NNN REIT, Inc. (NNN) Q1 2015 Earnings Report, Transcript and Summary

Greetings, and welcome to the National Retail Properties First Conference 2015 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Craig MacNab, Chairman and CEO. Thank you. You may begin.

Thank you, Melissa. Good morning, and welcome to our first quarter 2015 earnings release call. As usual, on this call with me are: Jay Whitehurst, our President; and Kevin Habicht, our Chief Financial Officer, who will review details of our first quarter financial results, following my opening comments. National Retail Properties had a most productive and active first quarter, generating consistent results, while maintaining a pristine balance sheet. In the first quarter, we acquired 56 retail properties, investing $155 million at an excellent initial cash yield of 7.3%. We are very pleased with the yields on our acquisitions completed in the first quarter. The initial cash yields came in higher than what we'd been originally budgeting. In the first quarter, we had 14 different closings, purchasing properties at an average cost of $2.8 million, which is in line with our entire portfolio average. In terms of the acquisition environment, the elevated demand for high-quality real estate means that initial yields continue to decline, and our acquisitions for the balance of the year are more likely to come in around the 7% we previously guided you towards, depending on the mix of retail properties. We continue to deploy capital at very accretive yields, especially when you take into account the predictable rental growth that we realize over the balance of our long-duration leases. In the first quarter, we sold 6 properties for $23 million, generating a meaningful gain that, by the way, is not included in FFO. On this call, I am going to provide contextual information on our disposition activity even though it is not typically a material component of our results in any given quarter. Some of you are aware that we have an outstanding internal dispositions team that is active in the 1031 market, using our own sales platform, extensive database and relationships with buyers plus our proprietary web tool. Our team is very effective at extracting maximum prices for our real estate. And by the way, they have had a lot of success, as no one has sold as many assets as we have over the years. Our disposition team's knowledge is also a useful source of realtime market information for our management team when we evaluate potential properties for acquisition. By way of background, we sell properties for both defensive and offensive purposes, and this differs in every individual transaction that we sell and, of course, from quarter-to-quarter. In the first quarter, we sold 3 properties for $21.7 billion at a 5% average cap rate. One of these sales was very offensive in nature, effectively an anxious 1031 buyer running out of time to complete their exchange. And the other dispositions were a little more defensive in nature. As a broad rule at NNN, we do not sell vacant properties, preferring to re-lease a property in the occasional situation where the tenant does not renew at the end of the lease term. After our team has leased up a property, we will then make a separate decision whether to hold or sell the property based on the specific real estate merits and location of that asset. However, we did sell 1 vacant property this quarter plus 2 small undeveloped excess land parcels that we have owned for many years. The way I think about this is that we are taking advantage of the strong demand for real estate currently to simplify and strengthen our portfolio even though the dollars involved were very small. In terms of our portfolio, we currently own 2,104 properties, which continues to be very well leased, with occupancy at 98.8%. In our portfolio, we recently received a wonderful credit upgrade when our third largest tenant, Pantry, was acquired by Couche-Tard, more commonly identified in the U.S. as Circle K. As Kevin will describe, our balance sheet remains in terrific shape, which means that NNN is very well positioned to continue to build shareholder value, as our excellent real estate team sources new properties for us to inquire. Kevin?

