VEREIT, Inc.
Q4 2015 Earnings Call Transcript

Published: 24 Feb 2016

[Operator:]

Hello and welcome to the VEREIT Q4 2015 Earnings Conference Call Webcast. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Bonni Rosen, Director of Investor Relations. Ms. Rosen, please go ahead.

[Bonni Rosen:]

Good morning, everyone. Thank you for joining us today for the VEREIT 2015 fourth quarter and yearend earnings call. Joining me today are Glenn Rufrano, our Chief Executive Officer and Mike Bartolotta, 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 this call beginning at approximately noon Eastern Time today. Dial-in for the replay is 1-877-344-7529, with a confirmation code of 10079749. Before I turn the call over to Glenn, I would like to remind everyone that certain statements in this earnings and business call update, which are not historical facts, will be forward-looking. VEREIT’s actual results may differ materially from these forward-looking statements and factors that could cause these differences are detailed in our SEC filings, including the annual 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 providing a business and operational update, followed by Mike presenting our quarterly and yearend financial results. Glenn will then discuss 2016 guidance. We will conclude today’s call by opening the line for questions. Now, I would like to turn the call over to Glenn Rufrano. Glenn?

[Glenn Rufrano:]

Thanks, Bonni. Good morning and thank you all for joining us on the call today. In 2015, we reinforced our operational and capital allocation capabilities and made significant progress towards establishing a foundation for growth, the basis of our business plan. In doing so, I’m pleased to announce that we have remediated all material weaknesses that existed as of December 31, 2014. AFFO per diluted share was just above our 2015 guidance range at $0.84. Occupancy increased during the fourth quarter to 98.6%. Same store growth increased 1.2%. And overall portfolio metrics continue to improve in line with our stated expectations. Execution of our business plan is on track. We achieved $1.4 billion of dispositions in 2015, reaching the high end of our guidance for the year and putting us more than halfway towards reaching our 2016 goal. Great progress has been made in reestablishing the brand, i.e. of Cole Capital. During the fourth quarter, Cole raised $116 million of new capital and continued to increase market share. According to Stanger, Cole rated fifth for REIT capital raised in January of 2016, up from 14 in January 2015. Our balance sheet moved towards investment grade metrics with one of the more important goals of reducing net debt to normalized EBITDA between 6 and 7 times. We are now at 7 times, having reduced debt by $2.4 billion and created $1.8 billion of capacity on our credit line to give us greater flexibility and optionality. Last was establishing a sustainable dividend policy. The board declared a common stock dividend of $13.75 [ph] per share on a quarterly basis or $0.55 annualized for the last two quarters of 2015 and again declared the same for the first quarter of 2016. Based upon the midpoint of our new guidance, this equates to a payout ratio approximating 70%. Along with the flexibility we’ve created in our balance sheet, portfolio diversification has been further enhanced. We have 4,435 properties in 49 states, 100 million square feet and 755 tenants representing 40 different industries. 42.5% of our tenants are investment grade and the portfolio has a weighted average lease term of 10.6 years. Property type diversification includes 35% retail, 26% restaurants, 16.5% industrial and 22.5% office, with our goal to decrease office below 20%. Over 30% of our 2015 dispositions were in office which has become a culling element as part of our diversification efforts. Our exposure to Red Lobster, the only tenant over 5%, decreased to 9% from 12% in the prior quarter. The range of property values within our portfolio is skewed to the smaller size with 98% of our properties below 25 million, while only 96 properties are over 25 million, providing both resilience and a broad market for dispositions. This mix enables us to sell assets such as our Red Lobsters and retail markets including 1031 exchange, individual buyers and private money managers. Turning to Cole. Equity raised for the fourth quarter was $150.2 million, including $33.8 million from DRIP, resulting in a 75% increase in new capital from the prior quarter. During the same period, the non-listed REIT industry was up only 24%. As I mentioned earlier, we continue to increase our market share. This solid and steady progress is a result of reestablishing the excellent Cole brand following the 2014 turmoil. The reemergence and resulting increase in capital raised is a function of three factors - Stability provided to Cole from VEREIT’s execution of its business plan; continued reinstatement of selling agreements, gaining new selling agreements and cultivating new producers; and business site maturity due to the expectation of CCIT II closing later this year and increased demand for our INAV offering in a changing regulatory environment. This momentum carried into January of 2016 with new capital raised of $38.3 million in monthly run rates similar to the fourth quarter. And February’s equity raise is on pace to beat January. At the same time, we are providing continuity to the Cole business by sequencing future product offerings such as the next generation of our office and industrial focused product which is now in registration. Before I turn the call over to Mike, let me touch briefly on litigations. As we’ve discussed during our November call, there was a hearing on October 27 where the court directed the class action plaintiffs to simplify and file a new complaint by December 11, 2015 to correct certain deficiencies. The class action plaintiffs did file a new complaint by the deadline and various defendants filed motions to dismiss all or part of the complaint on February 12, 2016. We await further information. Additional details regarding pending litigations can be found in our 10-K filed today. Mike will now review our financial results.

