Wheeler Real Estate Investment Trust, Inc.
Q3 2016 Earnings Call Transcript

Published: 9 Nov 2016

[Operator:]

Greetings, and welcome to Wheeler Real Estate Investment Trust 2016 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now pleasure to introduce your host Ms. Laura Nguyen, Director of Capital Markets. Thank you. You may begin.

[Laura Nguyen:]

Good morning, everyone, and thank you for joining us. On the call today will be Jon Wheeler, Chairman and CEO, Wheeler Real Estate Investment Trust; and Wilkes Graham, Chief Financial Officer. Following Management’s discussion, there will be a question-and-answer session, which is open to all participants on the call. On today’s call, management’s prepared remarks and answers to questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ from those discussed today. For a more detailed discussion related to these risks and uncertainties, we encourage listeners to review the Company’s most recent filings with the SEC. As a reminder, forward-looking statements represent management’s view only as of the date of this call. Wheeler Real Estate Investment Trust assumes no obligations to update any forward-looking information statements in the future. Definitions and reconciliations of non-GAAP measures are included in the Company’s quarterly supplemental package, which is available through the Company’s Website. With that, I would now like to turn the call over to Jon Wheeler, Chief Executive Officer and Chairman of Wheeler Real Estate Investment Trust. Jon, please go ahead.

[Jon Wheeler:]

