STORE Capital Corporation
Q1 2016 Earnings Call Transcript

Published: 8 May 2016

[Operator:]

Good day, and welcome to the STORE Capital First Quarter 2016 Earnings Webcast and Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Moira Conlon, Investor Relations for STORE Capital. Please go ahead.

[Moira Conlon:]

Thank you, Kate, and welcome to all of you who are joining us for today's call to discuss STORE Capital's First Quarter 2016 financial results. Our earnings release, which we issued this morning along with a packet of supplemental information, is available on our investor website at IR.STORECapital.com under News and Market Data, Quarterly Results. I am here today with Chris Volk, President and Chief Executive Officer of STORE Capital; Cathy Long, Chief Financial Officer; and Mary Fedewa, Executive Vice President of Acquisitions. On today's call, management will provide prepared remarks and will then open the call up to your questions. Before we begin, I would like to remind you that comments on today's call will include forward-looking statements under Federal Securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate, or other comparable words and phrases. Statements that are not historical fact such as statements about our expected acquisitions or our AFFO and AFFO per share guidance for 2016 are also forward-looking statements. Our actual financial condition and results of our operations may vary materially from those contemplated by such forward-looking statements. Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings, including our reports on Form 10-K and 10-Q. With that, I would now like to turn the call over to Chris Volk. Chris. Please go ahead.

[Chris Volk:]

Thank you, Moira, and good morning everyone, and welcome to STORE Capital's First Quarter 2016 Earnings Call. With me today are Cathy Long, our CFO, and Mary Fedewa, our Executive Vice President of Acquisitions. STORE began 2016 with a strong first quarter. Our quarterly pace of acquisitions continued where we left off in 2015, with STORE originating $285 million in gross investments. Our portfolio health also continued where we left off, with an occupancy rate of 99.9% and approximately 75% of the net lease contracts in which we invest assessed by us to be of investment-grade quality based upon our STORE Score rating methodology. Finally, financially our dividend payout ratio continued to approximately 67.5% of our adjusted funds from operations, serving to provide our shareholders with a well-protected dividend and a company well-positioned for long-term internal growth based on anticipated rent increases and the reinvestment of our surplus cash flows. Our funded debt-to-EBITDA on a run rate basis was about 6.2 times at the end of the quarter, with our unencumbered assets rising to approximately $1.8 billion, or close to 45% of our total gross assets. Subsequent to the end of the quarter, in late April, we closed on $300 million worth of long-term borrowings, the proceeds of which were applied to repay our unsecured credit line where the balance is $242 million at March 31, before our April acquisitions. This represented our second foray into the unsecured term debt market since we attained our investment-grade rating of BBB-minus from Fitch Ratings in the third quarter of 2015. Of the $300 million, $200 million was in the form of investment-grade, rated, unsecured 10-year notes, and $100 million was in the form of a five-year term note provided by our banking group. The term borrowings are part of a strategy to evenly ladder our term debt maturities, complement our rated master funding conduit with unsecured borrowings, minimize our exposure to floating rate borrowings, and importantly, adding to our borrowing diversity. At closing, the weighted average interest rate on the term borrowings was approximately 4.1%, which is about what we paid a year earlier for the term notes issued by our master funding conduit. For STORE, this means that the spread that we are realizing between our cash lease rates and our cost of borrowings remains about as good as we can remember for over 30 years in this business. It means that we're appropriately using our cost of capital to create value for our shareholders. Our investment spread defined as the difference between the lease rate earned on our annual investments, and the cost of long-term borrowings used to help finance those investments, stood at 3.7% in 2015 and is 3.9% so far this year. Add the lease growth rates targeted to be 1.7% annually, and the spread just gets larger. And finally, as STORE expands and continues to execute, we believe that our liability costs, like our cost to operate this platform, will become increasingly efficient as we scale the business. Now, as I have been prone to do on our quarterly conference calls, here are some statistics that are relevant to the first quarter. Our weighted average lease rate for investments made during the first quarter stood at approximately 8%. The average annual contractual lease escalation for investments made during the first quarter approximated 1.7%. The weighted average primary lease term for our first quarter investments was approximately 17 years. The median new tenant Moody's RiskCalc credit rating profile for investments made during the quarter was BA2. The median post overhead unit-level fixed charge coverage ratio was healthy at approximately 2.1-to-1 for the acquisitions that we made during the quarter. The median new investment contract rating, or STORE Score for investments made during the quarter was A1. We added 18 new customers net, and expanded our profit center assets to include five new industries. Our average new first quarter investment was made at approximately 85% of replacement cost. The proportion of revenues realized from our top 10 customers continue to be highly-diverse and actually falling slightly from the end of 2015 to under 16% of annualized rents and interest. Further, no customer was over 2.6% of our run rate rents and interest. 93% of the multi-unit investments we made during the quarter were subject to master leases, and all of the 73 assets we acquired during the quarter will deliver us with unit-level financial statements which raised our proportion of unit-level financial statement delivery by a percentage point to 97% of the properties within our portfolio. With that, I will turn the call over to Mary.

[Mary Fedewa:]

Thank you, Chris, and good morning, everyone. As Chris mentioned, our first-quarter volume was nearly $300 million, and our lease rate was 8%. We added many new customers while maintaining a strong percentage of new business from repeat customers of about 25% for the quarter. The acquisition pipeline continues to grow, and we are excited about the level of compelling investment opportunities we are seeing across a variety of industries that are consistent with our diversified portfolio. Throughout 2016, we will continue to sell selected properties, both to balance our portfolio, and opportunistically. As you saw in our press release, we've increased our acquisition guidance to $900 million, and that amount is net of any property sales. Property sales are an important tool in redeploying capital and managing risk, as well as generating gains that offset any losses we might experience. Our 2016 guidance for property sales is $60 million to $80 million. So far this year, we have sold only one property; however, we have several property sales in the pipeline. 2016 is off to a strong start. As of the end of this week, we will have funded nearly $400 million in year-to-date gross acquisitions in 47 transactions, reflecting our granular approach. With that, I'll turn the call to Cathy to talk about operating results and 2016 guidance.