Thanks, Craig. And I'm going to start with our usual cautionary statement that we'll make certain statements that could be considered to be forward-looking statements under Federal Securities law. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements. And we may not release revisions to those forward-looking statements to reflect changes after the statements were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in this morning's press release. With that out of the way, this morning, we did report first quarter FFO and recurring FFO of $0.54 per share, and that represents a 5.9% increase over prior year results and was largely in line with our expectations. We also reported AFFO of $0.55 per share, which represents a 7.8% increase over prior year results. The good start to the year puts 2015 on track to perpetuate growing our per share results on a multiyear basis, while maintaining a top drawer balance sheet. Now looking at a couple of details on this past quarter. The strong results were a combination of maintaining high occupancy and the acquisitions we made last year, while keeping our balance sheet more than strong. Occupancy was 98.8% at the quarter end, that's up 20 basis points from the prior quarter and up 60 basis points from the year ago. And as Craig mentioned, we completed $155 million of accretive acquisitions in the first quarter. Our dividend payout ratio decreased to 76.4% of AFO -- AFFO in the first quarter. Compared to 2014's first quarter, our rental revenue increased $12.5 million or 12.5%, and that's primarily due to the acquisitions made over the past 4 quarters. In place annual base rent as of March 31 was $450.8 million on an annual run rate. So for those making projections into the future, that's a great place to start as of April 1. Property expenses, net of tenant reimbursements for the first quarter, totaled $1.2 million versus $1.1 million for the same period last year. G&A expense decreased modestly to $8.6 million in the first quarter compared to the prior year. We continued to generate positive operating leverage in our growth, as G&A declined from 8.4% of revenues in the first quarter of 2014 to 7.4% of revenues in the first quarter of 2015. So on total, NNN started 2015 well. Occupancy and rental revenue, expenses, all performing well with no material surprises or variances. We did bump up the low end of our previous 2015 guidance by $0.01, bringing current FFO guidance to $2.14 to $2.17 per share and AFFO guidance to $2.20 to $2.23 per share. None of the primary underlying assumptions were changed. We are still projecting $300 million to $400 million of acquisitions, $34 million of G&A expense plus $1.3 million of real estate acquisition transaction costs. Turning to the balance sheet. During the first quarter, we raised $49 million of common equity that was primarily through our ATM equity program. We raised more equity than absolutely we've made it in recent years, which has moved the leverage levels lower. We have $42 million outstanding on our $650 million bank credit facility, so that leaves us $608 million of availability. The average of debt maturity for all of our debt, including the bank line, any mortgages, everything, is 6.4 years, and the weighted average interest rate is 4.7%. Only 2.3% of our total debt is floating rate debt, that's really just our bank credit facility. The net debt maturity is $150 million of 6.15% notes, due in December 2015. So our balance sheet remains in great position to fund future acquisitions and weather potential economic and capital market turmoil. Looking at the leverage metrics. As of March 31, 2015, debt to gross booked assets was 32.7%, virtually flat from the prior quarter. Debt to EBITDA was 4.3x for the quarter. Interest coverage was 4.6x for the first quarter, and fixed charge coverage was 3.3x for the first quarter. Only 11 of our 2,100 properties, well under 1%, are encumbered by mortgages, totaling $25.9 million. So despite the significant acquisition activity over the past 4 years, our balance sheet remains in very good shape. Our primary mission is to grow per share results on a multiyear basis, and we are not looking to achieve that via increased leverage or a short term of variable rate debt. 2015 looks to be another good year for NNN. We're optimistic we can produce another year of solid per share growth, including making it our 26th consecutive year of increased dividends per share. We continue to believe we are well positioned to deliver the consistency of results, the dividend growth, balance sheet quality that have supported attractive, absolute and relative total shareholder returns for many years. And with that, Melissa, we will open it up for any questions.

[Operator Instructions] The first question comes from the line of Dan Altscher from FBR Capital Markets. Daniel K. Altscher - FBR Capital Markets & Co., Research Division: I have a very specific question, kind of as it relates to some drought conditions in California and some of the car wash exposure. Anything there that you're hearing from the folks at Mister Carwash or like that, we should, maybe, be concerned about from a performance standpoint of the underlying properties?

Dan, it's a good question. And I believe that the good news is that we -- Mister Car Wash has 0 exposure in California. So I think ultimately, one way or another, that is something of a risk for the category. Over time, they have tended to find a way to work around it. The better car wash operators, which Mister Car Wash is clearly the leader in the clubhouse, recycle all of their water. So it's a pretty efficient process. And I think one of the things that happens is, in California or in some of these communities, they will clearly prevent people washing cars in their own yards and on the streets, while the commercial operator has been allowed to historically stay open. We do have a very small number of car washers in California separately -- with a separate tenant, to make sure the answer is complete. Daniel K. Altscher - FBR Capital Markets & Co., Research Division: Got it. Okay. And just -- maybe just, and I know this is a little backtracking, if you think about the recent Mister Car Wash portfolio, but do you have any kind of sense where -- I mean, obviously, you have the sense, but can you kind of share with us, kind of, what the acquisition metrics, kind of, were roughly on that portfolio back, I guess, it was maybe the summer or fall of last year?

