VEREIT, Inc.
Q2 2015 Earnings Call Transcript

Published: 6 Aug 2015

[Operator:]

Good morning, and welcome to the Vereit Second Quarter 2015 Earnings and Business Update Call. At this time all participants are in listen-only mode. Later we will conduct a question and answer session. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Bonni Rosen, Director of Investor Relations at Vereit. Please go ahead.

[Bonni Rosen:]

Good morning and good afternoon everyone. Thank you for joining us today to review the Vereit's second quarter 2015 earnings and introduction of business plan. Joining me today are Glenn Rufrano, our Chief Executive Officer; and Mike Sodo, our Chief Financial Officer. Today's call is being webcast on our website at vereit.com in the Investor Relations section. There will be a replay of the call beginning at approximately 4 pm Eastern Time today. Dial-in for the replay is 1 [phone], with a confirmation code of 10069578. Before I turn the call over to Glenn, I would like to remind everyone that certain statements in this earnings and business update call, which are not historical facts, will be forward-looking. Vereit's actual results may differ materially from these forward-looking statements and the risk factors that could cause these differences are detailed in our SEC filing including the quarterly report filed today. In addition, as stated more fully in our SEC reports, Vereit disclaims any intent or obligation to update these forward-looking statements except as expressly required by law. Let me quickly review the format of today's call. First, Glenn will begin by discussing the key elements of our business plan, followed by Mike presenting our second quarter financial results. Glenn will then conclude the call with an update on our ongoing efforts to improve corporate governance. Following our formal remarks we will open the call for questions. Now I would like to turn the call over to Glenn Rufrano. Glenn?

[Glenn Rufrano:]

Thanks, Bonnie. Good morning, and thank you to everyone, for joining our call today. This is our first earnings call as Vereit. Changing our name was high on my list of priorities and establishing a fresh start. Vereit which is a blend of Veritas meaning true and REIT describes our approach towards business. Another reason and exciting change was listing on the New York Stock Exchange under the ticker VER. Joining many of our REIT peers under this distinguished exchange. Also during the past quarter we named Lauren Goldberg as our General Counsel and Will Miller as CEO and President of Cole Capital, further solidifying our senior management team. And on June 1st, the audit committee appointed Deloitte as the company's Independent Registered Public Accounts. The focus of our call today is the future. As we look ahead, I'll outline how we plan to create a foundation for growth during the next 12 to 18 months. Our growth represents our ultimate goal, we know that it has to be placed upon a sound foundation. When I talk about growth I'm referring to the ability of our operating platform to increase AFFO through proper allocation -- proper capital allocation at a competitive cost. But first, our foundation. Comprised of four pillars, identified through our business plan process. First is the construction of an enhanced real-estate portfolio, second is Cole Capital and reestablishing its brand value. Next is the balance sheet and moving towards investment grade metrics. And last, a sustainable dividend policy. To support our plan we are working towards best-in-class corporate governance which I will discuss along with board reconstitution during the latter part of this call. I'll start with more detail on the four pillars. Through a comprehensive analysis we've come to some conclusions regarding the construction of an enhanced portfolio. By an enhanced portfolio I mean one that is diverse with a proper risk return relationship. Given the beneficial size of our portfolio and our infrastructure capabilities, we've determined that continued focus on our three primary property types, retail, office and industrial provides profit diversification and sourcing optionality. Our current composition is 62% retail, with the remainder split between office and industrial. These are the ratios we consider appropriate. Our property review identified [culling] opportunities in four segments. First non-controlled joint ventures. These are joint ventures in which our partner makes operating decisions and we have reduced participation and upside. Second, flat leases. Approximately 20% of our NOI is derived from leases with no rental increases. In a rising interest rate environment we believe monetizing a percentage of these leases is appropriate. The third segment is Restaurants. The sale of a portion of our restaurant portfolio will enhance diversification by industry, tenant and then the aggregate. Last, our non-core assets, or assets that have physical location or credit concerns. As we review each asset we identified opportunities where we could reposition or upgrade certain properties through proactive asset management. In other cases an early warning will cause the asset to dissolve. Collectively we plan to reduce to exposure in these four segments by 1.8 billion to 2.2 billion by the end of 2016. Of this amount you will hear during Mike’s presentation approximately 960 million has already closed this year or is under hard contract including the first quarter dispositions. Our second pillar is restoring the brand value of Cole Capital. Cole’s brand value as an investment manager is well established in the market delivering consistent returns to our investors and building and managing strong net lease portfolios. These core elements have changed but we need to reeducate the market about these attributes and reinforce that our performance remains strong and our offerings continue to deliver the same quality results through our disciplined investment process. Our monthly capital rate continues to gradually increase and we understand that there is still work to return to our historic level of performance. Ultimately increased capital raise is tied to regaining selling agreements with some of our largest broker-dealer partners. This is taking longer as many broker-dealers we have established relationships with are again going through the entire due diligence process. The conversations we are having are encouraging and we continue to believe our efforts will bring about positive results. The third pillar is establishing investment grade balance sheet metrics. As it stands today we believe we are not far from investment grade based on the majority of our quantitative metrics. We’re focused on reducing net debt to EBITDA to six to seven times from the current 7.5 times. Maintaining a fixed rate coverage charge greater than 2.2, we currently exceed that at 2.7 times and preserving unencumbered assets greater than 60%. Our ratio is currently above that market 64.1. Given the timing of the culling process outlined we believe we can maintain and achieve our goals during 2016. Additionally we plan to improve our weighted average debt turn to five to six years from the current 4.7 years. The last pillar is establishing a sustainable dividend policy. Let me start by providing guidance for 2015. We expect a range of $0.80 to $0.83 in AFFO which includes an approximate $0.01 contribution from Cole Capital. The primary driving assumption is achieving 1.2 billion to 1.4 billion dispositions this year, taking into consideration first quarter asset sales. 960 million has already been competed or is under contract. With that in mind our Board has authorized and declared a common stock dividend of $13.25 per share for each of the third and fourth quarters of this year. This equates to an annualized dividend of $0.55 per share representing a sustainable foundation for growth for our shareholders. These four pillars will guide our operating strategy through 2016 providing a stronger more diversified portfolio. The interaction of the component outlined sets the foundation for more effective cost of capital in both debt and equity allowing us to begin increasing our asset base and AFFO. I will now turn the call over to Mike Sodo for discussion of our second quarter financial results.