Thank you, Laura. Good morning, everyone. And welcome to the 2016 third quarter earnings call for Wheeler Real Estate Investment Trust. Today's call will begin with an update on our strategic initiatives and capital raising efforts. In our plan use of those funds followed by an update on our property operations. Wilkes will review our financials and updated guidance for the fourth quarter, but before we get into all of the details I would like to start this call by personally saying thank you. I took this Company public on November 19, 2012 and I'm deeply thankful for the success we've experienced the last four years. Many of you have been investing with since our IPO and I'm grateful for your support and belief in our ability to create shareholder value. On behalf of myself our team and our board thank you to the last four years and we look forward to continuing to share in our success with you. Earlier this year we set forth our strategic plan internally to reduce the Company's cash, general and administrative expenses and cover our $0.21 dividend with AFFO on a run rate basis by year-end 2016. We communicated those goals to the market and we feel we've been able to execute. For the third quarter cash, general and administrative costs the four acquisitions in capital costs was $1.1 million or $4.4 million annualized versus $5.9 million run rate in the first half of 2016. This is in line with our most recent guidance for the second half of 2016 of cash, general and administrative costs runway of the below $4.5 million. Furthermore we sent our last call that our corporate level compensation of benefit expenses were 11% in the second quarter of 2016 as compared to the first quarter of 2016 and then we expected a further reduction of 25% in corporate compensation benefits in the third quarter of 2016. We are happy to reported in the third quarter of 2016 due to both continued cost containment initiatives and the absorption of increased overhead of our properties corporate compensation and benefits expenses actually came in 60% lower than the second quarter of 2016 and we continue to believe that we have a scalable platform that can absorb new acquisitions. And quite frankly I'm very, very ecstatic about this because as a major accomplishment. As we've acquired our assets in the portfolio we expect to continue our cost containment strategy and could see further reductions as we are running more efficiently. While still maintaining our touches at the properties. Wilkes with further detail our path to dividend coverage later on, but I will say that right now subject to successful closing of the seven properties till an approximate $91.8 million and our acquisition pipeline and continue to manage our overhead. We will in fact cover our dividend on a pro forma basis in the fourth quarter of this year. We return the capital markets this quarter raising net proceeds of $23.4 million of 9% Series B via and aftermarket offering. These proceeds were princely used to de-lever and pay down our facility with KeyBank. The ATM was successful and beneficial tool for us to raise of accretive capital has allowed us to lower our overall cost of capital materially by benefiting AFFO by approximately half a penny per share. Further I'm proud of the fact that we're able to pay down our KeyBank facility by 85% LTV to 65% LTV on the AC portfolio within four months of the April 2016 purchase date well ahead of the one-year window of time stipulated by KeyBank and keeping within all the related covenants. In September we issued 1,600,000 shares of our 8.75% Series D cumulative convertible preferred stock for net proceeds of $38 million dollars. This offering allowed us to raise accretive capital with a conversion price set at 20% premium to the price at closing or $2.12 per share. And again that was a commitment we made to our shareholders. This transaction was consistent with our committed strategy not to issue equity at the current stock price and will allow us to close the gap to dividend coverage in the fourth quarter of 2016 via the acquisition of very attractive pipeline of seven assets which I’ll provide more detail on shortly. I will now review the use of proceeds from our Series D offering approximately $8 million was used for working capital and to supplement Series B proceeds to fund a $11 million cash loan to the redevelopment of Pineland Station, a $28 million off balance sheet redevelopment project located in Hilton Head, South Carolina, Hilton Head Island now renamed Sea Turtle Marketplace. In addition to the cash loan the company contributed approximately 10 acres of land adjacent to the project and exchange for $1 million note receivable. The combined $12 million note receivable bears an interest rate of 12% annually and beginning on October 1, 2016, the company will earn 8% cash interest paid quarterly and will accrue 4% to be paid at maturity. In addition to earned interest income the company will also earn significant development and leasing fee income from the project subject to meeting certain contractual conditions, the project will sell roughly two acres of raw land to a grocer for their 36,000 square foot store and the remaining gross leasable area approximately a 110,000 square feet is 82% pre-leased to a leading national and regional retailers such as TimeMart, West Marine, PetSmart, Kitchen Company and Starbucks and quite frankly that's a fantastic lineup. With our development expense to resume construction on the project following the significant clean up post Hurricane Matthew by mid-November with completion 18 months from then and stabilization following six months thereafter. Our acquisition team continues to see both off market and marketed opportunities in our markets and is reviewing anywhere between $100 million to $150 million property value on a regular basis. Approximately $30 million of the Series D offering is scheduled to fund the cash portion of the acquisition pipeline identified in the perspectives with the exception of the Shop 'N Save anchored property located in Kittanning, Pennsylvania which is replaced by a 116,976 square foot at Lowes Foods anchored center located in Mount Airy, North Carolina simply