[Cathy Long:]

Thanks, Mary. I'll begin my remarks today with a review of our operating results for the first quarter ended March 31, 2016. Next, I'll discuss our balance sheet and capital structure followed by our outlook and guidance for 2016. Unless otherwise noted, all results are for the first quarter ended March 31, 2016, and all comparisons refer to year-over-year periods. So, starting with revenues, total revenues increased 39% to $85.2 million for the quarter, driven primarily by the growth in the size of our real estate investment portfolio, which generated additional rental revenues and interest income. Consistent with the year-ago quarter, rental revenues made up about 95% of our total revenues, with the remainder largely attributed to interest income on mortgage loans and leases accounted for as direct financing receivables. We invested approximately $285 million in 73 properties during the first quarter. At quarter-end, our portfolio totaled $4.3 billion, representing 1,397 property locations, up from $3.1 billion in gross investment representing 1,073 property locations a year ago. The annualized base rent and interest being generated by our portfolio increased 35% to $356 million, as compared to $263 million a year ago. As Mary mentioned, the weighted average going in lease rate for real estate investments acquired during the first quarter was 8%, which is in line with the 8.1% weighted average initial cap rate we achieved for our acquisitions during all of 2015. Total expenses increased 35% to $60 million compared to $44 million a year ago. Again, the increase in expenses largely relates to the growth of the portfolio with nearly half of the increase in total expenses due to higher depreciation and amortization. For the quarter, interest expense increased 36% to $23.4 million from $17.2 million a year ago. The higher interest expense primarily reflects an increase in long-term borrowings used to partially fund the acquisition of properties for our growing portfolio. This increase was slightly offset by a decrease in the weighted average interest rate on our long-term debt. Property costs increased to $486,000 for the first quarter. About half of the increase in property costs relates to amortization expense on six new ground lease properties acquired since March 2015. Our occupancy was 99.9% at quarter-end, and we have no scheduled lease maturities during 2016. As we've said before, while we do expect to incur some property-level costs from time to time, we don't expect them to be significant. G&A expenses were $8.6 million for the first quarter compared to $6.6 million a year ago. Higher G&A expenses were primarily due to the growth of the portfolio and related staff additions, with the majority of the increase in compensation expense representing increased non-cash compensation under our performance-based equity comp plans. Still, G&A as a percentage of portfolio assets decreased to around 81 basis points on an annualized basis compared to about 86 basis points a year ago. As we've stated in the past, we do expect G&A costs will increase on an absolute basis as our portfolio grows. However, G&A as a percentage of the portfolio will decline as we benefit from efficiencies in economies of scale. Net income increased to $24.8 million for the quarter, or $0.18 per basic and diluted share, compared to $17.1 million or $0.15 per basic and diluted share for the year-ago period. Our net income for the first quarter included a loss of about $350,000 on the sale of one property. In comparison, net income for the year-ago quarter included a $1 million provision for impairment of one property. The increase in net income was primarily driven by the additional rental revenues and interest income generated by the growth in the real estate portfolio. Our strong operating results continue to deliver strong AFFO per share growth for the first quarter. AFFO increased by 41%, to $55.8 million, compared to $39.5 million for the year-ago quarter. On a per-share basis, AFFO for the quarter increased to $0.40 per basic and diluted share compared to $0.34 per basic and diluted share in 2015, an increase of nearly 18% year-over-year. For the first quarter, we declared a regular quarterly cash dividend of $0.27 per common share to our stockholders, on AFFO per share of $0.40. Our low AFFO payout ratio of just under 68% ensures a well-protected dividend and plenty of free cash flow for investment in new net lease assess. Now, I'll provide an update on our balance sheet and capital structure. As Chris will further discuss, our founding institutional stockholder, Oaktree Capital, through STORE Holding Company, completed three public offerings of STORE's common stock between February 1 and April 1 of this year, fully-exiting their position in our stock. We incurred about $800,000 in one-time regulatory and offering costs under a shareholder rights agreement related to that exit. STORE received no proceeds from those stock sales, but now enjoys a larger public float as a result. As a reminder, at year-end 2015, we paid off the outstanding balance on our unsecured credit facility with proceeds from our follow-on equity offering in December, which positioned us to begin 2016 with the full $400 million capacity available on our revolver. That capacity was unchanged as of March 31, and we had $242 million drawn on the credit facility. At the end of April, we increased our liquidity, expanding the current commitment under our credit facility from $400 million to $500 million by accessing the accordion feature. As a reminder, the accordion on our credit facility permits us to expand the facility to as much as $800 million over the term of the credit agreement, which expires in September 2019. Long-term debt outstanding at March 31 was unchanged from year-end 2015, at $1.8 billion, with a weighted average maturity of 6.5 years and a weighted average interest rate of 4.7%. Of the gross investment in our real estate investment portfolio totaling nearly $4.3 billion at March 31, approximately $2.4 billion is used as collateral for our secured debt and the remaining $1.8 billion of real estate assets are unencumbered. We measure leverage using a ratio of adjusted debt to adjusted EBITDA, and due to our high rate of growth, we look at this ratio on a run rate basis using our estimated run rate EBITDA. Based on our $4.3 billion real estate portfolio at March 31, we estimate that our leverage ratio on our run rate adjusted debt to adjusted EBITDA basis, was approximately 6.2 times. Subsequent to Q1, in April we issued an aggregate $300 million in long-term unsecured debt with a weighted average term of 8 years, at a blended rate of 4.1% at close. This new unsecured debt consisted of $200 million of privately-placed, 10-year senior notes, rated BBB-minus by Fitch Ratings, and a $100 million floating rate five-year bank term loan. The bank term loan's floating rate was effectively converted to a fixed rate through the use of interest rate swaps. Net proceeds from the issuance of this new unsecured debt were used to reduce outstanding borrowings under our credit facility and for general corporate purposes. Consistent with our stated strategy, virtually all of our borrowings are long-term, fixed-rate debt with well-laddered maturities. The five-year bank term debt we issued in April filled some capacity we had in our debt maturity schedule for the year 2021. We minimize our exposure to floating-rate debt by reducing the time between real estate acquisitions and the ultimate financing of that real estate with long-term, fixed-rate debt, thereby locking in the spread for as long as is economically feasible. Now, turning to our guidance for 2016, as Mary mentioned, today we are raising our projected 2016 annual real estate acquisition volume to $900 million from $750 million. This expected acquisition volume is net of anticipated sales in the range of $60 million to $80 million. As a reminder, AFFO per share in any period is particularly sensitive to the timing and amount of real estate acquisitions during the year, as well as to the spread achieved between the lease rates on new acquisitions and the interest rates on borrowings used to finance those acquisitions. The timing of our acquisitions for 2016 is expected to be spread throughout the year, though weighted towards the end of each quarter. Our AFFO guidance is based on a weighted average cap rate of 7.75% on new acquisitions for the remainder of the year. In addition to the timing of acquisitions, the timing and mix of debt and equity also impact our AFFO per share in any given period. While we don't give guidance on capital markets activities, our targeted leverage level is based on a run rate funded debt-to-EBITDA ratio in the range of 6 to 7 times, or roughly 45% to 50% leverage on the gross cost of our portfolio. Interest cost on new long-term debt for the remainder of 2016 is estimated based on a weighted average interest rate of 5%. G&A costs are expected to be between $32 million and $34 million for 2016, including commissions and non-cash equity compensation. Based on these assumptions, we are narrowing our previously-announced 2016 AFFO per share guidance to $1.60 to $1.63. Our AFFO per share guidance for 2016 equates to anticipated net income of $0.73 to $0.74 per share, plus $0.77 to $0.79 per share of expected real estate depreciation and amortization, plus approximately $0.10 per share related to non-cash items and real estate transaction costs. We feel very good about our results so far this year. Because it's still early in the year, we don't have full visibility as to the expected timing of acquisition activity and the related capital markets transactions that would support that activity. We'll continue to assess our outlook each quarter and update guidance as needed as we move through the year. That concludes my prepared remarks, and now I'll turn the call back to Chris.