[Michael Soda:]

Thanks Glenn. Thank you all for your time today. Overall we believe we had a solid quarter with AFFO in line with our expectations occupancy remaining over 98% and healthy same-store growth of 1.2%. Turning to specifics our second quarter 2015 consolidated revenue was 393.7 million on par with last quarter’s results. FFO for the quarter was $0.21 per diluted share and AFFO for the quarter was $0.22 per diluted share which excludes certain items including non-routine revenues and expenses as well as the impact of a number of non-cash items. Turning to our second quarter real estate activity, the company acquired one property totaling 2.1 million and a cash cap rate of 6.7% and three land parcels totaling 503,000. In addition the company capitalized 14.7 million of development cost and placed 7.5 million of assets in to service at an average cash cap rate of 7.3%. As Glenn mentioned earlier an important piece of our business plan is culling the portfolio to enhance diversification and improve our balance sheet metrics. During the second quarter we sold four properties and one land parcel for 81 million of gross proceeds at an average cash cap rate of 6.5% and a gain of 4.3 million. As we discussed on our last call you will see a book loss related to these asset sales because of the goodwill allocation that exists due to the company’s acquisitions of Cole real estate investments and cap rates. Subsequent to the quarter we closed on the sale of flat lease CBS portfolio for 318 million at an average cash cap rate of 6.2%. This portfolio had associated secured debt of 277 million with debt service that appropriated the rents we are receiving from the pool of assets. We also anticipate closing on an additional 291 million of sales during the third quarter. These properties are under hard contract at an average cash cap rate of 6.1%. Collectively we have already completed or firmly identified approximately 960 million of total asset sales at an average cash cap rate of 6.4%. This includes 272 million from Q1, 81 million in Q2 and approximately 609 million that has closed or is under hard contracts of June 30th. These strategic dispositions provide solid progress toward reaching our 2015 goal of 1.2 billion to 1.4 billion of sales. Taking into consideration our disposition program we evaluated our entire portfolio including the properties we intend to sell and recorded the real-estate impairment of 85.3 million in the second quarter. This amount does not include any eventual goodwill allocation which is computed when a property is sold or meet our GAAP held for sale criteria. The impairment analysis takes into account our current expectations for sale prices, but will understandably continue to be assessed and reviewed in the future. The CBS sale that I mentioned previously resulted in a gain of 8.5 million excluding goodwill and a loss of 10.1 million after the impact of goodwill allocation. Turning to the balance sheet, at the end of the quarter, we had 2.3 billion outstanding under our unsecured credit facility, which is comprised of our term loan and revolving line of credit. During the quarter, we paid down our line of credit with 884 million of cash on hand and cash from operations to reduce our net debt to EBITDA to 7.5 times and our floating rate debt from 21% to 14%. Our fixed charge coverage ratio including preferreds is 2.7 times for the quarter and our unencumbered asset ratio is 64.1%. Subsequent to the quarter and essential to our ability to execute the business plan we amended the terms of our senior credit facility. The significant terms are as follows. The minimum unencumbered asset pool requirement has been reduced from $10.5 billion to $8 billion, allowing us greater flexibility in the execution of our property disposition initiatives. In addition, the capacity on the revolving line of credit has been reduced by $300 million to $2.3 billion. As of June 30th, we had 1.3 billion outstanding on the line which leaves us with 1 billion of revolver capacity after the amendments. With that I will turn the call back over to Glenn.