due to timing our efforts to close our pipeline by year-end. As of today we have seven grocery-anchored shopping centers under contract that subject to the completion of the due diligence and normal closing conditions, we could acquire by year end. These properties combined represent $91.8 million of value and 894,000 square feet of gross leasable area. With three properties located in Georgia, two in Virginia and one property located each in South Carolina and North Carolina. We have the potential to expand our footprint further in the Southeast and Middle Atlantic. We're excited about these particular properties as they were able to both diversify our tenant base with the addition of grocers such as handles, Publix, Lowes Foods and Farm Fresh all of which are first for the portfolio and increase our exposure to credit tenants such Kroger, Family Dollar and Dollar Tree. In an effort to close these by year end we recently received a commitment from KeyBank to increase our current $50 million facility to $75 million and our plan is to selectively utilize the line immediately to help close this pipeline thereby allowing us to cover our monthly dividend. I mentioned Hurricane Matthew just a moment ago. I want to expand on the impact of the storm or rather lack thereof to our properties further. Much of our portfolio fell within the projected path the storm from Florida to East Coast of Virginia. However all the properties were spared for major damage including our center Lumber River located in the town of Lumberton, North Carolina which suffered severe flooding and left much of the town in need of federal aid. The center's anchored tenant Food Lion reported minimal interior water damage and was able to soon after the flooding subsided. One of the groceries in town to actually opened up so quickly. Thank you to our property management and facilities teams as we're prepared to assess the centers quickly after the storm passed and assist tenants as needed to reopen timely. Before I review the property operations, I would like to mention one of the business items that occurred subsequent to the quarter end. At our most recent Board of Directors meeting back in October the governor's committee put forth the nomination Mr. John Sweet to join the Board as an Independent Director. His nomination was unanimously approved by the full Board and we are thrilled to welcome John’s association with Wheeler. John is a well-seasoned executive who brings with him years of experience in the REIT sector as well as the private real estate sector. He founded Physician’s Realty Trust in 2012 which trades on the New York Stock Exchange as DOC and currently serves as a Chief Investment Officer. John joins the Board at a great time as we look to fill the ninth seat have now having a Board composed of two Independent Directors and that's myself and Dave Kelly which is head of acquisitions and seven Independent Directors. He will retire from DOC effective December 31, and we look forward utilizing his expertise as he will serve on both the finance and investment committees. And on a side note again this is ecstatic. We welcome John, he has a wealth of experience and he deepens the foundation of our Board. I will now move to probably operations which has been performed exceptionally well as we continue to maximize profits our centers targeting opportunities to increase NOI. We are now reporting increases in several metric across the portfolio and this quarter saw a 7.5% rent spread increase on renewals having renewed 15 leases totaling 41,375 square feet at a weighted average increase of $0.92 per square feet. 19 new leases were excluded totally approximate 46,745 square feet with a weighted average rate at $10.01 per square foot. And important note here is these rates are going up and our averages were in the mid 9’s and now here you see on this most recent new leases $10.01 per square foot, that’s fantastic. We reported 10 basis point increases in occupancy 93.9% from 93.8% at June 30, 2016. Further of the 26 assets in our same-store pool which we've owned since January 1, 2015 occupancy ended the quarter at 94.6% and rents per square foot average $9.22, up 1.3% year-over-year. We will leverage our leasing expertise in the used and the opportunity to push rental rates and are optimistic that we can continue to fill the vacancies here in short order. Same-store NOI year-over-over growth saw a 10.2% increase on GAAP basis mainly attributed to an 8% increase in revenues and 2.9% increase in expenses. Increased revenue was driven by a 25% increase in tenant’s reimbursements and 1.1% increase in rent. Our peer group just to note and point out those increases are roughly around 3% and we are here at 10.2%. It's just a phenomenal quarter. Before I turn the call over to Wilkes to update you on our balance sheet and financials, I want to reiterate our ability to create value especially in ancillary income another attributes that further supports our business plan. We are currently in the early stages of a Phase II development at our Harris Teeter anchored center in Folly Beach, South Carolina which basically is Metro Charleston which we acquired as part of the AC portfolio this past April. Here we had the opportunity to build an additional 7,600 square feet of retail on outparcel adjacent to the center. The additional potential income is unscheduled and unprojected revenue that we did not factor into the purchase price when we acquired the center and will increase the overall valued asset. We are looking at this type of opportunity portfolio wide and as we underwrite new centers for acquisition pipeline. Also I often get a question about the sale or development of our land parcels and I am pleased to report that we are negotiating letters of intents with retailers on several of those parcels and feel optimistic about their potential. Please note, we would not develop the parcels into their 50% pre-leased, but we are gaining traction in this area and we will update you on advancements as they occur. I will now turn the call over to Wilkes Graham, Chief Financial Officer for a review of the third quarter financials and updated guidance for the fourth quarter.

