Nolan
You're welcome.
Operator
The next question is from Vikram Malhotra of Morgan Stanley.
Vikram Malhotra
Thank you. And congrats Jackson on a new role, we certainly miss you at our next lease conference as a Morgan Stanley participant, but look forward to you being as a Sprit participant so, but congrats on a new role.
Jackson Hsieh
Thank you.
Vikram Malhotra
I wanted to just start up with a clarification on some of the assumption on guidance, Phil I may have missed it, but could you give us net acquisition number and I think is this sort of incremental sort of the components?
Phil Joseph
From a net acquisition perspective what we are assuming in our guidance is disclosed in our prepared remarks is $250 million of net acquisitions.
Vikram Malhotra
Okay. That's great.
And that's -- is that that sort of bake in anything large that you are contemplating in terms of disposition, any specific asset classes you can call out, because obviously just relative to trend on a net basis that's at least very -- a different somewhat we've seen in this past year.
Phil Joseph
I'll take the first part of that and I'll turn it over to Jackson. One of things that we've been communicating with the market consistently regarding our 2017 debt towers is that those are assets that were encumbered, and those came over to us thinking actually with the co-merger.
Lot of the tenancy in those assets is very strong credit related tenancy and there is continues to be a very vibrant 1031 market I'm sure you are aware of. And from a disposition perspective if there is opportunities for us to accretively recycle capital for assets that we feel are mispriced or assets that are not part of our core operating strategy we are going to hit that bid in that market.
So the fact that we now have approximately $4.9 billion of encumbered real estate assets now Jackson has the ability to be able to accretively cycle out of certain assets that have those characteristics that I mentioned.
Vikram Malhotra
Okay. And just related to that Jackson your comment around moving this to higher -- to more quality, more credit would be helpful if you can just elaborate on that?
Jackson Hsieh
Sure. So I am 60 days on the job, but as you know if you look at the year to date dispositions, the team basically came out with the plan that looks flat leases as an opportunity of asset to sale.
So, assets that might be short term or at risk potentially or assets where we saw declining unit coverage as a potential target, so as we disclosed we sold something in the order of $313 million year to date and you have this statistics on the cap rate. But to give you an idea of what sort of a feel for what happened in the third quarter we sold a Kentucky Fried Chicken franchise store in area that was about 70 miles Southwest of Atlanta, Georgia.
And it's a 1031 buyer, there was about $1.6 million size assets and sold at 5.25 cap rate. We sold a national drug store that had a lease term of less than two years at 9 cap.
We sold another pharmacy that similar at 6 cap rate with a longer lease term. So, I think one of things that we try to do as selectively look at that portfolio.
In the third quarter we sold one of the Haggen's assets. It was a Gelson's in Laguna Beach and that property sold for approximately 19.7 million in the third quarter at a 3.92 cap rate and that worked out to be $571 a square foot on a 18.67 square foot lease.
And just want to know on Haggen just a spend a minute there, we signed three PSA on three of the four vacant properties at this point or what we believe are pretty good prices relative to where we initially thought allocated values were. And we signed another Albertson's store at a five in a quarter cap rate with a buyer.
And so we're selectively going through the Haggen's portfolio. These are very low cap rate assets that are not really the typical 1031 buyer because of the magnitude of the dollars size.
As you know the 1031 market is really liquid from the $1 million to $4 million size transaction. So one of the short of it is we're trying to creatively work through the portfolio.
And just the headlines, you might have asked the question, I did have a chance to look at every property with a team over the last four weeks and sort of property-by-property. We've come up with our ranking system for those properties based on corporate coverage, unit coverage, lease term, demographic income population, market rent versus current rent, that the real estate grade in effect is it in a hard corner with national tenants or is it back behind a shopping mall with bad access and visibility, and we sort of looked at the geography size of the market, and then put a weight on industry and we sort of have a point of view on that.
And along of the short of that was basically, not surprising, we end up with a portfolio were 20% of our 2,600 plus properties define a sort of Fortress properties. The next 70% defined as really steady Eddie, really durable, really good quality and I'd say the 10%, the remaining I wouldn't call them watch list type properties, but properties that we're sort of looking at very carefully just given some of the criteria that we have sort of put the screen over.
So to give you some color so, on that Fortress asset quality, we have a Home Depot and home in California. I just grew up near that area as a kid.
This property has 480,000 residents within a five mile radius of the property, household income of 89,000, but as of a lease term of 4.2 years left, but it's -- we believe one of the strongest performing Home Depots in the country. We rate that property Number One by the way in terms of real estate score.