[Glenn Rufrano:]

Thanks, Mike. The last major topic I will like to discuss is our ongoing efforts with respect to corporate governance beginning with our board of directors. On June 17th, we announced the further reconstitution of our board with the appointment of Mark Ordan, the company's fourth new director since April 1st. As we look to the upcoming annual shareholder meeting and the election of our board of directors, there will be additional changes, as Will Stanley and Tom Andruskevich has decided not to seek reelection. Both Will and Tom were integral to stabilizing and operating the company following the events that transpired last year. Will served as the Interim Chairman and CEO, and led the organization through the financial restatement, the process of becoming current with our SEC periodic reporting and returning to good standing with our lenders. Tom served as Interim Lead Independent Director and headed the Search for the new CEO and new Independent Board members. He also served as the Chairman of our Compensation Committee and the Nominating and Corporate Governance Committee, two very important responsibilities as the Company worked to re-establish its credibility. Will and Tom were instrumental in effecting the management and board changes necessary to stabilize the organization and set the Company's course in a new direction, as well as initiating essential changes in the management compensation and corporate governance practices. Because of their contributions, I know this was a difficult decision for each of them, but understand that they feel now is the appropriate time to step aside as the Company moves forward. On behalf of the Board I want to thank Tom and Will for their leadership and service to the Company and we wish them the very best. Last month we announced that our annual meeting of stockholders scheduled Thursday, September 29th, in New York. Stockholders will vote on the fate of directors which will now include David Henry, Vice Chairman and CEO, Kimco Realty Corporation, and Eugene A. Pinover, Of Counsel, Willkie Farr & Gallagher as well as the five current directors. I'd now like to turn to other corporate governance matters. Our board of directors is committed to ensuring that our stockholders have a meaningful voice with respect to our future direction. Accordingly today, we're announcing important changes to our corporate governance structure, these changes hold in four categories. The company opted out of MUTA and certain other Maryland takeover statutes. We adopted majority voting for electing our board of directors. We instituted a 12 month sunset provision for any future shareholder rights or [indiscernible] plan. And we also adopted proxy access, consistent with ISS guidelines. For additional details please refer to the 10-Q that we filed today. As I've mentioned before we are improving transparency through our supplemental reporting. Enhancements this quarter include a breakdown of cash NOI by property type, additional information on lease clauses in tenant expense obligations and more detailed information on our property types. We will continue to provide additional detail based on your feedback. There was a solid base in place when I joined the company with a talented team, good assets and a strong operational infrastructure. We now have the opportunity for a fresh start, represented by new name, culture and business approach. Continue our momentum that changes adopted by our board represent major steps towards establishing best in class corporate governance. With the introduction of the business plan we now have a strategy in place and we are rapidly executing. Last I would like to announce that VEREIT will be hosting its Annual Investor Day on Thursday, September 10 in New York City. Complete details will be made available next week. With that I’ll take our first question.

[Operator:]

[Operator Instructions] Our first question comes from Mitch Germain at JMP Securities.

[Mitch Germain:]

So Glenn I am curious about sales volumes I mean you already had about 1 billion, why tap it at 1.8 billion or is that just kind of the first tranche, how should we think about that?

