Safehold Inc. (SAFE) Q4 2018 Earnings Report, Transcript and Summary

Good morning and welcome to Safehold's Fourth Quarter and Fiscal Year 2018 Earnings Conference Call. [Operator Instructions] As a reminder today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Jason Fooks, Vice President of Investor Relations and Marketing. Please go ahead, sir.

Good morning, everyone and thank you for joining us today on Safehold earnings call. With me today are Jay Sugarman, Chairman and Chief Executive Officer; Andy Richardson, Chief Financial Officer; and Marcos Alvarado, President and Chief Investment Officer. This morning we plan to walk through a presentation that details our results for the fourth quarter of fiscal year 2018. Corresponding presentation can be found on our website at our new website at safeholdinc.com and by clicking on the Investor Relations link. There'll be a replay of this conference call beginning at 1:00 P.M. Eastern Time today. Dial-in for the replay is 805-858-367 with a confirmation code of 4794594. Before I turn the call over to Jay, I'd like to remind everyone that statements in this earnings call, which are not historical facts may be forward-looking. Our actual results may differ materially from these forward-looking statements, and the risk factors that could cause these differences are detailed in our SEC reports. Safehold disclaims any intent or obligation to update these forward-looking statements, except as expressed or required by law. Now with that, I'd like to turn the call over to Chairman and CEO, Jay Sugarman. Jay?

Thanks Jason. 2018 was an important year for our Company. We grew our portfolio by almost 80%, we expanded into six new markets, and we accelerated our efforts to get our message out to the market. As pioneers in reinventing the ground lease sector, we continue to find attractive new markets to explore and multiple ways to deliver the benefits of our more efficient capital to our customers whether they are acquiring properties, building properties or recapitalizing properties. In 2019, our goal is simple and clear, to revolutionize real state ownership in this country. A modern ground lease that is tailored to be leasehold lender friendly and cap rate neutral can increase the building owner's returns and reduce their maturity and interest rate risk. This is no longer a theory. It is proving a powerful competitive advantage in the marketplace and is leading to significant repeat customer business in the office and multi-family sectors and interest from across all property types. Recognizing the importance of this moment, we're taking several steps to accelerate our progress. First, we're making clear our mission to revolutionize real estate ownership by giving our customers a new and better way to unlock the value of the land beneath their buildings. We are reaching out and explaining these benefits to everyone in our extensive network; that includes top brokers, a wide range of real estate financing sources, and specifically the owners, operators, and developers of high quality real state around the country who have the most to gain from our innovative strategy. Second, we are changing our name. We are now Safehold. It is what we are and what we do. While our previous name emphasize the very real benefits our business can deliver to shareholders, our new name better explains what we can do for our customers: create a safe and efficient way to unlock the value of their land and hold it quietly and securely while they execute the business plans for their building. The bottom line is, a well structured modern ground lease, what we call as Safehold gives property owners an opportunity to maximize the returns while reducing the risk. We also have a new logo, graphically showing how we are breaking out of the box of limited conventional thinking by reinventing what ground leases are, and giving owners a more modern, more efficient way to capitalize their properties. Third, we are expanding our relationship with our largest shareholder and investment manager, iStar. We believe a combination of iStar's historical strength in finance and net least together with our growing ground lease expertise can create a unique one-stop shop offering that will prove superior in many situations and help accelerate our growth. We have already seen this Safe-Star combination create new opportunities to land attractive transactions. We also closed another round of equity capital from iStar giving us the firepower to expand our pipeline and our resources for pursuing deals. Raising $250 million at a premium to the screen demonstrated both sides significant belief in the future growth prospects of Safehold and a new management agreement better aligns incentives for reaching our aggressive growth targets. A capital support of iStar ensures we can scale while we continue to educate our future shareholder base of what we are building. Each of the steps positions us to execute our strategy on a bigger scale across more markets and help more property owner's access our modern capital solution. Fourth and finally, we are also expanding our outreach to the shareholder and lending communities. As Andy will outline, we continue to make progress highlighting our high great asset base and its superior credit metrics to lenders. And with the new accounting rules more actually portraying the lifetime economics of our income streams, we believe GAAP income will become a simple and far easier way to share our economic model with investors across a range of investment styles and disciplines, and help call attention to our significant growth rates. As we've said before, we think this is a business that pays a very safe dividend, can grow earnings at high rates, and can capture long-term value in a unique way. It's our job to help others see what we see and all these steps should help us do that. Now, let me turn it over to Andy, to go through the quarter and year-end results. Andy?