[Chris Volk:]

Thank you, Cathy. Before returning the call over to the operator for questions, I just want to make some comments regarding the recent sales of shares in STORE by our founding institutional shareholder, Oaktree Capital. Between February 1 and April 1, Oaktree fully divested their STORE shares, selling approximately $1.7 billion in stock over a 60-day period. The Oaktree exit was the most rapid and seamless of any private equity sponsor from any REIT I'm aware of, and it was made possible by the broad investor interest in our company, and we're grateful for that. Our partnership with Oaktree to form, grow, and incubate STORE into the market-leading company we are today has been a clear highlight of all of our careers in this industry. Oaktree gave us free reign to fulfill our vision of forming a REIT designed to provide net lease solutions for middle market and larger users of single-tenant operational real estate, and at the same time, their many constructive insights helped us to refine and broaden this vision. Our relationship has been terrific, and we're thrilled to have been able to realize investment performance for them and their co-investors that exceeded our own initial estimates of what we could achieve some five years ago. Now, as a result of the sale of their shares, the Oaktree Board positions have been and will be assumed by other independent members as befits a seasoned public company. Already, two of the seats have been filled. We have temporarily reduced the Board size to eight members in our proxy statement, which means that the two Oaktree Board members in the proxy statement will likewise soon be substituted with new Board members who we are in the process of vetting. Meanwhile, these Oaktree Board members have volunteered to continue their service over the short term, as needed. It is our expectation that our Board, with the help of the nominating and governance committee, will soon fill the two Board seats sometime between our June annual meeting and August when we hold our next Board meeting. I also anticipate that we will again raise the number of Board members to nine. The most recent addition to the Board is Bill Hipp, whose nomination was placed within the proxy statement. Bill had for many years led the real estate lending group at KeyBanc and is well known in the real estate lending community. We're proud to have someone of his experience on our Board, and look forward to adding more talent that will benefit STORE and our shareholders. Now, in closing, a few statements about our broader economic environment. Recent retailer weaknesses highlighted by the insolvency of Sports Authority and Sport Chalet have given a rise to concerns regarding our broader economic environment. I personally sometimes field questions relating to the ability of middle-market companies to thrive in competitive or slow markets. We see no signs of current or pending recessionary pressures. We concluded the first quarter with an occupancy rate of 99.9%, virtually no change in the median STORE Score, close to 75% of our contracts having a STORE Score rating of investment-grade, and unchanged median unit-level fixed-charge coverage ratios. But, we were built to address tenant insolvencies and real estate vacancies, which are common across the real estate net lease industry. Tenant vacancies have always been a part of the business we're in, and are naturally annually budgeted for in our expectations of AFFO per share ranges. In constructing three successful net lease companies over the past 30 years, knowing how to manage portfolio vacancies has been one key to our success. But, this is just one of our margins of safety. We formed STORE with multiple margins of safety in mind and have detailed many of these in our quarterly presentations, our annual report, and also recently in our annual report video. The intent is always to be able to accretively deploy shareholder capital in a way that is designed to withstand recessionary pressures. So, STORE was defined to be defensive, even as we continued to deliver growth. With a strong first quarter, we're off to a good start for 2016, and with our increase in investment activity guidance for the year, we're optimistic about our 2016 prospects and our ability to add growth to 2017 and then in the future. And with that, I'm going to turn to questions, and I'll also let you know that I have with me in addition to Cathy and Mary, Mike Zieg, who runs our portfolio services, and Chris Burbach, our Chief Risk Officer, and Mike Bennett, our General Counsel. So, you have the full complement of leadership team at store to help answer any questions you have.

[Operator:]

[Operator Instructions] The first question comes from Collin Mings of Raymond James. Please go ahead.

[Collin Mings:]

Hi, good morning. I guess the first question for me, Chris, recognizing you made the comment about the overall portfolio and the environment, but just it does look like the median STORE Score dropped a notch from year-end. Can you just talk about what's driving that?

[Chris Volk:]

The answer is, if you look at the histogram, it dropped a tiny notch but it represents like literally, two-tenths of a point, percentage, in default probability. So, it's basically flat. So if you look at it on just a pure percentage basis, it'll be unchanged.

[Collin Mings:]

Okay. That's helpful. And then it does look like you have a new top ten tenant, Mills Fleet Farm. Can you just maybe touch on that deal, and kind of the opportunity there?

[Chris Volk:]

Sure. I'm going to let Chris Burbach talk about Mills. So, Chris?

[Chris Burbach:]

Hi Collin, this is Chris Burbach. How are you? Just in terms of Mills Fleet Farm, for those of you that are not familiar with the company, it's a one-stop-shop destination retailer in the upper Midwest, and was founded over 60 years ago by a pair of brothers that recently sold the company to KKR. And as part of that transaction, we bought three of their stores. The stores are very high-volume, very highly-profitable stores for the company overall. We leased the properties back over - on a 20 year master lease, and we in general, we believe strongly in the retail and experiential value proposition aspect of Mills and the markets that they address, which are we believe outside of what Amazon Prime brings to the retail environment. So, in terms of their real estate, we did a thorough job of underwriting the real estate. They are located in established destination retail trade areas, in seasoned markets, and they're surrounded by competition such as Walmart and other large retailers. And in many of those cases, Walmart followed Mills Fleet Farm into the markets and Mills continues to perform very strongly. The locations have very good highway access, there's very low retail vacancies in the area, and we believe that we have the rent that we've created and the price we paid compare favorably to the market, and we are in below replacement cost. So, we are very excited about the opportunity to add Mills as a new customer.