[Glenn Rufrano:]

If we took those four segments Mitch as we look at those four segments we determined where about we should allocate the disposition process, for instance I’m going to go through each of four maybe a wrong answer but it was a long process so it should be a long answer. The first concept that we talked about are our JVs non-controls. We have sold in the second quarter one of those major JVs and the two contracts we have are on JVs, one control and one non-control that will represent about $350 million we have on our balance sheet about another 150 million to 200 million of non-control JVs. We just don’t believe that we should be subject to being promoted and we want to make decisions from own assets. So that class or that segment was easily understood, and the amount of was easily understood. The next which our flat leases and they are what they sound like. We have a number of tenant leases in here that are flat for 5, 10 and 25 years in a rising interest rate environment, it didn’t seem to be smart for us to have 20% of our NOI in that category. So we have allocated some portion of that for sale. Third, we went to restaurants, we know we have about 19% in casual dining and 9% in quick service. We should reduce some of that exposure and so we are allocating some of our sales to reduce appropriate exposures. And then last non-core, that’s an operational issue. We want to make sure we maximize the value of non-core assets and primarily non-core is defined not only as physical and locational but it’s also a question of credit leases. If we have a two year lease and we’re not sure of the credit, if we can release that at a better credit we can go from non-core to core. If we cannot we have an early warning of what we may sell. As we look through each of those four segments we concluded that 1.22 billion would get us to where we’d like to be in terms of an enhanced portfolio with all our metrics.

[Mitch Germain:]

Okay. And then -- I appreciate the answer. And then with regards to dividend Glenn, is that kind of -- is that the absolute minimum that you guys have to payout, how are you thinking about that with regards to what’s required for the company.

[Glenn Rufrano:]

It’s not a minimum, it’s not a maximum Mitch. We think about the dividend as capital in the corporation and that capital has to be used to reduce our cost of capital in total. We can allocate portions of it to our debt and in fact we think long and hard about how we can take the cash flow and pay down the debt which will reduce our cost of debt. But we also have to make sure that our cost of equity is reasonable and adequate relative to our peer group. As we thought about those two concepts we triangulated on $0.55.

[Mitch Germain:]

Got you. Last one from me, I know last quarter you had mentioned 42% of your prior capital raising broker-dealers in terms of singing up for distributing the Cole product where does that stand today?

[Glenn Rufrano:]

We actually have an updated number on that Mitch. We now have history over the last three months and as we look at the broker-dealers that are selling our product, actively selling our product that number is about 30%. So we have 30% of that number which we can tell you would be actively selling our product today.

[Operator:]

The next question is from Anthony Paolone at JPMorgan.

[Anthony Paolone:]

Thanks and good afternoon. Glenn, can you talk a little bit about as you get through this $2 billion in sales, how you fit it to playing more offence getting back into the acquisition environment the team you have to do that and how you think about equity from that point forward?

[Glenn Rufrano:]

Sure. Anthony the issue with acquisitions is flexibility on the balance sheet. We just do not have flexibility and if we were to use the balance sheet our ratios would just get out [indiscernible] Once we put our ratios back in order on the balance sheet, once again we’ll have flexibility and at the same time by enhancing our portfolio and providing a sustainable dividend we would hope our total cost of capital both debt and equity would come down to reasonable levels so we can be offensive in the marketplace. Given the plan, we think that will happen sometime in 2016. In terms of the team we have I think it's a very good team, just think about what we've done in a very short period of time. We pivoted here from on the balance sheet acquiring to disposing and we've done that to the tune of $960 million, that's a pretty good team, that's a pretty good thought process, I'm proud of everybody who took part at that. At the same time, we have to recognize that this quarter we'll be at $250 million worth of assets for the funds, in the first quarter we'll be at $245 million. So, our team is executing and they're executing on both ends.

[Anthony Paolone:]

And I just have two part question about the sales and portfolio allocation, one how much Red Lobster do you think is in that -- 1.8 billion to 2.2 billion and part two, office still on about 23% of the company. How do you think about that as you went through the exercise of where you want to be, portfolio was?

[Glenn Rufrano:]

On the second question, we've identified retail of about 62% [Technical Difficulty] and what we said is the other two split in some reasonable order. Right now, it's a little bit heavily weighted to office, whether it stays that way or we have a little more industrial, it's not going to be far from the split we have now. In terms of Red Lobster, we would expect there will be some disposition of Red Lobster, certainly in this year's 1.2 to 1.4 or next year's 1.8 to 2.2, so it's clearly should be part of the disposition process, for diversification standpoint and is part of our thinking.

[Operator:]

Our next question is from Juan Sanabria at Bank of America, Merrill Lynch.

[Juan Sanabria:]

Just hoping you can speak a little bit to the balance and kind of what you are thinking with regards to a plan for extending the term and if you have any thoughts on addressing -- it's somewhat early the 2017 unsecured maturities that's pretty chunky?