To give you another example what's in the middle, we have a regal movie theater in Woodstock Georgia, and that property has a five mile population of 152,000, household income 73,000, at a three real estate grade, really good property solid, weighted-average lease term of 13 years and then you might wonder what's on the bottom in terms of the bottom 10%, just to pick a name. We have a dollar store that has 13 years left on a lease.
It's in a rural Oklahoma location, five mile radius. There's 5,000 people basically live in the area and income down in the 35,000 range.
The real estate grade on that was like a three, but that type of property kind of ended up in our bottom section. So we're going through the property and we coming up the plans, but I think that we're going to continue on to look at the portfolio disposition opportunities as they relate to that strategy if we think that there's opportunities to monetize some of these things at a premium price.
Vikram Malhotra
Great, and that's really helpful. And so thanks for the added disclosure.
I really appreciate that.
Tom Nolan
Thank you.
Operator
The next question is from Vineet Khanna at Capital One Securities.
Vineet Khanna
Yes, hi, good morning. Thanks for taking my questions.
Can you provide some additional color on how the error in the allocation of goodwill was discovered and then sort of how broad of a review of the accounting policies and procedures was undertaken and the result?
Phil Joseph
Sure, I'll take that question. The way that the disclosure and the goodwill issue came up is that we had a new concurring audit partner come on to our count from EY, and during his customary review of the financials, the partner concluded that we were not properly allocating goodwill in connection with certain property dispositions.
We've obviously re-filed all the required financial statements related to the issue, we've actually also tested our internal controls in this regard with our outside consulting firm that does our internal audit for us, and we fully remediated the goodwill issue that you are asking about. Now from a go-forward standpoint as a company I am very confident in our accounting team, a team that we built here in Dallas.
And as it relates to a broader review of the accounting policies and procedures I don't see that being necessary. I mean we have a strong accounting team in place, we have a long standing relationship with EY and again these things come up, it's unfortunate that it did but we quickly found the issue at hand and remediated it very quickly as evidence by the time it took for us to re-file these financial statements.
And I think I covered all your questions.
Vineet Khanna
Yes, sure. And then as it pertains to the sort of headquarters move, is anything still being run at a start sale and then can you provide an update on how hiring is progressing in Dallas?
Phil Joseph
Sure, I will take that. I think we are fully staffed here in Dallas.
Scottsdale office is closed and we are actually at a terrific open house here about a month ago to introduce the company to both the Dallas community in general. We scheduled it commensurate to simultaneously with the ULI session that was here in Dallas that we had a constituency of the real estate professionals that were able to join us.
So I think the punch line is that the move is now complete, the organization chart is complete, and the Scottsdale operation has been shut down and the lease has been terminated and we are up and running.
Vineet Khanna
Okay, great. And then just lastly, it looks like you sold a couple of Walgreens during the quarter, did you guys see any sort of impact to cap rates from the noise around the Walgreens deal?
Jackson Hsieh
No, not really, to be honest with you, I mean this year as you know, well actually don't know so I will tell you, we sold 53 Walgreens stores this year, year-to-date and we haven't really seen pricing impact, and I think Right As right now for the right type of size and lease duration, people are still pretty aggressively find these kinds of properties.
Vineet Khanna
Okay, great. Thanks for the time.
Operator
[Operator Instructions] Next question is from Daniel Santos of Sandler O'Neill.
Daniel Santos
All right. Hey, good morning everyone.
Thanks for taking my question. My first question is about acquisitions and dispositions.
Is there any way you can give us some more color on timing and cap rates on acquisitions and dispositions?
Jackson Hsieh
The easy answer I guess is no in terms of -- first of all, I think you can look at the number; we look at it as a ratable number. So we are providing a net acquisition number for the quarter, I think you can look at that as ratable during the course of the year.
And I think as in terms of acquisitions and disposition cap rates, I mean we have had a pretty consistent track record I think at this point in over the last 12 to 18 months. We have seen some tightening of cap rates and we are looking at the whole spectrum of asset acquisitions.
I think I commented on this last call, we are focused in quality assets that have a lower cap rate through, our range is in the sixes up until high sevens and it tends to net out as it has over the last couple of quarters and around 7.5. As I have made this comment before, that tends to be very mix related, it could move 200 basis points where our acquisition criteria really hasn't changed but rather the mix has and so I think in any given quarter you could see that move a couple hundred basis points, again and it really doesn't reflect a change in investment strategy, it just has to be a mix issues.
We have proven to be a creative recycler, the cap rates for the assets notwithstanding the 84 Lumber sale, I mean Jackson referred to the 63 Walgreens asset.