[Wilkes Graham:]

Thank you, Jon, and good morning, everyone. I’ll begin by reviewing our financial results for the third quarter, followed by our balance sheet update and the summary of our AFFO guidance for the fourth quarter of 2016. FFO available to common shareholders and common unitholders for the third quarter of 2016 was $2.2 million, or $0.03 per share, or $0.12 per share on an annualized basis, which compares to a loss of $0.04 per share or a loss of $0.15 per share in the third quarter of 2015. Adjusted funds from operations available to common shareholders and common unitholders or AFFO for the third quarter of 2016 was $2.7 million, or $0.04 per common share and common unit, which equates to $0.14 on an annualized basis. This compares to AFFO of $1.4 million or $0.02 per share for the third quarter of 2015 or $0.08 per share on an annualized basis. Recall that our guidance for the third quarter 2016 was for $0.16 to $0.17 of annualized pro forma AFFO, which allowed for a true-up for the timing difference between the full quarter payment of dividends on the Series B issuance and the partial quarter of interest expense savings from the pay down of our KeyBank line from the Series B proceeds. We are happy to report that annualized pro forma AFFO for the third quarter 2016 was $0.17 are in line with the high end of our guidance range. Pro forma results also included $240,000 of cash interest income from our $12 million loans to see total marketplace development given that the operating agreement - starting October 1 will earn 8% cash and 4% accrued on the $12 million loan. Finally, our pro forma calculation of the third quarter of 2016 included a full quarter of dividends on $10 million of the $40 million of Series D proceeds raise on September 21. In order to accurately match up dividends to those Series D proceeds they were invested as of September 30. As Jon mentioned previously the remaining $30 million is targeted for the cash fortune of our $92 million pipeline of seven assets all of which are scheduled to close the by year end. I’ll now move to the Company’s balance sheet as of September 30, 2016. The Company’s net investment assets, including assets held for sale, totaled $292 million, with cash and cash equivalents of $35.8 million. Total assets were approximately $404 million for the third quarter of 2016, as compared to $309 million at December 31, 2015. Total outstanding debt at June 30, 2016, including debt related to assets held for sale, was $239 million compared to $191 million at December 31, 2015, with substantially all of the difference coming from the initial funding of the AC portfolio and the subsequent partial pay down of set funding. 66% of our outstanding debt at September 30. The weighted-average fixed interest rate of 4.95% with the balance comprising floating rate debt with a weighted-average interest rate of 3.5%. The third quarter was another busy quarter for us from a balance sheet perspective. After ending the June 30 quarter with our debt gross asset value leverage ratio. The governing covenants of our KeyBank line of credit. At 68.2% we set out in the third quarter to lower our leverage and reduce our cost of capital and we did so in three separate transactions. First, for the approximate one-month period between August 1 and September 2. We issued [1,142,225] shares of Series B preferred shares via at the market offering. These years were sold at an average price of $20.61 per share, which is net of all discounts and expenses. An aggregate we issued $28.6 million of Series B at par value and $23.4 million of net proceeds. When comparing the 9% coupon on par value to our net pricing the cost of this capital us was 10.9%. The issuance of these shares did allow us to lower our overall cost of capital expeditiously. But we recognize the non-call future on this security and plan to be prudent with any additional issuance in the future. Secondly, via in multi-step process we reduce the interest rate on our KeyBank line of credit. To LIBOR plus 250 from LIBOR plus 500. Recall that we ended June 30 was $67.2 million on the KeyBank line and our credit agreement with KeyBank stimulated and we had until March of 2017 to reduce this balance to $46 million or 65% loan to value on the $71 million AC portfolio we acquired back in April. And once we do so our interest rate on the facility would drop by 250 basis points for LIBOR plus 250, of the $67.2 million balance of June 30. thirty. $60.35 million accounted for 85% loan to value on the AC portfolio, $3.9 million comprise 65% LTV on our Chesapeake Square asset and the