On Mister Car Wash? Daniel K. Altscher - FBR Capital Markets & Co., Research Division: Yes, on that portfolio you guys bought there.

Yes. So, I mean, we own lots of Mister Car Wash properties. I think the biggest point I would make is that the private equity firm that purchased this company made a large multiple of what they invested on the company. And so one of the ways to think about it is that for people who invested, private equity deals, et cetera, they generally tried to get a 2x of their money. This multiple was materially higher than that. The way you accomplish those types of multiples is you have to have strong EBITDA growth. And the management team at Mister Car Wash did a fantastic job. So when we were buying properties at essentially cost, firstly, and secondly, at a decent rent coverage, in short order through their management expertise, marketing, site selection, all of those things, rent coverage nicely increased. So in our portfolio, we don't worry about Mister Car Wash at all. Daniel K. Altscher - FBR Capital Markets & Co., Research Division: Perfect. Now I appreciate that, Craig. Kind of switching gears but still in, kind of, maybe this macro theme. We've seen oil prices now not skyrocket, but certainly it's come off well off the lows. Are your tenants telling you anything or giving any sort of color on traffic? If that really helped at all during the winter months or if this is now kind of backtracking, if you will, with the price of oil coming back up? Are customers there even really responding to this at all or had they even responded in the first place?

Yes. Dan, I think the biggest takeaway I would have on the macroenvironment is twofold, which is that retail sales continued to chug along at a growth rate slightly in excess of inflation. Secondly, as it pertains to National Retail Properties, in particular, our portfolio is 98.8% occupied, so it seems like the macroenvironment is very positive for National Retail. In terms of your question about oil, I think there are sort of a couple of different specifics to think about. #1, the consumer is ultimately going to have a little bit more money in their pocket across the country. And over time, they are probably going to spend that -- put that into disposable income. So that ultimately is a good thing for retail. Secondly, our biggest concentration is the convenience store sector. And with lower oil prices, which means lower prices at the pump, 2 things happen: People drive more; and more importantly, margins at the pump go up. So our single biggest category is convenience stores, and they are doing extremely well. So from a macro standpoint, we are very well positioned. Daniel K. Altscher - FBR Capital Markets & Co., Research Division: Got it, okay. And then just one other quick one. Thinking about the dollar stores base. I understand you guys don't have a lot of exposure there at the moment, but there's obviously been some consolidation in the industry and thoughts around, I guess, antitrust, making some of these players sell stores or sell some properties, anything there that's interesting these days that may be taken advantage of, if there's any weakness there related to maybe some force selling?

Yes. So we have a very small number of dollar stores, and I really mean a very small number. And at National Retail Properties, we tend to focus on -- a little more on real estate than people might be aware of. And dollar stores located in secondary and tertiary markets are not on our radar screen. So to the extent there are opportunities, I'm sure they are for some other people.

The next question comes from the line of Vikram Malhotra with Morgan Stanley.

Craig, I just wanted to get a sense of what you're seeing out there in terms of sale-leasebacks. It seems like a couple of your peers have engaged in decent-sized sale-leasebacks over the last couple of months. I'm wondering if you were involved and kind of what you're seeing for rest of the balance of the year.

Vikram, it's Jay. What -- our pipeline is very healthy right now across all of our retail lines of trade. As you know, our primary focus is on relationship building with retailers and doing deals directly with them that are not widely marketed. And I looked this morning and we've -- our pipeline for this year has over 2 dozen relationship tenants that we expect to do some level of business with this year, so that feels very good to us. And that includes acquisitions as well as new store development by these relationship tenants. And then, we see all the deals that are being marketed broadly out there. We look at all of them. We underwrite them all. And we will continue to be really selective on those broadly marketed deals that we pursue. It really is a great business model for us. If you look at our first quarter, we had one large transaction that was over $30 million and more than half a dozen small transactions that were under $5 million. And the large transaction was broadly marketed. The cap rate differential between those 2 was over 100 basis points. And that's -- building these relationships with the tenants to get these somewhat off-market deals is time-consuming and burns energy but is very productive for our portfolio. We'll see -- there are some portfolios out there in the market that we're looking at, and we'll see all the ones that come to market. But our primary focus is going to be on these 2 dozen-plus relationship tenants.