Tom Nolan
Let me just correct that, $63 million, it was 13 Walgreens, so…
Jackson Hsieh
$63 million of Walgreens sales obviously, those have been at attractive cap rates and we have recycled that capital. One final comment on the net acquisition, our effort in this quarter and Phil and I have spent time on this, we have heard from investors alike that they would like more clarity on, our philosophy is how to those acquisition numbers and disposition numbers work into our guidance.
And what we tried to do this quarter was come up with a method of being transparent about that, while at the same time being consistent with our perspective that we have discussed many times which is that the reason we don't provide explicit acquisition guidance is we don't want to be in a position where we are held to a criteria for which we do not manage ourselves to. We manage ourselves to we sell properties when somebody is willing to pay more than it's worth, we buy property when we think we can add to our portfolio in a creative and quality basis.
We don't buy or sell to meet short term numbers. This $250 million net seemed like a very rational I think perspective to give to allow people to look at our guidance number and say okay, I understand how they built up the guidance.
So this was again our efforts to try to be responsive to the feedback we have received from analysts and investors at the same time focusing on how we run the business.
Phil Joseph
Yes, and what I will add to that as well is that, as Tom was saying there is two things obviously that is key in the net restructure. Everybody focuses on external growth and I think what people don't focus on as much is something that we really excelled at and that's capital allocation.
Capital markets have been very volatile as we all know and it's been volatile across the whole net lease space, and we have the ability, and I am not saying we have the secret sauce but other net leases to do as well but we have the ability to when capital markets are in a state of flux take advantage of vibrant 1031 market as Jackson was alluding to, take advantage of cap opportunities in the capital markets as well. And the other thing is really the 84 Lumber, yes that was a lot of money coming back to us quickly.
We had the ability to time the closing of that transaction in connection with our capital needs and appointment. It's not as if, we didn't sit on that cash and earning nothing, we quickly repaid down borrowings that were on our corporate bank facilities, and candidly, borrowings on our corporate bank facilities that pre-funded acquisitions and I will turn this to Jackson, but the fourth quarter is typically a very active quarter for the net lease space and you guys know a lot of the transactions that are in the marketplace today and there is, our pipeline is no different than any others.
We have a lot of opportunities in our pipeline to quickly act upon but the key thing is, is that capital allocation is something that I really think is just not enough credit for the net lease factor, it's solely people focus on external growth but Jackson, maybe from a pipeline perspective he can kind of talk about those…
Jackson Hsieh
Yes, just a minute on the third quarter acquisition. So as we stated it was $215 million so the cap rate, to give you some granularity around the shape of it, it was 13 transactions in areas that we're very consistent with what we invest in sea stores, auto service, movie theaters, some car washes, QSRs, health and fitness.
So everything was kind of within what we believe are things that we think are interesting opportunities. The portfolio coverage on the acquisitions in the third quarter were over three times in terms of unit level coverage.
As we look in the fourth quarter in terms of pipeline, we have actually closed already a number of transactions and we have PSA signs a letters LOIs that candidly or probably in excess of, well excess of what we did in third quarter. And so that doesn't include any mega portfolios or anything like that, so we have been… there is a good pipeline, pretty disciplined about what we are buying and very mindful of how the assets fit within our sort of strategy on where we should be on the industry side and of course we are selling as well.
So areas I've described to you earlier where there is some areas that we can kind of improve the quality of the portfolio across those rating criteria that I mentioned earlier.
Daniel Santos
Great, thanks, I appreciate the full answer. Tom, one more question, as you think about your sort of senior team now that Jackson serve up and running, are there any other areas where you can see yourselves sort of adding to the bench?
Tom Nolan
Well, I think that we have built a terrific bench here. We just within the last two weeks have hired a new head of investor relations.
That was spot that had been open. That spot has now been filled.
And I mean Jackson one of the ancillary components or outcomes of the thorough portfolio review that Jackson talks about was one of the benefits of the deep dives so to speak was to identify the right skill set for our -- who will be our new head of asset management. And so that is a position that we will be filling.
We've got a tremendous list of candidates that…
Jackson Hsieh
Yes. We reached out and I think that timing wise you should sort of assume early part of next year is when I think we will have seat filled.
We want to get the -- before jumped in and replace Mark, I kind of want to have a feel for what the assets are in the company. We have a very good team in asset management and portfolio management.
And we try and put the right kind of person in there that sort of shares the belief that I think we should be analyzing this type of business. So we have a good list of people we've already been in contact with.
And my guess is that that process will accelerate after holidays here.
Tom Nolan
So I think the punch line is with the exception of that seat we have got a fully functional senior management team here in Dallas, looking forward to next year and beyond.
Daniel Santos
Awesome. Thanks.
That's it from me.
Operator
The next question from Daniel Donla at Ladenburg Thalmann.