[Michael Soda:]

Obviously as we laid out balance sheet directionally where we need to go from a net debt to EBITDA perspective as well as from a weighted average maturity perspective, we get a good bit of help and availability within our line of credit with the $1.8 billion to 2.2 billion of dispositions we're projecting through the end of '16. I would couple the '17 maturities with other maturities that are coming due in the next two to three years or four years even. We really are looking at them all as a [cope] being very understanding that ultimately our goal of being in excess of five years weighted is going to necessitate at some point in the next 18 months going longer with some new issuances or revives but we don't have specific direction on the '17 but it's something that obviously we know is coming, we feel comfortable we will [solve four] ultimately.

[Juan Sanabria:]

And maybe back to Glen -- part of the process when you started reviewing that on the assets with the team in place, any thoughts on hires that you may want to make or changes and how should we think about G&A maybe both for the real-estate business and for Cole going forward?

[Glenn Rufrano:]

Let me start with the second part, we've done an analysis of our G&A and if you look at this quarter we have roughly 34 million -- half in Cole, half in real-estate, if you take the half in real-estate of about 17 and annualize that and you look at it in terms of assets, it's about 36 bps. We think that is a reasonable number in the marketplace. If you look at that number in terms of total revenues it's about 4.5%, our analysis is that it's pretty reasonable as well. So, we think we're certainly in the ballpark with our real-estate allocations. In terms of Cole, you'll notice in the supplemental that we're analyzing Cole with a number of different ratios and the ratios that we're looking at include EBITDA, that will be a key number for us, but it's key number over time, EBITDA on a quarterly basis could or could be higher or lower but over time should be standardized and we will measure our EBITDA margins relative to the service business to other businesses which will help us get a better handle on G&A. And then in terms of people, as I said, we've done a lot of work in a very short period of time here and are pleased with the folks and I can't -- there's nothing much I would like to say about that.

[Operator:]

Our next question comes from Paul Adornato at BMO Capital Markets.

[Paul Adornato:]

Can you remind us if you have a stock buyback in place?

[Glenn Rufrano:]

We do not.

[Paul Adornato:]

And what are your thoughts on that?

[Glenn Rufrano:]

We'd like to think about getting the stock up and that's probably our major thought right now.

[Paul Adornato:]

And could you provide an update on litigation and potential costs associated therein?

[Glenn Rufrano:]

I'll start on the cost, in the first quarter if you remember we identified $10 million in litigation costs. This quarter that number is close to $14 million and that’s where we say to ourselves as we sit here right now for the year our estimated is somewhere about 50 million to 55 million in litigation cost. In terms of the civil litigation, what I will do is I point out that each action in the civil litigation has been updated in the queue.

[Paul Adornato:]

Okay. And could you comment on government or regulator investigations?

[Glenn Rufrano:]

From the first quarter there is really no update at all on government or SEC investigations.

[Paul Adornato:]

Okay. And finally, can you provide a little help with respect to the accounting on the dispositions. Mike you said there is an $85 million impairment on the pool of 1.8 billion to 2.2 billion. So you would mark assets down but you never mark assets up that is you wouldn’t recognize or talk about a gain. What do you think that tool might have in terms of gains?

[Michael Soda:]

I’m not sure I am going to speak explicitly to the gains within that [indiscernible] because that is pool that exist as of today and there will be some fluidity to what ultimately is sold or not, but just to kind clarify from the onset, the $85 million of write-offs for impairments that we’re taking to the quarter, not only pertained to those pools of assets that we’re contemplating selling and the sales price is contemplated related to them it also pertains to our entire portfolio of 4,600 properties and the 19.2 billion on the balance sheet. But to your point you only really write things in one direction. We have recorded the $85 million as of June 30th as kind of fact and circumstances evolve and change and if there are any changes to the composition of that $1.8 billion to $2.2 billion of sales we will revisit that, that does exclude as I have referred to in my comments any future goodwill allocations to those properties which are ultimately considered at the point of disposition, but no, there are no gains currently on our books there will be gains within our sales but they only show up in the periods of dispositions.

[Paul Adornato:]

Okay, thanks. And maybe just one more, could you guys comment on maybe qualitatively what has gone better or worst in terms of the asset sale process than you might have thought?