Okay. And then just on the watchlist. Are there any tenants/any subsectors that you may be a little bit more concerned about versus 6 months ago? And then generally, I mean, I obviously know kind of which categories you focus on and don't, but are there categories that you feel would become, maybe, of a greater concern over the next 9 months or so?

I don't think there is a category per se we are worried about. Every credit issue, I think, is company-specific, not more category-oriented. So we -- and we always have retailers on our credit watchlist. I -- my cynical answer is all of them, but nothing in our list has changed in terms of composition or size of that list in several quarters, to be quite honest.

So Vikram, how we do it is specific to us. We have had Rite-Aid on our watchlist. I think since I joined this company, as best I can tell, they have paid us rent every single month for the last 10 years. And in the meantime, they are executing quite well, and -- but the fact of the matter is, it is the weaker of 3 companies in the drugstore business and so we monitor it a little more closely. But I think the big picture is that from a portfolio composition standpoint at 98.8% occupancy, the portfolio is very good. Retail is in good shape. We are not exposed to some of the categories which you appropriately are concerned about. I point out, we have 0 Sears, we have 0 Kmart, we have 0 RadioShack. In terms of the mall-based apparel retailers, we don't -- we're not in that business, so our portfolio is in terrific shape.

And then maybe just last one on the acquisitions. I guess you guys had a very strong quarter, but kept your guidance intact. Is it just -- I mean it's early in the year or should we actually assume kind of a slowdown for the balance of the year?

Vikram, this is Jay again. It is early in the year. And you don't have a long visibility to -- especially with respect to the portfolios that may come out there. But looking at our pipeline right now, I think we feel very confident that we should come out near the high end of the range for this year.

The next question comes from the line of Cedrik Lachance with Green Street Advisors.

It's my understanding from some of the companies that report transactions that you bought some ShopKo's in the quarter. Would you be able to confirm that and elaborate on it?

Cedrik, we did buy a small number of ShopKo properties. We've, over the years, underwritten a lot of ShopKo properties. And to put a number on that, our underwriters and different colleagues have visited probably 20-odd ShopKo properties in the last number of years, and we are the proud owner of 4 of them. We like the real estate locations on each of them. By the way, the performance of those stores is quite solid, which means rent coverage well north of 2x. But most importantly, we like the real estate locations, and the rent in those markets is quite low. So it's straight down the middle for us. We're a real estate-focused company.

Okay. And obviously, there is prospectively a lot of them on the market or could be a lot of them on the market. Any appetite to further increase your concentration with that tenant?

I think right now, we like where we sit, Cedrik.

Okay. In regards to the vacancies that you experienced in the fourth quarter, so you had a little bit more than usual. Would you be able to quantify how you've been able to re-lease some of those properties? And if so, at what rental rates versus the previous rental rates?

Cedrik, this is Jay. I'm not sure that I -- I'm not sure I agree with your premise about vacancy increasing, but I can answer your question. We had 11 leases expire in the first quarter and 9 of those renewed at -- just at 100% -- just under 100% of prior rent with no TI dollars, so that's very consistent. Any one quarter is really too small of a sampling to look at, but that's very consistent with our long-term average of kind of 90% renewal at very close to prior rent for the leases that expire by their terms. We had 6 vacant properties that were re-leased during the quarter. So these are our properties that sat vacant, and we re-leased those for around 70% of the prior rent, which is also kind of consistent with our long-term averages. I think that answers your question.

Yes. No, I appreciate the details. My question specifically pertained to the fourth quarter in which -- so you discussed in February that you had experienced a little bit more challenges in re-leasing the space and, therefore, you had to have an uptick in vacancy, and I was curious as to those specific properties and, perhaps, some of them are some of the 6 that have been re-leased, I'm just curious if you have an update specifically on the fourth quarter group of vacancies.

No, Cedrik, we'll have to get back to you on that.

Okay. And then just a final question on development. What percentage of your investment volume this quarter was made of development? And what percentage do you expect this year? And in addition to that, of course, what type of yields are you experiencing on the development front?