[Collin Mings:]

Okay. Thank you for all that detail. Just one last one from me, Mary, as you think about the acquisition environment and the deal flow, I'm just curious - as you kind of highlight you've expanded the number of industries in which your customers operate, just maybe talk a little bit more about the new opportunities you're seeing in the deal pipeline?

[Mary Fedewa:]

Yes, sure, Collin. The pipeline continues to grow. I'll remind you that the market is very large and how we address the market is on a direct calling basis, primarily. So, our pipeline actually has grown from $7.4 billion at the end of the year to $8 billion at the end of first quarter, so we're excited about that. So, we're seeing a lot of opportunities out there, and we're moving quickly through them.

[Collin Mings:]

Okay. Thanks, I'll turn it over.

[Chris Burbach:]

Collin, this is Chris. I would just add to that, to say the five industries we have, there's nothing - I mean, they're just more profit centers, and they're nothing, there's nothing that stands out. I mean, it's just you know.

[Collin Mings:]

Okay. Thanks.

[Operator:]

The next question is from Vikram Malhotra of Morgan Stanley. Please go ahead.

[Vikram Malhotra:]

Thank you, just to follow up on the Mills deal, can you maybe just disclose what the rent bumps are and the coverage?

[Chris Burbach:]

We generally don't disclose the economics or the cap rates or the lease bumps relating to specific transactions. I will say that the stores are incredibly profitable. I mean, these are some of the most high volume retail stores in the US, and this company has been successfully operating these and other stores for going on 50 years plus. So, whatever the rent bumps are, they can handle them. Assuming that we loaded them all in today and we took the rent bump in the final year and just put it on today, they would have no problems.

[Vikram Malhotra:]

Okay. And then just on the topic of some tenant bankruptcies, given the system sort of you built using STORE Scores, and just experience from other prior companies, how much of an early warning sort of, do you get, and is that just you're tracking performance and you get some early warning? And related to that, I know it's a very small part of your tenant, but I believe one of your tenants, Wright College, filed for bankruptcy. Could you just touch upon that?

[Chris Volk:]

Sure. I'll start answering the question, I'll let Mike Zieg talk about Wright in particular. But I would say that from an early warning sign, the STORE Score and tracking - I mean, if you're doing profit center properties, you almost can't do them properly unless you have the unit-level economics. I mean, you've got to know exactly how they're performing, otherwise you don't really understand the entire risk prospect. So today, the fact that we have 97% of that, so pretty impressed, then. And I think it gives us a big window into how the economy's doing, how our tenants are doing. And so, the STORE Score is actually incredibly prescient in terms of how much insight it gives us into the performance of our contracts that we're creating. Keep in mind, the STORE Score is a quantitative measure. It is not qualitative in the least. So, it's using third-party algorithms from Moody's and then sort of overlaying a very simplistic algorithm from us based upon unit-level coverages. So, things like personal guarantees, the price that we're in the real estate relative to alternative uses, other credit enhancements, deposits, none of that stuff gets weighed into that. So, when you're seeing it there's probably more qualitative stuff that's going to make the risk lower than qualitative stuff that will make the risk higher. Higher credit risk would be on the qualitative side, due to things like for-profit education, which - the transaction you mention is not for profit, but qualitative measures would be things like regulatory risk in healthcare, or other fields where you have sort of third parties that can make your life miserable. And with that, I'll just - Mike Zieg will talk about Wright College in particular.

[Mike Zieg:]

Sure, thanks. Thanks, Chris. You know, Wright College just from a high level, we only have one property, one campus in Overland Park, Kansas, and it represented 0.3% of NOI as the base rent and interest at March 31. So, it's a very small exposure. To kind of touch on vision to seeing these coming, we've actually been in continual conversations with Wright for probably about a year, now. They started struggling with some liquidity issues last spring, kind of changed their business model over the fall, and then ultimately things just didn't pan out for them and didn't have the liquidity to continue, so they filed bankruptcy just in April. The property itself, from a real estate standpoint, is well-located, very low vacancies, a lot of demand for this property in that area. And they just filed in April and we haven't even gotten the property back, and we've already had a number of serious inquiries that would like to take the building from us. So, we're pretty optimistic about the outcome, there.

[Chris Volk:]

The site is right off the highway, I guess it's 435 that runs through Overland Park, Kansas, so it's sitting there on an exit ramp, and it's astonishingly well-located. It's a very high profile site. So, we've been getting a lot of --

[Vikram Malhotra:]

And just to clarify, you said the rent, April rent you've - April and May, have you received rent for April?

[Mike Zieg:]

No.

[Chris Burbach:]

We received rent in April and then they filed bankruptcy, and so we did not receive the May rent.

[Vikram Malhotra:]

Okay. Thanks, guys.

[Operator:]

The next question is from Paul Adornato of BMO Capital Markets. Please go ahead.

[Paul Adornato:]

Thanks. On the acquisitions during the quarter, sorry if I missed that - what percent were proprietary, and what percent were from the auction market?

[Mary Fedewa:]

Yes. So, the direct business, Paul, was near 80% actually, and then the balance was on the auction marketplace.

[Paul Adornato:]

Okay. And I realized your property sales are not really large, but the properties that you're selling or plan to sell, should we expect them to be properties that have been sourced by you originally? Or, might they be more tilted towards auction market properties?

[Mary Fedewa:]

I think we'll see across the board. You know, the same ratio of how we originate probably, Paul. But, we're going to - when we sell properties there's really three primary reasons for it. One, performance issues if we see it, you know, we get the unit-level financial statements as Chris mentioned on 97%, so we have a lot of insight into that performance. Portfolio balancing, sometimes we've got to, we want to make some concentration up here and there. And then, just opportunistically, always customer-focused on the opportunistic side, but if we have a customer that is not growing or we may not have a longer-term relationship with, and someone calls and wants the property, interim calls and stuff, we're always taking a look at that as well.

[Paul Adornato:]

Okay, great. And Chris, given that you have such very long-term leases, I was wondering if you could look into your long-term crystal ball and kind of clue us in to some concerns that technology might be bringing to real estate over the very long term?

[Chris Volk:]

Well, give me - be more specific?

[Paul Adornato:]

So, I've heard you speak a little bit about drug stores, that there's a concern that mail-order will kind of take the bulk of drug sales and also, convenience stores given what's happening with Tesla and driverless cars?