remaining $3 million comprise 65% LTV on our Lumber River asset. On June 11, we refinanced Chesapeake Square into $4.6 million 10-year interest only mortgage barring 4.7% and pay down the $3.9 million balance in the KeyBank line. On August 2, we utilized Series B proceeds to pay down the Lumber River $3 million balance on the line. Finally, on August 4 and August 12 we made two separate payments to KeyBank totaling $14.2 million from our Series B net proceeds to pay down LTV on the AC portfolio to 65% from 85%. Thereby bring the remaining balance on the KeyBank line to $46.1 million now reducing the interest rate on this remaining balance by 250 basis points. The totality of these transactions was about $0.005 accretive to AFFO run rate. Third, and finally on September 21, as Jon mentioned the company issued and sold 1.6 million shares of Series B preferred stock, liquidation value $25 per share in a public offering. Each shares Series B preferred stock was sold to investors and offering price of $25 per share. Until September 21, 2023 the holders of the Series B preferred stock or entitled to receive cumulative cash dividends of 83 quarters per annum on the $25 liquidation preference per share. Commencing September 21, 2023 the holders have been entitled through cumulative cash dividends at an annual dividend rate of the initial rate increased by 2% of the liquidation preference per annum on each subsequent anniversary thereafter subject to a maximum annual dividend rate of 14%. On or after September 21, 2021 the company may at its option redeem the Series D Preferred Stock and on September 21, 2023 the holders of the Series D stock may at their option elect to cause the company to redeem any or all of their shares. The holder of the Series D Preferred Stock may convert shares at any time into shares of the company's common stock at an initial conversion rate of $2.12 per share of common stock which represents 20% premium to the company's stock price at the time of the transaction. Now as I previously stated we utilized $17.2 million of the $23.4 million of the Series B issuances during the quarter in order to pay down our KeyBank facility. This locked approximately $6.4 million of proceeds remaining to be invested which along with the $38 million raise via the Series D transaction gave us a total of $44 million of capital for either working capital, cash on hand or investments. As Jon mentioned previously we utilized $8 million of this capital for the Sea Turtle Marketplace loan. Following these transactions, our debt to gross asset value, the governing leverage metric for our KeyBank facility decreased to 59.0% at September 30, 2016 from 68.2% at June 30. We anticipate that once we invest approximately $30 million into our seven asset $92 million acquisition pipeline and utilize 65% LTV on these assets our pro forma debt to gross value should approximate 63%. I will now turn to our guidance for the fourth quarter. We're now prepared to establish pro forma fourth quarter 2016 annualized AFFO guidance of $0.21 per share in line with our common dividend. Our guidance includes the following assumptions; cash NOI from our existing portfolio of 3.75 million square feet of approximately $8 million for the quarter. The successful closing of the seven assets currently under contract totaling 894,000 square feet for an aggregate purchase price of $98.1 million at a weighted average cap rate of 8.1% and a weighted average cost of funds at 65% LTV of 3.4%. This assumes approximately $21 million of debt goes on our KeyBank facility at LIBOR plus 250. Third non-reimbursable annual CapEx per square foot of $0.20, which is in line with our reserves in past quarters. Fourth 8% cash interest income from our $12 million loan to the Sea Turtle Marketplace development or $240,000. Other revenues including third-party management leasing and development fees net of expenses of approximately $200,000. On the debt side $239.9 million of total debt as of September 30, 2016 with a weighted average interest rate of 4.46%. Total cash G&A expenses including acquisition and capital cost of approximately $1 million. Total preferred dividends of $1.94 million on our 562 shares of Series A, 1,871,244 shares of Series B [indiscernible] and 1.6 million shares of Series D [indiscernible]. Finally total shares and OP Units of approximately 74 million shares. One last point our fourth quarter 2016 pro forma guidance does not assume any material changes in interest rates or any additional acquisitions or capital raises. With that, I’ll turn the call back over to Jon for final comments. Jon?