[Mike Bartolotta:]

Thanks, Glenn, and thanks all of you for joining us today. We did finish the year strong, achieving AFFO of $0.84 per diluted share for 2015. As Glenn mentioned, we have remediated all nine material weaknesses that existed as of December 31, 2014 and further, we can report today that we have no new material weaknesses as of December 31, 2015 and our Form 10-K reports a clean opinion. The remediation of our internal control environment was a major focus for the company. And these results were achieved because of our intensive efforts to ensure the reliability of our improved internal controls, the integrity of our systems and the accuracy of our financial statements. Moving on to our financial results. In the fourth quarter 2015, consolidated revenue was $383.4 million, just below last quarter’s revenue of $385 million. We reported a net loss of $192.2 million for the quarter versus a third quarter profit of $8.1 million or an increased loss of $200.3 million. However, included in the Q4 net loss were a number of non-operational charges, including $219.8 million of non-cash impairment charges, $15.3 million in a loan loss reserve relating to a prior year potential M&A related settlement, $11.3 million relating to a write-off of program development costs resulting from a slower than originally anticipated recovery of Cole, $6.4 million of write-offs of receivables related to the sale of a multitenant portfolio in 2014 and $1.7 million of severance, all of which were partially offset by an insurance recovery this quarter of $10.5 million and $44.1 million of quarterly tax benefits related to the net expenses we just talked about and a provision to return true-ups related to 2014. If you were to adjust for all of these items, you would see a relatively flat net profit from Q3. Of the impairment charges, $139.7 million are due to the write-down of goodwill and $73.7 million to the write-down of intangible asset value, both associated with the Cole Capital acquisition, while $6.4 million of the impairment charge relate to our normal quarterly review of our real estate investment portfolio. You may remember that there was a fourth quarter 2014 impairment charge related to Cole goodwill and intangible assets of $223.1 million and $86.3 million respectively. The calculation of goodwill and intangible impairments requires a number of estimates in judgments which, over time, need to be modified as tax and circumstance change or realized. With the Cole impairments, one of the major drivers in this calculation is the estimate of the speed at which Cole recovers its revenue and how the related cash flow translates into a discounted cash flow or DCF-based value. Thus, the primary reason we had an additional impairment for Cole in 2015 is that the revenue recovery, even with its acceleration in Q4 2015, is taking longer than originally estimated, which yielded a lower estimated value in 2015 versus 2014 and resulted in an additional impairment this year. FFO per diluted share for the fourth quarter was less than $0.01 versus $0.21 per diluted share in the third quarter of this year. Again, driven mostly by the impairments mentioned previously. AFFO for the fourth quarter was $0.20 per diluted share as compared to $0.21 for the third quarter. And as you know, AFFO excludes certain items including non-routine gains and expenses as well as the impact of a number of non-cash items. Moving on to G&A. G&A for the quarter was $49.2 million versus $32.8 million in the third quarter. The fourth quarter G&A includes the write-down of $11.3 million of Cole Capital program development cost that have been deemed urecoverable due to reduction of the estimate of future capital raise related to certain of the managed REITs. Real estate G&A was $16.6 million for the quarter, up from $15.8 million in Q3, mostly due to the normal Q4 compensation-related adjustments related to Q4 transactions and yearend accruals. Cole Capital G&A was $21.2 million, excluding the $11.3 million program development cost write-down, up from $17 million in Q3, mostly due to $4.2 million of non-recurring compensation-related adjustments. And if we exclude these adjustments, Cole’s Q4 G&A is flat when compared to Q3. Legal costs related to the matters arising from the audit committee investigation which are included in merger and other non-routine transaction-related expenses were $5.3 million, bringing the total of these legal costs for the year to $38.5 million, excluding any insurance recoveries and below our prior guidance range of $50 million to $55 million. In Q4, we received insurance proceeds of $10.5 million related to these matters, which are also reflected in merger and non-routine transaction-related expenses. We estimate legal costs for 2016 to be in the range of $45 million to $50 million, excluding insurance proceeds which we cannot reasonably forecast at this time. Turning to the fourth quarter real estate activity. The company acquired two FedEx distribution facilities totaling $26.1 million at an average cap rate of 7.2% that were forward commitments from 2014. The company also capitalized $4.1 million of development costs and placed $7.1 million of assets into service at an average cap rate of 7.3%. During the quarter, we sold 139 properties or $693.8 million of gross proceeds at an average cash cap rate of 7.1% and a pre-goodwill allocation gain of $22.2 million. This amount includes the $425 million previously disclosed, Red Lobster sales to Golden Gate Capital at an average cash cap rate of 7.78% and a pre-goodwill allocation gain of $20.8 million. This takes Red Lobster as a percentage of the portfolio to approximately 9% and contributes to the decrease of the casual dining segment from 19% to 16.6% which is progress against our stated diversification goals. As discussed previously, you will see on the financial statements that the total real estate gains through all dispositions will be reduced to a loss of $9.7 million because of the goodwill allocation that exists due to the company’s prior acquisitions. Total dispositions for the year totaled $1.4 billion at an average cash cap rate of 6.8% and put us in a strong position for completing the remainder of our stated goals of the business plan. And then subsequent to December 31, 2015, the company disposed the 36 properties for an aggregate gross sales price of $148.3 million at an average cash cap rate of 6.6%. Turning to the balance sheet. I’m pleased to announce that at the end of the quarter, we had just $460 million outstanding our revolving line of credit. And let me give you some perspective on what a significant accomplishment this was for the company. As of 12/31/14, we had $2.2 billion outstanding. We have now taken that down more than $1.7 billion and created $1.8 billion of capacity on our line, which gives us great financial flexibility. In addition, we reduced our secured debt over the same time period by $663 million, bringing the total amount of debt reduced in 2015 to approximately $2.4 billion. Our balance sheet metrics now have a 7 times net debt to normalized EBITDA with fixed charge coverage ratio of 2.8x, unencumbered asset ratio of over 64% and our net debt to gross assets ratio dropped to 48%. Also, our floating rate debt was reduced from 12% in the third quarter to under 6% at yearend. We believe that in our current position, we have optionality to deal with any upcoming refinancing. In addition, we plan on filing a shelf registration during the second quarter. The timely filing of our 10-K today is a key step towards that goal. And with that, I turn the call back to Glenn.