[Chris Volk:]

All right. Well, I think first of all, if you're fortunate enough to be leading in that lease REIT or any finance type company and you're making long-term investments, you have to have kind of a view toward the long run of where things are going to be. So, this is not about creating a company that looks good over the next couple years, but something that's built to stand the test of time and time, having been in this industry for 30 years, I'm finding that time's creeping, creeps up on you all the time. So, if you think about things in terms of where risks lie, obviously everybody looks to retail as being susceptible to alternative modes of delivery. So, in the case of expanding into Mills for example, you're dealing with retail. On the other hand, it's experiential retail, and it's in marketplaces that are unlikely to have drones or Amazon Prime delivering assets or sales to people, which makes it relevant over the long-term, we believe. So, that would be our view of it. People may have a different view. But you know, we have a tendency not to have bank branches, because none of our younger people know where their bank branch is, and they're all banking on their phones. We do get concerned about what's going to happen with driverless car technology. I talk to people, could be anywhere from 5 years to 10 years off, either way it's short-term and the minute the first driverless car appears on the streets of New York or on the streets of California, that will be when real estate values start really changing a lot because the people - the future will be here, and people will see it. And in fact, the future sort of is here, because you can see the handwriting on the wall with the vast quantities of capital that are being directed in this area. And then, we like drug stores, but you know, one of the things about drug stores or healthcare or anything like that is that you're doing business with the government at the end of the day. So, the cost of drugs in this country and the cost of healthcare, indeed, is just exorbitantly high, and one of the things that we're going to have to do in this country is to find ways to bring costs down. And so, anybody that's involved in the chain of healthcare, whether it's in a retail chain or whether it's a delivery chain, will be susceptible to those kind of cost pressures. And so, these are things that I think everybody should think about.

[Paul Adornato:]

Great, thanks so much.

[Operator:]

The next question is from Chris Lucas of Capital One Securities. Please go ahead.

[Chris Lucas:]

Yes, hi, everybody. I guess Chris, just - you mentioned earlier the weakness in the sporting goods segment with Sports Authority, Ski Chalet, City Sports, etc., and I guess I was just curious as to the sales trends that you're seeing at your Gander Mountain stores?

[Chris Volk:]

Well, Gander did fine last year. I mean, they - basically every category was up with the exception of soft lines and footwear, and the soft lines and footwear sales were impacted just like the soft lines and footwear sales at Bass Pro, Cabela's, and a lot of other purveyors of merchandise simply because of the unseasonably warm weather, and that warm weather affected especially companies that were centered in the Midwest. So, if you look outside of that, which was predominantly weather-related, I think that they're confident in their business model going forward. When you compare them to some of the companies you're talking about from an insolvency perspective, it's just a totally different line of business entirely. So, if you're looking at Gander as a hunt-fish-camp kind of store, as opposed to selling track shorts and sticks and balls, and so they're in a completely different market. But they're a retail market, and of course they're trusting all that. And their online sales, like anybody who's got an online presence, their online sales have done fabulously well, too. So, they've had a lot of growth there.

[Chris Lucas:]

Okay, thanks. And then, just on the capital markets side, with the private placement, did you guys get pricing for a public offering or was that not even really discussed?

[Chris Volk:]

Well, on that side, you can't really do a - it's not typical to do a public offering with a single rating agency. So, you can expect us to grow our exposure to other ratings over the long term. I mean, if we're going to commit to being an investment-grade company, one doesn't do this with just one rating agency. One eventually adds other rating agencies, and of course, BBB-minus is not where you want to stop the train. So, BBB is definitely where you want to be, and of course there are a number of REITs that are higher than - a number of let lease REITs that are higher than BBB, even. But I think for us to sort of realize our full potential and to lower our cost of capital, and to gain more efficiency, and really right today we have about the highest EBITDA margin in the net lease space. I mean, but that's because our property costs are so low. But, if we can also make ourselves efficient elsewhere, then that would be terrific and that's what we plan to do.

[Chris Lucas:]

Okay. I guess which leads me to the question of the stock has been trading really well, even after Oaktree exited. Did you guys consider equity at all at this point in the capital cycle?

[Chris Volk:]

You know, I mean, we don't tend to time markets, but I would say that when Oaktree sold their stock there was a lockout, and the lockout expires in the middle of May. And we didn't want to think about breaking that.

[Chris Lucas:]

Okay. Thank you. Appreciate it.

[Operator:]

The next question is from Todd Stender of Wells Fargo. Please go ahead.

[Todd Stender:]

Hi, thanks. Maybe this is for Mary. Just wanted to get some more color on the Q1 acquisitions. You guys gave the averages for lease terms, cap rates and rent coverages. Can you give us the ranges for each of these buckets?

[Chris Volk:]

So the ranges of lease terms, the ranges of cap - I mean, we've not historically disclosed the ranges, and - a lease term of 17 years, the low term is not going to be very low. It's going to be all pretty long. And I would say sort of anecdotally, probably the lowest coverages are going to be sort of in the 150 range. And keep in mind that at FFCA, our first public company, our median fixed charge coverage ratio was like a 160. So, here our median fixed charge cover ratio with overhead is north of 2. And so, sometimes if you have somebody that's running a small property, or that's been there for a long time, you might take a lower coverage. So - and you can't - the other thing you've got to keep in mind is, coverages are not identical. So, the fixed-charge coverage ratio for early childhood education has no bearing to a fixed charge coverage ratio for somebody who's in the restaurant space. So, a lower coverage is actually more acceptable in early childhood education than a lower coverage in the restaurant space. Because you can tolerate more revenue drop than you can in the restaurant space for a higher coverage. So, I think that coverages by themselves are not wholly meaningful, which is why we give you STORE Scores, and why we're the only people who give you actually a full credit rating spectrum histogram.

[Todd Stender:]

Okay. Thanks, Chris. And how about cap rates? Would you give a range on cap rates? Because it bleeds into my next question - if your assumed cap rate for the entire year is 7.75% but you're investing it at 8%, Q1 looks like maybe it'll drop for the remainder of the year? Just want to get your thoughts and maybe some of your assumptions going forward?