Cedrik, we are not in the development business at all. We do fund some development by our existing retail tenants. And what that essentially means is they develop the store and we reimburse them for it at cost. So some of our acquisition activity over the course of the year comes from reimbursing our relationship tenants for projects that they self-develop and historically, that has been in the $100 million a year range. And our acquisition guidance this year was for about another $100 million of that type of activity. In terms of the yields, we do get slightly better yields, but even those are compressing down to the same sort of numbers.

The next question comes from the line of Todd Stender with Wells Fargo.

Jay, I think you were giving a little more detail on a 30-property portfolio in the quarter. Did I get that right?

Over $30 million.

This is Jay. A portfolio that was over -- one portfolio we acquired in the first quarter was over $30 million, Todd. It was a portfolio primarily of fast food restaurants, QSRs.

Okay. Any other portfolios of size in the quarter?

No, not really. Almost all the rest of the business in the quarter was with our relationship tenants that involved 1, 2 or 3 properties.

And how about the average lease durations? What kind of range did you acquire in the first quarter?

Yes, the -- I think the average for the quarter was 12 and the range was probably 6 to 20. So it really was very similar to our overall portfolio and most of what we -- our typical quarter.

Got it. Okay. And then just in general, are you guys seeing an increased interest from larger capital providers? You guys are the -- you have the relationships in place, you're well established in net lease retail. How about just general interest from large providers, capital providers to do JVs? Any thoughts on that?

Well, we -- our strategy does not include partnering with third-party capital, so JV providers. We have looked at it in the past, Todd. What we prefer to do when we identify a terrific acquisition is put it in our portfolio. So -- but I think the big thing I would remind you is that our portfolio is made up of 2,000-plus different properties that cost us about $2.8 million, just like our acquisitions in the first quarter. And we don't see many institutions that are interested in buying aggregating portfolios made up of $2.8 million assets, which is one of the reasons why we get better risk-adjusted yields across our portfolio. Now for sure, in some of the bigger property types, whether it's apartments, office, industrial, you have bigger pockets of money seeking to deploy capital. But in net lease retail, which is all we focus on, we are not encountering big buckets of money trying to enter the space.

And then just finally, your original guidance assumed timing of your deal flow more back half weighted, but you put up a pretty good number in the first quarter. I just want to see if there's any updates of the timing of acquisitions closing.

I think you're still going to see the second half being stronger than the first half, I think. But as you know, things -- acquisitions that get completed late in the year, I mean once you get to fourth quarter, just has no impact on this year in terms of rent and FFO.

Our next question comes from the line of Nick Joseph with Citigroup.

Kevin, you mentioned the equity issuance this quarter through the ATM. So I'm wondering what considerations go into issuing equities through the ATM program versus doing a marketed offering.

Yes. It's something we think about a lot. I mean, obviously, the need for capital is one of those important elements in deciding which way to go. As you recall, we did do a regular way equity offering last November, not too long ago. But yes, it's really driven by the need for capital. And so to the extent we need more and need it more quickly, it will probably push us towards the more traditional equity offering route; otherwise, it's been on the ATM. We bought -- having said that, we bought a lot of properties from 2011 to 2014, and we went about 3 years without having -- without doing a regular way equity offering. And so that's kind of a day -- month-by-month kind of call that we're going to make as the -- what's the best way to execute against that.

Then you talked about the balance sheet. So I'm wondering for the remainder of the year, kind of, the capital plan, given the remainder of the acquisitions coming and the debt you mentioned coming due at the end of the year.

Yes. I mean, one thing we've consistently said is we don't give guidance, as it relates to capital markets activity. The one thing we did suggest is that you probably won't see our overall leverage profile materially changing. And so you can draw from that whatever assumptions you like, I guess. We do try to be opportunistic in our capital raises when there are times when particular pieces of capital become more attractive. And in 2013, we did a large preferred offering when we had really no intention of doing a preferred offering just 4 months prior to that, that offering in hindsight, it was a good transaction just because rates moved. And so I think the general answer to your question is that I think the capital mix that you currently see on our balance sheet probably won't change. How we get there, we are not giving any guidance on. Having said all that, I think, to the extent we've got debt coming due at the end of the year, it's likely we would do some sort of a long-term debt transaction this year.

And where could you issue 10-year debt today?