[Jon Wheeler:]

Thank you, Wilkes. I will close with just a few brief remarks. In January of this year we communicated to the market that we felt, we would cover our dividend with AFFO by the end of 2016. You patiently waited if we did not release the details of the plan other than our cost containment initiative. We've implemented and are now here in the third quarter of 2016 and can confidentially project that we will cover our dividends with AFFO on a pro forma basis by year-end. I'm very highly invested in this company personally and 100% aligned with our shareholders. Our plan going forward is to continue to grow the Company strategically and in a manner that benefits our shareholders. I would like to thank the entire team of Wheeler as there has been a lot of change over the course of the year yet no disruption to our overall operations. Specifically, I would like to acknowledge the senior management team and our board for helping to find the strategy for the year and for their commitment to those initiatives in the future. Operator, I will now turn the call over to you for questions.

[Operator:]

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Mitch Germain with JMP Securities. Please proceed with your question.

[Mitch Germain:]

Good morning, everyone.

[Jon Wheeler:]

Good morning, Mitch.

[Mitch Germain:]

Just curious, I know Wilkes you just touched on it a little, I got a little bit confused if you don't mind the funding for the $98 million of acquisitions. What are your sources there?

[Wilkes Graham:]

Right, $91.8 million on the pipeline. We have approximately $30 million of capital sitting on our balance sheet today left over from the Series D raise back on September 21 and then the balance would be 65% LTV mortgages. I think we said $21 million of that debt would be on the key line and the rest would be individual mortgages on the properties.

[Mitch Germain:]

Great. You'll still have assuming the upsizing on the key line you still have about $55 million of dry powders, is that the way you think about it?

[Wilkes Graham:]

So we currently have $46 million on the line if we added 21 would be I guess up in the high 60’s and we’ve got a full capacity of $75 million on it, so we have a little…

[Mitch Germain:]

Okay. So the same line, I got you. [indiscernible]. And then just thinking in terms of the acquisitions and looking at your G&A, just trying to understand scalability of the platform every $100 million a deal is there additional ads that need to be done. How you guys looking about staffing going forward?

[Jon Wheeler:]

Mitch, I will take that. This is Jon. So from the senior management perspective, we are good and solid. The ads would be on the lower to middle management, leasing eight property managers, lease administrators, accountants and so forth. So we feel that we have a very good scalable platform with minor adjustments going forward.

[Mitch Germain:]

Great. The AC portfolio I know that - well I think it was low 90’s leased I mean where does that stand today or there has been any progress there or a good pipeline how does that sit?

[Jon Wheeler:]

Yes and I'll take that one as well. We were roughly about 92.08% leased and we’ve nudge that a little bit and what will help that is as we referenced earlier with like Folly Road with Harris Teeter adding another 7,600 feet, but I refer to this is what your question is, is the maintenance leasing because that 8% if you will, 5% is factored into our analysis and we use August as our financial software, so always analyzed as a 5% vacancy. So we're nudging towards that 95% and the ancillary and specialty income we talked about as well will help us get beyond that 95%. But all these properties are well located and especially the AC portfolio. And as you probably know we picked up our first year’s Teeter because of that.

[Mitch Germain:]

Great. Last one for me. I know Wilkes in the supplement I think you've got $7.2 million of EBITDA in the quarter. How should we think about that on a more normalized level in terms of baking in full quarter impact of refi you know any other transactions that might have impacted it?

[Wilkes Graham:]

I think I would go back to the detail over on the call, I mean EBITDA should basically be NOI and less interest income, less G&A, right. So we said NOI should be $80 million plus the $91.8 million pipeline at 8.1% cap rate. Interest expense should $239.9 million of debt at 4.46% plus the debt on the pipeline which we said was 65% LTV and $91.8 million at 3.4% weighted average and we said G&A affectively something that completion of these seven assets our G&A run rate is $4 million flat.

[Mitch Germain:]

Gotcha. Thank you.

[Operator:]

Our next question comes from the line of Larry Rehman with LDR Capital. Please proceed with your question.

[Lawrence Rehman:]

Hi, thanks. Good morning, everyone. And I wanted to first give you all credit for focusing on every penny and dialing in to get the strategic plan to where it is now in the fourth quarter to have AFFO coverage to meet the dividend as you promised in beginning of the year. So you know kudos to you for taken some hard decisions in making that happen? My question to you is I know you're not done from there. So while not providing any guidance? Can you just talk strategically what steps can be taken with a capital constrained balance sheet to take that 100% coverage on the dividend to higher coverage and kind of grow earnings from there over an excess of the dividend?

[Jon Wheeler:]

Larry, this is Jon. I’ll take a stab and then I'll turn over to Wilkes. I think I put a great focus on ancillary special income and where we can expand something or add something or ground lease something or do a build to suit that would be step one. We made a commitment to you and our other investors that we would not issue any new common under $2 a share and we'll stay steadfast to that commitment. But I think as we represent in this earnings call that where we are right now today and what our pro forma guidance is that $0.21. We can get that percentage down if that's what you're referring to from 100% to the 95% as time goes on through everything that we do want to daily basis. When you bring in these seven assets we'll have the ability to do allocate some of our G&A to those assets that we've done in the past which will reduce the G&A potion never goes away, but you get a minimal of each asset that comes in sort of percentage that's attributed and it's allowed for the leases that's number two. I think number three would be like we've done with our rent spreads in our same-store NOI which is above norm for our peer group as number three. And the number four is focusing on expenses as well as the property level. You never want to increase the expense of the undermine the property you want to try to increase revenue and also decrease expenses and then just you can pick up additional percentages on your overall gross revenues and that's NOI. So I think it's really a four spoke process and that's our daily business plan. Wilkes?