Thank you, Jay, and good morning, everyone. Let me continue with Slide 6. For the quarter, net income was $0.24 per share versus a loss of $0.07 for the fourth quarter last year. FFO was $0.36 per share versus $0.05 in the prior year period and AFFO was $0.09 per share versus $0.06 in the prior year period. For the year, this brought net income to $0.64 per share, FFO to a $1.15 per share and AFFO to $0.63 per share. Because we formed the Company midway through 2017, the full year-over-year comparison is not meaningful. Our quarter was highlighted by strong quarter-over-quarter investment volume, and an investment of new equity capital from our manager received after year -end, that provides us with runway for growth. Let's turn to Slide 7, to discuss this quarter's investment activity. For the quarter, we closed $178 million of new investments, growing our aggregate portfolio to $948 million, a 23% increase from the third quarter and almost tripling in size since our IPO. You can see the key investment metrics on the Safehold's we originated in Q4 toward the bottom half of the slide. We are earning a 5.6% effective yield with AAA like credit metrics of 3.2x coverage and the cost basis of 41% of the combined property value. These investments also included periodic CPI look back to provide additional potential upside to our effective return. Slide 8, describes this quarter's investments in some additional detail. Most noteworthy, we originated a Safehold on 1111 Pennsylvania Avenue in Washington DC, a trophy office building that is fully occupied by global law firm, Morgan Lewis & Bockius. This $150 million investment represents the largest single asset in the portfolio and further demonstrates that Safehold can provide better capital to its customers on any scale. Washington DC continues to be a strong MSA for us with approximately $300 million of deals closed in the market to-date. Our second investment for the quarter expanded Safehold's geographic footprint with our first deal in Nashville. We created a Safehold underlying at 275 unit Class A multi-family building located in Novel Music Row, a vibrant sub-market of Nashville, marking the second deal we have completed with this customer. We remain enthusiastic about our continued ability to penetrate the multi-family segment while continuing to expand into new core markets. Moving to Slide 9. Along with announcing Safe's rebrand, we're also introducing the Safe-Star, one stop capital program that is a direct result of Safehold's aligned relationship with iStar. This platform combines iStar's 25 years of financing expertise and innovative thinking along with Safehold's unique product in order to provide our customers with a one-stop capital solution. With both companies operating in tandem, this powerful program delivers an efficient capital structure to customers seeking flexibility and simplicity. An excellent example of the Safe-Star program is the deal we recently closed in Washington DC shown on the Slide. Safehold provided the capital to create a new ground lease on the property and iStar provided the first mortgage lease hold loan. With this structure, we can deliver to customers an efficient capital solution with certainty and ease of having the whole envelope structured in one place, significantly expediting the pathway to closing. Turning to Slide 10. As previously announced on January 2nd, iStar made an additional $250 million equity investment in Safehold valued at a price equivalent to $20 per share, an attractive premium to the market price of our stock. This investment provides Safehold with fresh capital to pursue approximately $750 million of new deals assuming our targeted 2:1 debt-to-equity ratio. The investment was structured as a purchase of $12.5 million limited partnership units that will be exchanged for common stock on a one-for-one basis subject to shareholder approval. iStar's ownership now represents approximately 65% of our total equity. However, it should be noted that iStar discretionary voting power will be capped at 41.9%. In conjunction with this investment, our Independent Directors approved an amendment to the Management agreement with iStar. The key changes to the agreement which we believe creates increased alignment with our manager are summarized on the slide. Lastly, Safe's Board approved iStar's request to increase its common stock ownership limitation to 43.9% from 41.9% allowing it to make additional open market purchases of up to 366,000 shares. Slides 12 and 13 show the diversification in our portfolio. Washington DC has now become our largest MSA and the map includes Safehold's expansion into Nashville. In Slide 14, we have highlighted the portfolio of properties for which we own the ground lease. Our ground lease is underlying nearly 7.2 million square feet of real estate including over 2,800 hotel rooms and 2,600 multi-family units. Slide 15 details key metrics of our portfolio. Annualized GAAP revenue which takes into account straight line rent totaled $70.6 million at the end of the fourth quarter. Net of depreciation and amortization our portfolio yield 6.9% on a GAAP basis. Annual cash flow of the building sitting on top of our land covers our annual cash rent by 4.5x and our total cost basis represents about 35% of the combined property value which we believe to be compelling measures of safety in our investments. Imperatively the average AAA loan to value in commercial mortgage backed securities is approximately 38% to 42%. Slide 16 delivers an update on Value Bank. During the fourth quarter, Value Bank grew to 1.8 billion representing a 15% increase from the third quarter and 65% from a year ago. As a reminder, Value Bank represents today's estimated market value of the buildings that we may receive in the future because typically embedded in our investments are reversionary rights of the buildings and improvements at the lease expiration. Moving to Slide 18, I will review our debt and leverage. During the fourth quarter, we closed at 10 year $79 million non-recourse senior secured loan that was tailored to meet the unique attributes of our assets. The loan has an initial effective rate of 3.91% which increases 2% annually in line with the rent bumps of the investment that collateralized. The all in effective rate is 4.25% and is interest only for the entire 10 year term. It was collateralized by seven assets and represents a 60% advance rate against base investment basis in the collateral. In addition it provides for asset addition and substitution flexibility. In addition, we continue to have 227 million of long term fixed rate debt in 2027 secured by our initial $340 million portfolio and 71 million of assets specific debt against our Hollywood investments. We drew 96 million on a revolver during the quarter to fund investment activity bringing the outstanding balance on our revolver to $170 million at December 31. The revolver was fully repaid after year end using the proceeds from iStar's equity investment. Slide 19 continues to outline the interest rate hedges sufficient to allow protected two times leverage on the existing portfolio. Finally on Slide 20, I would like to discuss how we will be reporting our metrics going forward. We expect that after the adoption of new lease accounting standards beginning January 1 of this year, nearly all of our newly originated Safehold's will be classified as sales type leases rather than operating leases. These leases will be recorded on our balance sheet as a net investment in lease rather than as a land. We will recognize income from these leases in a revenue line item called interest income from sales type leases. This amount will be computed similar to how an effective interest or effective yield is computed on a bond using contractual future cash flows and residual value equal to our cost of the land. The difference between the effective yield or what GAAP refers to as the rate implicit in the lease and current period cash received is recorded as amortization which increases or decreases the net investment in lease balance sheet account. We believe that the GAAP treatment of these leases under the new accounting standards captures many of the fixed income like aspects of our business such as AFFO and FFO will be of less utility as supplemental measures going forward. Already under GAAP we use a similar method to record interest expense on our debt. Consequently, we believe the new GAAP yields recorded on our assets and debt obligations will be more comparable and that GAAP net income will be more indicative of our operating performance as a high grade fixed income investment business. In conclusion, we are encouraged and confident based on the progress we've made to-date but as we rollout the new grant, we're even more excited about the possibilities ahead. And with that I'll turn it back to Jay.