I think we're probably in the, call it, round numbers, 160 basis points over Treasury, so mid to high 3s.

The next question comes from the line of Rich Moore with RBC Capital Markets.

The impairments you had in the quarter, were those on the assets you sold? Or have you got more teed up as you took impairments on?

That was half and half of each properties sold and properties to be sold.

Okay. So similar volume, Kevin, of dispositions next quarter is kind of what you're thinking?

I don't know. I don't think you can read that into it. The -- it's just the impairments were really on just a small number of 3 properties, and -- but one was sold in the first quarter and one is pending sale.

Okay. All right, good. And then, the annual bumps you guys get on the stuff you're buying at this point is similar to what you traditionally get?

Rich, this is Jay. Yes is the answer to that. We think 1.5% to 1.75% annually is the way it kind of has worked out consistently for us, and this past quarter was consistent again with that.

Okay, okay, great. And then, on that $30 million transaction, Jay, you were saying that was 100 basis points below what the other stuff in the quarter you did with the relationship smaller deals was?

Yes. My point is -- in the -- that transaction was over $30 million, but the point of my comment there, Rich, was that in broadly -- it's the comparison of broadly marketed deals versus our relationship-based acquisition model. And when you go into a widely, heavily marketed transaction, the only way you win is by paying more than everybody else in the whole world. And these properties were ones that we were very happy with. We thoroughly underwrote them. They're -- there were aspects of those -- these properties that we really liked. And so it was worth it to us to prevail in that process. But it is -- it's just indicative of the pricing when you do that versus if you spend the time to build relationships with growing retailers.

Okay, good. Got you. And then there is another big read in the space that has a new sort of detailed supplemental about -- that includes some of the stuff that you guys have been discussing on the call like spreads and, I guess, what we call build-to-suits, but your development activities and that sort of thing. I'm wondering if you guys would consider a broadened disclosure package on some of those metrics.

Rich, we'll definitely think about it. Thank you for the suggestion.

The next question comes from the line of Daniel Donlan with Ladenburg Thalmann. Daniel P. Donlan - Ladenburg Thalmann & Co. Inc., Research Division: Craig, it looks like your limited service exposure -- limited service restaurant exposure has kicked up nicely over the last 5 quarters. Can you talk about why you've been more bullish on this sector? I know it's caused problems in the past with some of the net lease REIT. So what are you doing in underwriting these properties that makes you feel better about them, that they're not going to be problematic for you going forward if the economy does start to soften?

So Dan, a couple of different things. I think to the extent people have had challenges in the past, they have involved family dining or casual dining and not quick service restaurants. But our approach is identical across every acquisition we do. It's underwritten individually based on the real estate metrics. And one of the beauties about the limited service, quick service category is that most of these stores were developed years ago. They're on very busy streets, frequently signalized intersections in great real estate locations, with market rates that were established years ago at prices that are below or at the current market. So from real estate standpoint, we really, really like it. In addition to that, if you ever have to replace them, a good real estate location is your friend. Daniel P. Donlan - Ladenburg Thalmann & Co. Inc., Research Division: Okay. And then as far as where we sit today in terms of your portfolio, what percentage is investment grade rated? What do you think that would be from a percentage rent perspective?

Right now, we are about 27% investment grade rated. We don't report that because we don't manage to that number. And to be quite honest, if it was 17% a year from now or 37% a year from now, I'm not sure we would be happy or sad, so that's not a metric. We're very bottom-up underwriting driven and that's where we continue to find good risk-adjusted returns in a non-investment grade acquisition market. Daniel P. Donlan - Ladenburg Thalmann & Co. Inc., Research Division: Okay. It's just helpful to see for any repurposes, given that the market or the market for those properties, there tends to be quite a big premium for them relative to those that are non-investment grade rated.

Yes. We've not been inclined to make -- pay a big premium for investment grade-rated tenants. Daniel P. Donlan - Ladenburg Thalmann & Co. Inc., Research Division: Right, right. And then Kevin, just housekeeping item. It looks like your below-market lease amortization ticked up in the first quarter versus the fourth quarter. Is the run -- is what you have reported in the first quarter, is that a pretty good run rate for the rest of the year? Or is there something going on there that was onetime-ish?