[Glenn Rufrano:]

Thanks, Mike. Our reconstituted Board of Directors, new management team and proven execution places us in a good position to achieve our goals this year. The continuation of our business plan leads to the following 2016 guidance. AFFO per share between $0.75 and $0.80 which includes $0.02 to $0.03 for Cole; dispositions for 2016 of $800 million to $1 billion which is an increase of $200 million over the $2.2 billion high end of our prior range; real estate operations with average occupancy in excess of 98% and same store rental growth approximating 1%; Cole Capital equity raise between $500 million and $800 million and $1 billion to $1.6 billion of acquisitions on behalf of the Cole REITs. The result of our business plan and guidance achieve the following by year end - an enhanced and more diversified portfolio to our culling process, continued restoration of the brand value and increased market share for Cole Capital, investment grade metrics by reaching the lower end of our net debt to normalized EBITDA target of 6x to 7x, and an ongoing and sustainable dividend at an appropriate payout ratio. We are well positioned to execute in 2016, increasing balance sheet liquidity and flexibility. With that, I’d open the call to questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Juan Sanabria with Bank of America.

[Juan Sanabria:]

Hi, good morning, guys. Thanks for the time.

[Glenn Rufrano:]

Good morning.

[Juan Sanabria:]

Just hoping you could speak a little bit about the 2017 maturities, I think it’s $1.3 billion at 2%. What are your thoughts here? When are you able to prepay? At what point does it make sense to do that? And if you could give us any sense of how the cost may shift as soon as we get closer to when those bonds mature.

[Mike Bartolotta:]

Sure. I’ll take that one. I think at this point, the prepayment penalty on it is approximately $10 million. But I think more than that, there’s going to be a negative arbitrage obviously between the current rate of 2% and depending on how we refinance it, somewhere between 3% and 4% at today’s rate. So to do it early, to do it today would potentially cost another $40 million to $50 million. So I think those are the costs that one needs to consider versus the risk of when you need to do it. I think part of our process was to get this K filed today with a clean opinion, all the material weaknesses gone. And I think now we have a runway to take a look at the whole optionality for us, whether it be term bank debts, whether we look at near investment grade. We obviously meet with the rating agencies every quarter after our meetings and at some point, we will be hoping to get improvements in that area and getting closer or eventually getting to investment grade. And then last but not least, we’ve seen some agency private placements that’s on in the industry not too long ago. So I think our optionality is vastly improved with the current filings that we’ve made and those are all things we’ll be reviewing as we progress from here.