[Wilkes Graham:]

Yes, I would just add that - I think the easiest places to continue to pick up earnings would release spreads on renewals which we continue to hit and that 7% range. Again we've got I think the average occupancy on $150 million of assets that we've bought today it’s not including these seven assets the we're about to acquire is about 92% occupancy. We continue to see your opportunity to increase occupancy in these newly acquired assets that hasn't income statement yet. And as Jon said we have a scalable platform that for running a $4 million of G&A on an annualized run rate once we buy these assets. And that number doesn't need to materially increase given these new assets. We can increase rents with renewal spreads and occupancies then I think we're in a good shape and good increase earnings and frankly I think we’re in a good spot to take advantage of the fact we are an internally manage small cap REIT, which is fairly rare.

[Jon Wheeler:]

Larry, one other thing that I think is important point out and this doesn't happen on a consistent basis, but it does happen it's called percentage reps. And as we grow the portfolio we will have the ability to be able to have those type of allocations that are unprotected, unscheduled, and pro forma. In our past live privately you would have a percentage rent check to come in from a CVS drug store for $100,000 in the following year for the previous year. Well as we grow our portfolio that will happen more often again it's not commonplace. But the retailers are doing well they're strong they have cap improvements programs themselves and they're nearly improving their stores but they're expanding their stores. And when you look at our rents per square foot and where they are relationship to what percentage risk could be that’s really another fifth item that add to additional cash flow.

[Lawrence Rehman:]

Thanks. And if I can just ask one other quick question Jon. Could you discuss the vibrancy of some of your supermarket-anchored tenants, the business competitive environment they're working within? And your conversations with them about how they're feeling about their business.

[Jon Wheeler:]

Absolutely. And I know that’s a topic of discussion whether it be among investors or on various blogs that are out there that we peer out, they read and see. I would tell you I'm 55 years old and I’ve been in this business for 34 years and this company now on our 16th year and these retailers that we invest in and with by virtue of buying the shopping centers. It's America, it's Americana and they fit within these markets of secondary and tertiary markets. So when I hear comments about a dying brand meaning grocery and general or specifically a Winn-Dixie or [BI-LO] Food Lion. That's just not going to happen. They have their place in those particular market places. Again secondary and tertiary which we call blue and low blue, blue color and low blue color and their cost of goods and their percentages as rents the sales are all in line and those are things that we focus on, so we don't buy a Food Line paying $12 of food, we will buy a Food Lion pay $7 or $8. Now answer to your question about our relationship with those retailers, every one of them. We see on a constant basis either through the trade shows obviously we stay in touch with them on their financials and their operating successes or lack thereof. We all know that in the years past both Winn-Dixie and Food Lion filed independently, they both came out independently or BI-LO as well, but now all three of those retailers are much stronger than where they were in the last 10 or 15 year. So I get a little anx when I hear people talking about kind of sometimes what they don't know what they're talking about because we're very close now to this business and this pipeline with these retailers and that goes as well for the Dollar Generals and the Family Dollars and Dollar Trees and all the retailers that make up our portfolio. I'm proud of our tenant mix, I'm proud of their gross sales, a Food Lion or a BI-LO or Winn-Dixie they're profitable $250 per square foot on an annualized basis and a lot of our grocery stores are $350, $375 and even one is $425 a foot and that’s [indiscernible] outside of Charleston. So I'm confident in our property prototype and I'm confident in our retailers and we're seeing quite a few of those retailers again having their own capital improvement budgets. And actually are renewing their leases prior to what is the pending renewal option status, meaning a year ahead of time when maybe they don't have to do until six months or nine days before. So to answer the question very strictly and straight forward we’re very confident about our retailers and the shopping centers that they occupy.