There is a one-time item, about $340,000 in there connected to one lease that got terminated and so triggering an accounting outcome that somewhat doesn't make a lot of sense, but it is what it is. So yes, you should read into that, that it's about $340,000 lower than that on a normal basis. Daniel P. Donlan - Ladenburg Thalmann & Co. Inc., Research Division: Okay. It's going back to kind of where it was in the fourth?

Yes.

Dan, just to supplement Kevin's point there. That lease was terminated and reinstituted or modified, and it triggered that accounting effect, so it didn't -- we didn't really take it [indiscernible]

We have the same tenant, and to be honest, the lease duration is longer, so everything is good.

Yes, we did not take a lease termination fee there.

Correct. Daniel P. Donlan - Ladenburg Thalmann & Co. Inc., Research Division: Okay. And then just lastly, Kevin, on the -- on your leverage, you're probably the least leverage you've been, at least going back in my model, ever. Is -- are you going to continue to kind of push down on the leverage? Or do you see yourself kind of gravitating to maybe where you've been historically on a net debt to EBITDA basis? I mean, you're not that far off from where you've been, let's say, last year but versus a couple of years prior, you're definitely less leveraged than you were before.

No, you're correct to point out. The leverage has been drifting lower. What the big picture for us is to drive multiyear growth and per share results. And so kind of starting with that as a very important objective, we manage our balance sheet. And so over the last few years, we've been able to let leverage drift lower, while still posting plus 7% kinds of per share growth rates, which is a great environment to be in. I don't think, as I alluded to earlier, you'll see us pushing leverage lower. But I'm not here -- sitting here today saying we're going to let it go higher either. So I think you should think about it being roughly the same as where we are at the moment.

Actually, Dan, one other complement to that is, we love the optionality that we've created by getting to this point. Daniel P. Donlan - Ladenburg Thalmann & Co. Inc., Research Division: Okay. And then just kind of lastly, there's been a lot of talk about -- a lot of activists going after various companies that monetize the real estate. Historically, you guys have stayed away from that thus far, at least the cycle. Should we anticipate that your appetite might improve? And is there any -- for the right real estate and the right price, are you going to take a tenant that maybe you don't have exposure to? Are you going to -- how high are you going to take a -- one tenant's exposure to?

Well, for the last several years, 3 to 4 years, we have been calling directly on some of the companies that a couple of years later show up in the media. So we are -- have been in discussions with these companies for years. We've built relationships with them. Some cases, we've done small deals with them. And in others, when the deals emerge, we will take a close and clean look at them. If the deals make good sense from a real estate standpoint, we're all over them. In terms of mix, we like to have a diversified portfolio, but there are no arbitrary criteria. If it's a great company and a good segment with good outlook and rent that makes sense, we are all over it.

[Operator Instructions] Our next question comes from the line of Vineet Khanna with Capital One Securities.

Do you mind just sort of talking about the volume of deals you underwrote in the first quarter? And what the split was between relationship and marketed? And then, how many of those you ended up sort of going after?

Yes. I think it's an interesting data point, but we do not track that at all. Rather than tracking the deals that come in and are rejected, our people go out and visit the real estate. We find that a much better use of time. So in terms of monitoring a hit rate or something like that -- we've done that in the past, we just didn't find it an effective management tool. So we don't track it at all. There is no data on that in our company.

Okay. And then, I guess, turning to dispositions, is there any interest to sort of ramp up dispositions in '15, given the strong pricing, maybe leveraging the 1031 buyer network?

Yes. So I think on this call, I really spent quite a lot of time talking about our process and our expertise and so forth. And we are going to continue to sell small amounts of properties over time. I think specifically in terms of your question, we are going through a little bit of a process where we have a small number of properties, and I really mean small that, frankly, we would rather somebody else owned. And if we find opportunities to do that, we will take advantage of that. But you are talking about really small dollars, and I think we will sell some of those properties.

Mr. MacNab, there are no further questions at this time. Would you like to make any closing remarks?

Melissa, thank you very much. We appreciate your interest. We are very pleased with the quarter and we like the way we're positioned. We look forward to talking to you at one of these conferences, perhaps at ICSC in a couple of weeks in Las Vegas. Good morning.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.