[Juan Sanabria:]

And on the investment grade, any sense of timing? Is the litigation an issue for the rating agencies at all or how are they thinking about that?

[Glen Rufrano:]

Well, Juan, I would tell you that we are keenly aware of making sure that the rating agencies both S&P and Moody’s know how we’re doing. We actually have already scheduled meetings with them, a week from Monday, both of them. We’re happy to go down and show them each how well we are doing. We think that we know the liquidity we’ve now provided is very important. The material weakness is going away also, very important. So we’re looking forward to a very good meeting with them in a couple of weeks. When we can expect investment grade we can’t predict. We can bring our investment metrics to where we expect they should be investment grade. And as I’ve mentioned, we’ll be there this year. We have no doubt about our investment grade metrics being where they should be this year. And when I talked about U.S. grade metrics, Mike, we’re talking in the triple B area. That’s what we’re shooting for. In terms of the litigation, I don’t have an answer for that. I don’t think the rating agencies would give us an answer on that. They will evaluate us in totally both on our metrics, our behavior as a company by executing what we said we’re going to have. And we hope and expect that will be enough.

[Juan Sanabria:]

Great. And just one last quick one for me. Any estimates for CapEx just given you’ve got a significant office and industrial exposure about what you guys are penciling or how we should think about that.

[Glenn Rufrano:]

Yes. We have given a lot of thoughts. And we see CapEx between $20 million, $25 million for the year.

[Juan Sanabria:]

Thank you. Operator Thank you. And the next question comes from the Mitch Germain with JMP Securities.

[Mitch Germain:]

Good morning.

[Glenn Rufrano:]

Hi Mitch.

[Mitch Germain:]

Glenn, tell me what’s being done. I know that there has been some leadership change. What’s being done on the Cole side to refresh that brand gain confidence back?

[Glenn Rufrano:]

Bill Miller has been our leader since June of last year as the CEO of Cole. And Bill has done a terrific job. He puts new people in place on the wholesaling team and on the internal desks as well. We’re actually just about fully staffed now. The important part, Mitch, though, is as I mentioned, three areas which helped us increase from roughly 20 million a month to roughly 40 million a month. And the first is very - we, the sponsor needs to prove that it can run itself, it has a good reputation, it’s liquid. And by having our business plan, they I would say, perfected in the first year, it’s helped a lot. Secondly, as I mentioned, we have a number of agreements that were suspended that are no longer suspended. We have new selling agreements and we have lot of new producers that have come on. And the third part is running a business and not just the portfolio. And what Bill has been able to do is run a business. And by running a business, it’s not only doing well in terms of money raising for the existing product but it’s looking forward. As we mentioned, we have already filed a new product with an industrial. It’s a continuation of our business. So we created an internal view and internal culture of running a business long term, on the basis of a terrific Cole name.

[Mitch Germain:]

And when you look at the product offerings, are you guys moving now into the future into more of that NAV product. Is that going to really be the core of the business? Or you’re thinking about maybe adjusting the load on more traditional product? How should we think about the type of product you’ll be offering to the future?

[Glenn Rufrano:]

Well, we have a really nice product, INAV, out there. And as you can see, if you followed the monthly numbers, we double the volume in INAV in the fourth quarter from the third quarter from roughly $15 million to $30 million. And it is the product where we’re getting the most new producers to look and sell to their audience. What INAV has in the ability to have a series of shares as you know. And so that you can provide for an RIA [ph] as well as an investment person, that is the future. Our new offering will have an [indiscernible]. And we will be looking at a variety of shares so that we can conform to the regulatory environment. And as important, the business environment in selling appropriately priced product with adequate returns.

[Mitch Germain:]

Great. Last one for me. Actually, sorry, I have two more. One is dispositions next year. It seems like if I’m thinking about it the right way, Red Lobster is going to be about two-thirds of your target and then the rest should be mostly office. Is that how we should think about how things are stacking up right now?