[Lawrence Rehman:]

Okay. Thank you very much.

[Jon Wheeler:]

Thank you, Larry.

[Operator:]

[Operator Instructions] Our next question comes from the line of Kent Engelke with Capitol Securities. Please proceed with your questions.

[Kent Engelke:]

Hey, Jon. My questions have already been answered but just want to make a comment. Thank you very much for the very good quarter and also thanks for being so transparent. I think that that's going to greatly reward the stock and like yourself, very happy that it's going to be you are projecting dividends, sustainability on the AFFO basis on your caveats and I think the past is behind us and tomorrow looks very, very bright. So thank you.

[Jon Wheeler:]

Well, Kent, thank you. And just for the rest of the listener here today on the call. Kent and Capitol Securities were one of the groups that initially took us public on our IPO and when we refer to long-term investors that have been with us from day one that his group and Kent that means a lot. Thank you very much.

[Kent Engelke:]

Thanks. Jon.

[Operator:]

Our next question comes from the line of John DeMaio with Newbridge Securities. Please proceed with your question.

[John DeMaio:]

Hi, guys. How are you doing?

[Jon Wheeler:]

Hi, John. Good morning.

[John DeMaio:]

Good morning. The question I have is on the IR and PR front, is there a way that you guys could be a little bit more aggressive because there is something weak you can do?

[Jon Wheeler:]

Okay. From the standpoint of public relations and if you're referring to the different blogs that I touched based on the past, as you know we have to be careful as to what we disseminate as you know and I know you know this on a looking forward basis. So when we're at Midstream, we cannot really speak too verbose to any one particular investor or i.e. such as yourself. But we try to be as transparent as we can and that's why I don't respond to some of the blogs out there when these comments come out, I just can't do it. I have to do it on a call like today. So to answer your question PR is very important to us as is social media. And that’s one of the things we want to work on going forward is to actually being more proactive in the social media realm, but again we have to be careful there as well not disseminate too much looking forward information. So sometimes you kind of have to take the punches and then we can kind of air them out on these types of calls.

[John DeMaio:]

Okay. The question I have is it wasn't really about that and I understand what you're saying about that and I fully understand the regulations involved in this business. The question I have is if you look at hiring maybe another company, okay they could help us more not on the brokerage side, but on the social media side?

[Jon Wheeler:]

Yes. And actually one of our directors has brought some to their attention that is not in this area for that very same thing that same reason. And that's something that we're currently considering and again one thing we want to do first, John was get to the dividend coverage and then we can start adding those types of layers a positive things to have further reach in the community. So the answer is yes.

[John DeMaio:]

Okay. Thank you, guys. Very good quarter. Thank you very much.

[Jon Wheeler:]

Thanks John.

[Operator:]

Thank you. Mr. Wheeler it appears we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

[Jon Wheeler:]

Thank you. And ladies and gentlemen this has been a fantastic quarter. As you know much of our comments up to this point in time have been scripted. And from an unscripted standpoint I have to say that personally I'm very happy with our results, I'm very happy with where we've come over the last four years. If you recall, we start off with eight assets and $15.8 million market cap and look where we are today with over 66 assets and majority of those cash flowing properties. So we've had a lot of wood to chop and we've done very well at that. Again, I'm 55 and I’ve been doing this for 34 years in this business is our 16 year which four have been public. On November 19, will be our full-year anniversary and I pinch myself every day when I wake up and I look at what we've done and what we've created. Yes, we have a lot of growth and we have a lot of things to do and more income and cash flow to earn, but I really believe in our policies, our disciplines and our procedures. We have a fantastic management team from starting off with our board to exit the operations side of the Company from literally our receptionist to myself. And I wouldn't trade it for anything and I'm highly, very highly invested in this company. And what is good for investors is good for me and vice versa. So now go back on script. On behalf of the team at Wheeler, I would like to thank all those who delved in for the call and we look forward to talking with you again when we report fourth quarter results. Everybody have a great day. Thank you.

[Operator:]

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.