[Chris Volk:]

Well, it's a little early for us to revise our cap rate expectations. One of the things that's held cap rates up for us has been that the CMBS market has been choppy. And so, if you think about sort of the broad marketplace, keep in mind that 0% of the transactions done in the net lease space don't happen with the public companies you follow. And, of the public companies you follow, only two net lease REITs have a BBB-plus credit rating. And then you have some mid-BBB players, and some low-BBB players, some non-rated payers. And then when you go outside of the public space, and you go to the private space for the 90%, a number of the people in the 90% actually have a lower cost of capital than the people in the public REIT space. So, which is why for example, people can sell off BJ's Wholesale Foods at a 5 cap, right? Because there are people out there that are willing to accept low rates of return, ergo they have a lower cost of capital. And so, these transactions from CVS Drug Stores to Walgreens to Fresnius Medical Centers, to Dollar General, Family Dollar, happen every single day with people at very, very low cap rates that would probably not be accessible to any public company that you follow. And then, you have the rest of the world, and the rest of the world is going to be looking at transactions that are going to be non-rated companies. They're generally going to find themselves in the CMBS marketplace, and if you think about that, if we have competition that's where most of our competition lies. You know? And because of that, we've been able to keep whole cap rates relatively constant, because the CMBS market has been choppy enough and that's actually worked to our advantage. If the debt markets get tighter, I could see the cap rates coming in. After all, the 10-year treasury is hovering between 170 and 180. I could see cap rates coming in easily, but we're going to try our best to sort of keep them out. In the market that we're serving, we try not to lose any business due to cap rates, so Mary's direct calling for us typically does not turn down a transaction, direct person, because of cap rate, as a rule. So, that means that we'll have some cap rates that'll be in the low 7s, and some rates, cap rates, will be a little bit north of 8%, and sort of blends out to kind of an 8% cap rate which is what you see.

[Todd Stender:]

Great. Thank you, Chris.

[Operator:]

The next question is from Craig Mailman of KeyBanc Capital Markets. Please go ahead.

[Craig Mailman:]

Hi, guys. Just a follow-up on the median STORE Score. Can you - I know it didn't move that much, but can you guys give some background on historically how that's trended quarter-to-quarter, if it bumps around like this? And second, whether that was more a function of your existing portfolio or the acquisitions in the first quarter?

[Chris Volk:]

The tiny bump of like two-tenths of one percent was mostly due to the existing portfolio, and it was due really to like, three or four credits and not like a lot of credits. And the movement was pretty subtle. You know, but when you look at the histogram, it's going to look like - it's going to shift. So, but it's nothing that I would say that we're losing any sleep about, because we're not.

[Craig Mailman:]

Okay. Then the other one, just a follow - go ahead?

[Chris Volk:]

I was going to say, if you say how is this done over time, we created the STORE Score a few years ago and I would say I'd like - it'd be better if I had like 10 years worth of history on it, and I could give you sort of a longer answer. But I would say that I would expect the STORE Score over time will be exceptionally predictive of economic cycles that you'll see, and it has to be. It's a composite of unit-level economics, and STORE - a company level EDF score, so it has to be.

[Craig Mailman:]

Okay. Well, I guess at the macro, would you expect it to deteriorate further here, given what's going on with some of the retailers and this environment?

[Chris Volk:]

In the near term, I would say no. You know. I mean, first of all we have exposure - our exposure to retail is 15%. It's less than 15%, of revenues. And virtually all the retail we have is experiential type of retail, which is pretty intentional. So, we're not like a broad sample base at all to look at retail. I mean, clearly the malls are having some issues with some of the sectors and now you've seen some of the issues relating to sporting goods. And some of the sporting goods stuff, I mean, like Sports Authority wasn't something that just happened overnight. I mean, it's something that's been building and the company's been suffering under mountains of debt for some period of time. So, I would say that even when you're looking at that, it's not all secular trends. Some of it is driven by the companies themselves, because clearly there are other people that are succeeding in the space. So, I think that - no, I don't see anything that's causing us to lose any sleep on the retail exposure that we have.

[Craig Mailman:]

Okay. And then just a follow-up to the earlier question about equity. I know you guys - I heard your comments about the lockout and all of that, and I know in general you guys are not NAV focused, but just given the premium where you guys are trading now to NAV, at least on my numbers, I guess just bigger-picture thoughts here about financing going forward, whether it makes sense to over-equitize in this environment and capture that premium relative to - I know debt is cheap, but it could just be NAV-accretive to issue equity and re-deploy?

[Chris Volk:]

Yes, well, our goal from an equitization perspective long term, and this is not - we don't play the short-term game in terms of where we think we are relative to NAV at any given time. But, our goal over the long-term period of time is to be equitized sufficiently to be able to get an investment-grade rating that's kind of going to be sort of in the strike zone of BBB flat. If you look at Realty Income, or other companies that are high quality companies, the funded debt-to-EBITDA ratio is going to be pushing 6 if you factor in preferred stock. So, we're kind of in that bandwidth right today. And I expect us to stay in that bandwidth maybe, I don't expect us to really push 7 times. We say our range is 6 to 7, but I think that we're going to keep it more modest than that. And I think that's important long-term, to keep an attractive cost of capital and to keep the risk profile of this company low, and to maximize margins of safety which I think is really important in this environment.

[Craig Mailman:]

Great, thank you.

[Operator:]

The next question is from Ki Bin Kim of Suntrust. Please go ahead.

[Ki Bin Kim:]

Thank you. So, going back to your comments about how 80% of your acquisitions were directly-sourced, just curious - how many of those deals do the people who you bought from or did a sales-leaseback with, actually shop around so that even those directly-sourced, that is actually like a market, close to market type of cap rate?

[Mary Fedewa:]

This is Mary. Well, I'll tell you what. When I say directly-sourced, so our guys, I have six of them, they have territories. They're knocking on doors, they go meet with the CEO and the CFO and they're talking about how we can add value to them, and we're creating contracts as a result and asking for cap rate and getting paid for that. I would say that these customers don't live under rocks, they know what the marketplace is. They certainly have access to all of that data, and oftentimes we will hear from them, that I know I could probably list this on the marketplace for less but I'm interested in what you offer, and I'm interested in your solutions, and I'm interested in having a long-term partner that can help me for the next 15 to 20 years.

[Ki Bin Kim:]

Okay. And maybe this is hard to answer, but if you look at the average rents for your properties, how does that compare to - would that be below, or at market, versus the market rents? Or above?

[Chris Volk:]

So, they're going to be generally at market. I mean, they're not going to be typically below market, but you're looking at investments multiple ways. So, without trying to tell you how to build a watch, you know, I mean, you have three types of properties you're doing, here. You've got your generic properties, industrial properties are generic. Gander Mountain is generic. I mean, if you rent these properties out, they can be rented to somebody that's in a completely different field and line of retail or industrial assets. And so, being in at a rent per square foot that's at or below the marketplace is really important, and so you'll see us pressure for that on those kinds of assets. And then, you have your specialty properties which would be things like restaurants, or movie theatres, or fitness centers, where you want to be in at or below replacement cost. It's so key, because if you get the properties back you don't want somebody to construct a property down the road somewhere else. Whether your rent is above or below market might depend on your cap rate versus the over cap rate. So, if we're at an 8 but the market's at a 6 or something like that, I guess our rent will be higher. But at the same time, it allows us to sort of lower the rent and sell the property if we want to, and get all of our money out of it. So, that's why it's so incredibly important to be in at or below replacement cost. And then you know, we have a handful of assets which are what I would call business-centric assets, where the real estate and the business are almost one in the same. So, think of Ski Hill. So, we've got one ski mountain that we financed here, and you're dealing with an asset that could be sold on a multiple of cash flow and you want to make sure, again, being in below replacement cost is always nice but feeling good about the industry over the long term and the multiple it can be sold at is very, very important. And so, those are the kinds of things that we do, and they're all profit-producing assets. And that's our market.