[Glenn Rufrano:]

Well, I’ll go back to the segments that we talked about, Mitch, which are going to be the same with a bit of an adjustment. We have joint ventures. We still have a few joint ventures on our balance sheet. You could see we have a couple hundred million dollars that we expect to be sold flat leases, which is also an important category for us. We closed subsequently to the yearend. You saw about $140 million. $105 million was a flat lease with Wal-Mart at 5.9%. So that is still an attractive investment out there. The third category we had were restaurants. We are thinking about it a little different. That third category is really diversification of the portfolio. And the diversification that we’d like to achieve is, first, restaurant continuing. Continuing diversification primarily with Red Lobster. But also as I mentioned, we have 22.5% office. We want to bring that between 15% and 20%. So office will be also part of the culling process within that diversification concept and then non-core. So we are pretty clear and we’re exactly clear on the product that we want to sell for next year. And so now to answer your question, you’ll see Red Lobster. You’ll see Red Lobster as a significant part of the differential. If you just look at the low end of our range of 2.2 billion, we’re already at 1.6. Just take last year of what we’ve done through now we’re at 1.6. A good part of that differential, a couple 100 million could certainly be Red Lobster. But then there will be the rest of those segments that will fill that gap.

[Mitch Germain:]

So some of that expanded agreement with Golden Gate, that might flow into future years, not just all this year? Is that the way to think about it?

[Glenn Rufrano:]

Yes. As a matter of fact, we have if you remember, three different pools. And each pool is $200 million. What we suggest is that the first two pools, the 400 million, they adjust one on the market in January. And the majority of that 400 million would be sold this year in 2016. And then the remainder of those pools and the third pool would be a 2017 execution.

[Mitch Germain:]

Got you, got you. Last one for me for Mike. Other income? I don’t know if you mentioned that. I saw there was a bit of a change this quarter. Anything that’s driving that number?

[Mike Bartolotta:]

We had a ride off. That was one of the items that I mentioned, though, I didn’t say which one.

[Mitch Germain:]

So that’s flowed into other income. I got you. Okay, good. Which ride off was that one?

[Mike Bartolotta:]

That was a CAM [ph] and out of accounts receivable ride off.

[Mitch Germain:]

Okay. And I think you said $7 million, was that it?

[Mike Bartolotta:]

Actually, that particular one in that particular line totaled $6.4 million.

[Mitch Germain:]

Okay. Thank you so much guys.

[Glenn Rufrano:]

Thanks, Mitch.

[Operator:]

Thank you. And the next question comes from Ranit Hana [ph] with Capital One Securities.

[Unidentified Analyst:]

Yes, good morning guys. Thanks for taking my questions. Just looking at disposition category for 2016, can you maybe talk about what sort of drawy increase in plans and your original 1.8 billion into 0.2 billion?

[Glenn Rufrano:]

Primarily because we did so well in 2015, we hit the high end of that range. And in addition to hitting the high end of the range, we provided a great deal of liquidity in Red Lobster by having the availability of breaking up 600 million of them. So when we look at this year, we see a pretty good pace from last year. We like the fact we provided liquidity. As I mentioned in my remarks, we really want to be able to sell small, medium and large properties. And we have the ability to do all that. We can hit all three markets with the product type we have now. And as we went through and looked at retail and office, we felt comfortable increasing it by 200 million for the year.

[Unidentified Analyst:]

Okay, great. And then just shifting to Cole for a second, you raised 116 million the fourth quarter extra so you had this 460 million on annualized basis. What factors sort of contribute to guidance initially at 500 million to 800 million?

[Glenn Rufrano:]

Well, the lower end of that guidance is about what we’re doing now. So if you just look at our current volume, it would bring it to the low end. There are three events that we expect to occur this year which could make it higher. First, CCIT II has the potential for closing this year. It’s the independent directors who will make that choice. But there has been indication in the market already that there’s some consideration for closing CCIT II. So that’s number one. INAV has really taken off as I just mentioned. And we believe that product, again, in this environment has the ability to grow, number two. And number three, we’re still working with our larger broker dealers. They’re still in due diligence. We’re still working hard. And we hope and expect we can bring at least one or two on this year. So with those three factors, we believe there’s a real good possibility of exceeding what we’re doing on average as we sit here today.

[Unidentified Analyst:]

Sure. And just lastly, what percent of the agreement that were placed previously with the broker dealers and now back online?

[Glenn Rufrano:]

That number is somewhere about a third to 35%. But there are some accordance to the fact that we continue to gain sale. So we’ve had over 40 broker dealers reinstated this year. We have 27 broker dealers with new selling agreements and already 10 this year. But the key issue is that we’ve been able to cultivate new producers. For instance, in 2014, 24% of everything we sold was with new producers. In 2015, that same number is 43%. So with the increase new producers which is really helping our sales effort.