[Glenn Rufrano:]

Paul as we go through the four segments I think you can recognize pretty immediately that the non-control JVs in the flat leases would be asset classes with generally lower cap rates -- our JVs even though we don’t control on them we have limited upside they are very good assets and you could see that in the sales process. So we’ve had very good reaction to our joint ventures and to the flat leases by some folks and the cap rate show that. On the restaurants, we sold some restaurants and we have sold some non-core and those assets they could be in the middle to the higher end of our ranges 6.5 to 7. We are seeing activity there too. It’s a very liquid market. I know there is questions about interest rates going up and we all suffer from trying to figure that out. But interest rates going up potentially are important but what’s more important is there is liquidity in the market and there is vast liquidity in the market today. So we’re having very good success at prices we think make sense in our disposition process today.

[Operator:]

Our next question is from Chris Lucas at Capital One Securities.

[Chris Lucas:]

Good afternoon everyone. Glenn, thanks for all of the detail here I guess on the disposition groupings the one asset grouping I didn’t hear about was the multi-tenanted group, is that an area that you’re looking at, is that not a large enough area to think through or how are you guys thinking about that group?

[Glenn Rufrano:]

We’ve got 1 million square feet there, little more than that Chris, it’s not a big group to begin with [indiscernible] are pretty good and we have a very good infrastructure to run the multi-tenanted groups. So it’s not necessarily a target for us as we speak today.

[Chris Lucas:]

Okay. And then I guess just looking at the remaining assets that are sort of on the list to be sold, maybe if you can help us to the proportion of encumbered versus unencumbered on that remaining pull?

[Glenn Rufrano:]

No, I am not sure we have that number for you, because as you could imagine if we’re ultimately thinking about 1 billion its 2 billion, we are facing potentially in the market more than that because we’re going to get some bids that we like and some bids that we don’t like. So the mixture of those two Chris is hard for us to have for you right now. Let us give there some thought and see if there is some way we can do that, it has to be ranges and I’m skeptical that we can give you numbers that could be helpful without having execution. I would tell you that we are very much pointedly looking at encumbered assets versus not. As you can see, we want to make sure that 60% number unencumbered is there so, we are keenly aware of both of those classes.

[Chris Lucas:]

And then just as you go through the overall efforts to prove the leverage metrics are there any plans to simplify the capital stack?

[Glenn Rufrano:]

I only hesitate because I think our capital stack is fine, there's some timing on debt coming due, it's our maturity -- 4.7 versus 5 to 6, that we are focused on and overtime we want to move up versus prudent. I would tell you that we believe that the asset sales program we have in place will adequately service our balance sheet here and a part of the question is will you be considering selling equity in the stack. I will tell you right now that's not something that we think is necessary, we absolutely believe that the assets sales program, especially with the beneficial cap rates we have will provide the best minimal solution to the shareholder.

[Chris Lucas:]

So, maybe just following-up on those comments, if you -- and maybe this is for Mike, I don't know, but if you take a look at sort of the most aggressive ends of the some of the guidance you've given on the cap rates that you will be getting so say 6.5% and the scale of the disposition profile, so the $2.2 billion, where does that drive your net debt to EBITDA metrics?

[Michael Soda:]

That does put us really within range of where we've established our projections, it's probably mid-range of the six to seven times.

[Chris Lucas:]

So, put you around the mid sixes?

[Michael Soda:]

Plus or minus. I mean again the composition of our sales is going to evolve over the next 18 months.

[Chris Lucas:]

Right, but on the steady state basis where does that kind of get you to?

[Michael Soda:]

I don't have the exact number in front of me but I would say Chris, in terms of the balance sheet -- the goals we have it achieves that goal.

[Chris Lucas:]

And then, I guess just on the leverage just to understand is the EBITDA that comes from Cole Capital included in your thought process at all as it comes to the leverage metrics.

[Glenn Rufrano:]

It's very small and as we're looking at it, it would have a very minimal impact.

[Chris Lucas:]

And then the last question, I appreciate all of the time here. On the expenses related to the litigation, is there a percentage of that, that is recoupable from insurance or how should we be thinking about that cash spend?

[Glenn Rufrano:]

When we -- well I've just given your number of this year Chris, of about 50 million to 55 million, we would hope and expect there would be some reimbursement through our providers. I will guarantee we're providing to our providers the information to give reimbursements, so that is part of our plan.

[Operator:]

This concludes the question-and-answer session. I would like to turn the conference back to management for closing remarks.

[Glenn Rufrano:]

We thank you everybody, for joining us today. We're excited about our fresh start and we're now off to execution. Thank you, very much.

[Operator:]

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