[Ki Bin Kim:]

Okay. And the last quick one, Heald College. I think you had five, at one point. Just curious, what's the latest update on that?

[Chris Volk:]

Mike Zieg, do you want to talk about it?

[Mike Zieg:]

Mike Zieg, sure. As we kind of reported earlier, we fully resolved that transaction last year, toward the end of last year. So, we sold three of the assets and re-leased two of the assets. So. We have obviously no exposure to Heald.

[Chris Volk:]

Our recovery rate on that was somewhere around 90%, but I mean, keep in mind our cap rate at the time we got the recovery it was like 9. So, because we had escalators. So, 90% of 9 is still a number. So, it gives us the ability if we wanted to sell the assets, we could sell the assets and probably book a gain that we may we actually have.

[Ki Bin Kim:]

Okay. Thank you.

[Operator:]

The next question is from Dan Donlan of Ladenburg Thalmann. Please go ahead.

[Dan Donlan:]

Thank you, and good morning to everybody there. Just wanted to touch on the college and professional schools, it looks like your exposure is 2.2%. You've lost Heald, you've had your issues with Wright now too. What is your expectation for the rest of those tenants? And then, just kind of curious, I know Heald had a very high coverage ratio before the - before what happened with the DA. Just kind of curious where Wright's coverage ratio was before they declared bankruptcy?

[Chris Volk:]

Okay. I'll turn this over to Mike Zieg to talk about the space as a whole, but Wright was not Heald. Wright had low coverages before we had issues, so it's been kind of on a group of assets we've been watching for the last year. So, there - their issues did not come as a complete shock to us at all, and I guess Corinthian didn't come as a complete shock in the sense that we knew they had regulatory issues, although their performance economically was stellar. So, but we'll talk about the space overall. And by the way, before I turn it over to Mike, time out to say, we're not doing any at this point. So, it's important to know that we're not doing any post-secondary. So, when you talk about redlining industries, we've capped our exposure at this point in terms of what we're doing. I think we're happy with what we've got and Mike will talk about that, but until you get more clarity on where the space is, we are believers in for-profit education or just post-secondary in general, because the community colleges in this country aren't sufficient to be able to educate and deliver on all the education needs that are existing in this country. But, there's a lot of regulatory issues that are facing the operators of these schools, and it gives you pause for cause. So.

[Mike Zieg:]

So, our overall exposure to post-secondary is actually a little under 3.5% rent and interest at March 31, and that would actually include Wright Career College and including Wright, it's 10 properties. Outside of Wright there's four other clients that we have, and each one of those clients is less than 1% of rent and interest at March 31. So, it's not a huge exposure and it's kind of diversified across, and they're different types of educational facilities.

[Chris Volk:]

I would say that if you look at those facilities, that spans again between some for-profit and some not-for-profit. So, probably close to half of that is going to be community colleges, which are non-profit, where you have fees coming in from the state. Close to that anyway, and then we have some of the for-profits are in the certified post-college space. So basically, they're in the Master's-Ph.D. space, and things like physical therapy, pharmacology, where jobs that people can get are pretty high and where the private pay portion from the students is incredibly high. Wright College, by the way, was a non-profit, so it just goes to show you that the issues that addressing us aren't just for-profit, non-profit, but - and then we have one school that is not a post-graduate school that's offering sort of more graphic design, culinary type stuff, and that one's in Colorado and I would say that one is doing fine. I mean, from an economic perspective, it's doing fine. It's not doing as well as it used to do, but it's doing great, and we like the real estate as well that it's in. So I mean, overall we're happy with where we are elsewhere.

[Dan Donlan:]

So no Trump Universities, I guess, Chris?

[Chris Volk:]

No, and I mean, and whereas Wright was on the watch list, I'd say that we spent time looking at the one college I'm talking about that's not offering graduate degrees, but basically we're pretty happy with the rest of the group we've got.

[Dan Donlan:]

Okay. And then shifting gears here to Gander Mountain, I was curious if you could share with us the coverage ratios there and if you can, maybe give us the STORE Score that you're currently looking at them with?

[Chris Volk:]

Yes, the problem with that is that they're a private company, and it kind of raises questions of disclosure, so I don't want to breach that confidentiality with them. I would say that on a broad basis, that we're comfortable with both the rates, both the coverages and the STORE Score.

[Dan Donlan:]

Okay. And then so, from your perspective, you did add, it looks like from the Mills Fleet Farm group, if it says it's not going to sporting goods, are you putting that into another category? Because if I add that to what you have for Gander Mountain, I'm almost at 4%. So, just where did that go in, in terms of percentage?

[Chris Volk:]

Well actually, technically, it falls into one of the five new industries that we did. So, if you look at it on a NAICS code, it ends up being --

[Mike Zieg:]

It's reported under lawn and garden equipment and supplies. So, if you look in our supplement in the top industries, you'll see that one has popped in as a new industry after the retail industry.

[Chris Volk:]

I'm not sure that's totally fair, Dan. You know, I mean, it sells everything. So I mean, it does have a sporting goods component, it does have a hunt-fish-camp component to it. It's in a market - they tend to be in markets that are smaller than where Gander would be, although like, Sportsman's Warehouse might locate in some of these kinds of markets. And they've been, they're now a public company, they've been actually doing pretty well in some of the smaller markets as well, if you follow Sportsman's. So, yes, it's a category killer. I mean, these things are big, and they sell everything.

[Dan Donlan:]

Okay. And if I look at the histogram here, it looks like that you have somewhere around $135 million of rent that are BA3 or lower. So, we're just kind of curious, I'm not privy exactly to how the STORE Score works, but what type of coverages in general would you expect to see on those properties that are within that non-rated to BA3 bandwidth? I mean, are those - in terms of four wall, are they sub-1.5? What are we looking at there?