[Unidentified Analyst:]

Very good. Thanks for the time.

[Glenn Rufrano:]

Thank you.

[Operator:]

Thank you. And the next question comes from the line of Jean Nusnusan [ph] from JP Morgan.

[Unidentified Analyst:]

Hey, good morning guys. Just a question on the recoverable legal fees. What is recoverable and what kind of expectation do you have in 2016?

[Glenn Rufrano:]

As we’ve mentioned, we recovered $10 million last year for insurance. And the answer is we’d love to recover everything. We don’t know if we’ll recover anything else. Our insurance is there, it’s in place, it’s customary. And this year, we’ve not projected recoveries, although we’re working with our insurance companies now. And we think it’s better not to give a prediction. As we have capital coming in from insurance companies, we will report it.

[Unidentified Analyst:]

Okay. How about the legal proceedings? What’s the next state that we should look for for an update?

[Glenn Rufrano:]

We are now waiting for the judge to rule on dismissals that were put before him. We don’t have a date certain. It’s one of these legal proceedings now when the judge rules, they rule. We hope it’s sooner rather than later, but we don’t have a date.

[Unidentified Analyst:]

Okay. And final question, how scalable is the acquisitions team relative to the one to 1.6 billion you guided for Cole?

[Glenn Rufrano:]

That’s a really good question. We have a very scalable team. And just as you can see, we purchased about $1 billion for Cole this year. At the same time, we executed $1.4 billion in sales. So we have in 2015 completed $2.4 billion of activity. I’ve been really pleasantly surprised how our acquisition team has been able to do both. We continue to use that team. We keep that infrastructure in place. It’s a terrific infrastructure that knows how to buy and sell small and large portfolios. And we have no doubt that infrastructure for 2016 can purchase between the 1 billion and 1.6 billion with Cole and work on the billions of dispositions for us.

[Unidentified Analyst:]

Okay, great. Thank you. No further questions.

[Glenn Rufrano:]

Thank you.

[Operator:]

And the next question comes from Paul Adornato with BMO Capital Markets.

[Paul Adornato:]

Thanks. I appreciate the discussion on dispositions. I was wondering if you could just tell how price sensitive is the disposition program that is pricing gets away or moves against you or perhaps in favor. Will that change the mix of what we see you do or could it change the mix of what we see you do this year?

[Glenn Rufrano:]

You know what, our guidance range is 6.5 to 7.5, Paul. And if I go back in time, the 1.4 billion was done at 6.8 [ph] and the assets we just sold were in the 6.6, was 6.6 [ph] in total the subsequent event. So we seem to be hitting that number. Is it price sensitive? We’re always going to be price sensitive because what we don’t want to do is dilute NAV. So our key issue is not just pricing but NAV. If an asset is an 8% asset or 7.5% asset, we sell it at that, that’s fine. But we don’t necessarily want to sell and dilute NAV. So that will be the primary influence here. We think that range of 6.5% to 7.5% works with the mix of assets that we have looked at for sale and have on the market for 2016. And in terms of the market, we don’t see dramatic changes. There could be some change in terms of cap rates for bulk sales. There doesn’t seem to be much of a discount for large portfolios like there could have been in the past. But I will tell you for the small-sized assets, we’re seeing cap rates hold pretty well.

[Paul Adornato:]

Okay, great. Thanks for that color. And with respect to the Cole impairment, I was wondering if you can share with us some of the specific metrics that led to the second impairment. You spoke generally about a slower ramp in revenue. What’s in place right now so we can kind of gauge how you’re doing?

[Glenn Rufrano:]

Well, basically, I mean it is what we said it was. It was basically a slower ramp in revenue which the outflow of that is a slow buildup of cash flow and therefore you get a lower value in a net present value. We have a five-year plan and a new budget which is what the guidance was based on. If we hit those numbers, we should be in good shape for next year. Obviously, if something happens that you don’t hit your cash flow or your revenue, then things could change.

[Paul Adornato:]

Okay, great. Thanks for that.

[Glenn Rufrano:]

Thanks, Paul.

[Operator:]

Thank you. And as there are no more questions, I would like to turn the call back over to Glenn Rufrano for any closing comments. Thanks, everybody, for the call today. We’re sorry, we’re in New York, there were sirens during most of that call so you knew we were in New York. It was a terrific year for us in ‘15, we look forward to ‘16 and meeting with you all sometime this year. Thank you.

[Operator:]

Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.