John Massocca
Hi, this is actually John Massocca for Dan.
Tom Nolan
Hi.
Phil Joseph
Hello.
John Massocca
So just a question touching again on the Haggen assets, how many of those are still -- of the former Haggen assets, I should say. How many of those are still left in the portfolio at this time?
Tom Nolan
Well, it's got 13, and one is under contract operating assets, and they are under you know, Smart and Final Gelson's and Albertsons brands…
John Massocca
And you have the three under PSA that are vacant, correct still? Does that include the 13?
Okay. And so, what's the ultimate goal for the rest of that portfolio?
Is it still to sell pretty much all the remaining assets both vacant and occupied? And if so, what's kind of the timeline for exiting that portfolio?
Phil Joseph
Yes, we laid out a plan there where we intended to monetize that. That continues to be our expectation where these properties are leased most of them.
And obviously, we are focused on the vacant ones by getting those under TSA and getting them out of portfolio. Getting them out of our portfolio because they are not revenue producing.
The rest of them are revenue producing. And so, we are -- we didn't want necessarily flood the market, but these properties they are excellent properties.
There is a lot of investment interest in them. And we are going to systematically sell them.
And why are we going to do that? Because the cap rate associated with them are so attractive that we believe we can reposition that capital.
It's really -- it's no different analysis than what we do on the rest of the portfolio if somebody willing pay a cap rate for this property that allows us to invest in what we believe to be better risk adjusted returns. Jackson made reference to the one sale we had this quarter.
Obviously, had a sub 4 cap rate as the terrific execution. So, yes, we bought 20 assets.
We have been through the whole restructuring process now. We are still waiting for the final payment of the damage claim that still kind of at awaiting call to termination, but as to the 20 assets we are right where we want to be running I think a very rational process and we will be selling those over the next few months.
John Massocca
Okay, understood.
Phil Joseph
Again we specifically did not set a target date for when these would be liquidated. From our kind of experience that doesn't help on the pricing.
John Massocca
Okay, understood. And just more generally, when you look at the current portfolio, particularly with the casual dining exposure, is there anything on a tenant watch list from a credit perspective, especially given some of the bankruptcies in that space?
Jackson Hsieh
Yes, I mean I would say I went through it. And in the brands that we have and the locations that we have, we are actually pretty comfortable with them.
There is Pizza Huts and Red Lobsters and Cracker Barrels and Golden Corrals, and it's -- I am not sure we're going to be doubling the size of that group, but between that and QSR portfolio, there are pretty solid portfolios.
John Massocca
But there is nothing imminent?
Jackson Hsieh
No.
John Massocca
Okay. And then lastly, just kind of a detailed question, with that kind of other costs and G&A associated with headquarters relocation on the line item and the AFFO add-back, is that just all kind of relocation reimbursements and, as such, is that going to be de minimus on a going-forward basis or is there something else in there that we are going to keep seeing that?
Phil Joseph
Well, there are actually two components. I mean there is the restructuring line item and then there is the component that's also going through G&A.
In terms of what's going through those two line items, you know it's employee severance that we largely paid out related to those employees that did not from Scottsdale. It's also related to temporary redundant personnel in terms of when you are [technical difficulty] in Dallas right now, there's no -- there's really maybe one or two people that legacy transitionary people, but to the extent that we have redundancy in personnel in terms of on-boarding people, that expense in there.
To the extent we had duplicate cost related to our office space the portion relating to Scottsdale, is in there. And then obviously, there are cost related to relocating people.
And that's in there as well. So when you look at the quarter in terms of the amounts that we are going through the P&L, about 4.8 million went to the P&L, 3.3 million was in the restricting line and about 1.5 million was included in G&A.
John Massocca
Okay. Understood.
And then going forward, should that be kind of de minimus or is there is still some extra cost?
Phil Joseph
The amount -- yes, the amount going through G&A I mean going through the P&L is going to be I would say rather de minimus. I can't see that amount exceeding $1 million; it's probably be a little bit less than that.
John Massocca
Okay, understood. That's with me.
Thanks.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Mr.
Tom Nolan for any closing remarks.
Tom Nolan
Thank you, Operator. Thank you all for your time this morning and your interest in Spirit.
We are very pleased with our progress this quarter. And we continue to position the company for growth in the coming years.
The management team will be on the road next week in Boston and New York on a non-deal road show. We look forward to seeing some of you there.
Also, the management team does intend to host an Investor Day in the first half of next year. We will be getting the save the date notices out soon.
So with that, that concludes our comments for today. Thank you very much.
Go Cubs.
Operator
The conference is now concluded. Thank you for attending today's presentation.
You may now disconnect your lines.