[Chris Volk:]

So, keep in mind that in the BA3 range you're going to have some - a number - it's going to really range the whole gamut, so you're going to have 2-to-1 coverages, and 150, I mean, it's going to run the whole gamut. Because what happens is, that you'll have some tenants that rate single-B, and so the tenant might be single-B but the STORE Score might be a BA3 because the coverages are good. So, the coverage is always going to sort of push the credit up. The coverage can't take - I mean the 4 is the corporate credit rating, so one of the fallacies to the STORE Score for example is, let's say I buy an asset. Let's say I buy a Home Depot, just to pick an asset, and I pay twice what it costs to build, you know, from a replacement cost perspective. The question is, is that really an investment-grade contract? I mean, if I own the asset for twice what it costs to create, is that really, truly - I mean, clearly the payment stream is investment-grade, but it's a contract investment-grade, you know? And I don't know. So, my view on this stuff is that you want to make sure that you're in these stores for at or below replacement cost, otherwise it's hard to really have a floor of the contract being the credit rating of the company. So, you'll have some guys that are single-B. Now, if you have people that are single-B then the question is, how are they capitalized? So we have guys that are single-B that have boatloads of subordinated debt, or they have lots and lots of senior debt. We have one or two companies that are financed by various BDCs where the entire capital structure is almost all debt and almost no equity. And so, what ends up happening, is that you - from a Moody's EDF score perspective, it's going to end up looking like the corporate credit is lower, even though we are much higher on the food chain from a payment perspective and even though our stores cover the rent very highly. So, I would not be concerned with the stuff that's down in that area.

[Dan Donlan:]

Okay. Well I mean, if you have coverages that are less than 1.5 times, I'm surprised you wouldn't be concerned by that because we've obviously seen revenues peek out with a lot of companies. And then, if I go further, which thank you for the disclosure as well, on your customers, a third of your rent base has revenues less than $50 million. So, just kind of curious on those, where do you see those coverages coming out relative to the guys that are call it $50 million and above in terms of revenues?

[Chris Volk:]

I would say the histograms for the smaller operators tend to be the same as for the larger operators. We tried to do it so that the more expensive the asset is, the better the coverage. Ideally, for example, if you're doing a really large profit, if you're doing an asset that is a fancy family entertainment facility, restaurant, whatever, and it costs more money, ideally you want to have a higher coverage because the asset tends to be higher risk and you want to have less risk associated with it. I mean, I would take issue with your notion that a 150 coverage is something that I need to lose sleep over. I don't. I mean, if I have an early childhood education operator that's running five or ten stores and their coverage is 150, I'm not sure I lose a lot of sleep over that. I mean, they're drawing a salary, they're pulling out cash flow out of it. And in a 150 coverage they can lose more sales than a restaurant at 2-to-1 coverage. So, you can't - again, you can't compare. I mean, the coverages by themselves, that's why we don't give you a coverage histogram. If we thought that coverages were like important and all the same, we'd give you a coverage histogram. And we're the only guys that give you a tenant revenue histogram, we're the only guys that give you a credit histogram. So I mean, that's - you can't get it from anybody else you cover.

[Dan Donlan:]

Sure, sure. Now definitely not upset with the amount of detail you guys provide, I'm just - that's helpful. I mean, obviously I guess the stability of certain revenues relative to the rents are much different from some places versus others. But I guess as we think about going forward, how do you manage the folks that are closer down on the coverage where you're concerned about? Is that something where you, as you see them get down to 1 times, where you say, we'll take down your rent in order to keep you in the building? How do those conversations go as we get further out in this economic cycle, or is it something where you say, you know what, we feel very concerned about the market rent, let's just let them go, we'll bring somebody else in? How do those discussions go, basically?

[Chris Volk:]

Okay. Well, from an economic cycle perspective, one of the things I noted earlier is that just at a high level, we don't see sort of big signs of recession. We don't see - our numbers tend to be kind of flattish, you know? So we have some guys are up, some guys are down, the numbers tend to be flat. So, when you say this economic cycle, I would say this economic cycle isn't like a growth cycle, but that's fine. We've been - we created this company to withstand flat, flat's good, and we built this company to withstand down. So, I get questions all the time about, like well, we're worried about a recession, has it changed your underwriting criteria? The answer's no. I mean, we're writing 10- to 15- to 20-year leases. I mean really, mostly 15- and 20-year leases. So, you assume you're going to have multiple down cycles during that period of time, and that's fine. One of the things that I can say I would virtually agree with every other operator of a net lease company is, if you have a tenant having problems you don't call them up and say, can I lower your rent? I mean, that's just not what anybody does. But we do have an idea that this could be a problem, and you are thinking about what you're going to do with it, and there are all kinds of things that you can do with assets. Now, if you book assets at least rates that are above NAV, so if you book assets above the marketplace which is something that we really try hard to do, then you have lots of margin for error because you can actually lower rates and not lose any value. You can lower lease rates and sell the property and get all your money back. If we buy assets through the auction marketplace, and we win because we bid higher than anybody else, then our chances of actually - everything that can happen to you is sort of bad, you know? So if you have an issue where somebody doesn't pay you, you don't have those kind of options. We do. I mean, which is why our recovery on Heald was so high, it's why our recovery on Wright will be very high. I mean, it's something that we really focus on in terms of what our options are on pieces of property. I won't say that we'll never lose a lot of money on some property, but I'd say that our chances of losing a lot, are a lot less. For one thing the biggest exposure we have in our whole company is 2.5% of revenues. So, from a diversity perspective, we're huge. And so the whole place has been designed to do that. Now, if we see properties that are trending in ways that we feel uncomfortable with, we might sell some assets, and we've done that over the years. We've sold assets, and you'll see us this year sell $60 million, $80 million worth of assets. And when we book gains on those assets, which we are, which we will do, those gains are like a negative default rate. So, there basically are ways that you can do that. When - and you see other net lease REITs do the same thing, when they sell assets and they book some gains. It's a good thing that - we should all do this, because it sort of manages portfolio risk and is one of the great things about the business that we're in, so that rather than focusing on just Wright College in a vacuum, you can focus on holistically on the entire platform and say gee, you know, not only can these guys manage risk on Wright College, but they can also manage risk because they can generate gains on sales of properties that maybe are not the best properties, or we can sell assets that aren't the ones that we are most desirous of keeping for the long term. And how great of a business is that? And so, that's what we do.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Chris Volk for closing remarks.

[Chris Volk:]

Well, Operator, thank you very much and thanks everybody for joining me. I really appreciate it on behalf of the team. We're around if there are any questions, but we look forward to talking to you next quarter, and have a good day. Bye.

[Operator:]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.