Thanks Andy. I know there's a lot there to unpack so we're just going to go ahead and open it up for questions. Operator?

[Operator Instructions] Your first question comes from Anthony Paolone with JPMorgan. Your line is open.

I guess jump into some of this accounting - that's interesting. If we think about that effective yield is that I mean if your residuals the same as your basis is that effectively like the straight line yield that we've been accustomed to in the past there is a much difference there?

Yes, it's really more like a bond where we assume we do receive par back at the end. So we're not increasing the backend values at all so it's really capturing the cash flow stream. And assume your investment and your principal receipt at the end out is the same number really it’s very much bond accounting.

Andy would say it was like an IRR.

Yes.

Yes that’s correct, that's exactly what it is.

And so will you still be able to provide us like some sense of going in cash on cash and will the GAAP accounting loss to see what those cash numbers are just to understand things like liquidity and dividend coverage and so forth?

Yes, we will talk about cash yield as well, but again I think - what we like about the effective interest effective yield as it given the high quality of the assets it's very much like a AAA bond that you can buy at a discount. So the effective yield really does capture the true value but will also provide us a running cash yield as well.

And so, then going to a GAAP EPS type number that also mean there won't be any adjustments for non-cash compensation or the amortization of debt costs and so forth?

We're going to make it really simple for you no adjustments.

And then perhaps maybe on a more economic side, can you talk a little bit about the pipeline, cadence deal flow may be fixed back to next few quarters and returns on those?

Sure, I think our goal right now is as you heard throughout today's comments is to really accelerate the growth in some respects really through the beta phase of the business and we're now really in the execution phase. And I think generically we have targets this year of about $750 million in new ground leases and up. So that's a good number that will be thinking about as we try to work our way through these early quarters and then really build towards a much faster growth rate. But right now we feel like getting our message out into new markets across top 25 target markets is really critical. And so we got people in the field working on building those relationships, but we feel pretty good about what we see in the pipeline. Right now we are still having to educate in some of the new markets but in markets we've already executed in we're starting to take calls from people who have seen what we're doing have seen their peers and competitors frankly when deals are using the structure. So we do think the pipeline feels pretty good in terms of the number of calls we're fielding and the number of places we’re engaged.

And then just last question on the Safe-Star one stop program I know it's pretty customized for deal, but maybe give us a rough sketch as to what does that mean to a sponsor in terms of thinking about your total proceeds versus maybe going after more conventional financing and also maybe like what is the braded sort of carrier rate if you will if you were to combine the ground lease plus whatever financing package Star may provide again in comparison to - or something a bit more traditional?

Yes, I like the way you put that. It is a flexible structure. So what we're seeing is folks who are a little bit hedging on where interest rates are going. They like the fixed rate nature of the ground lease. They also are willing to work on the lease hold on a floating rate basis if they have a shorter term hold period, so they can kind of custom tailor what they need for their business plan. What we find interesting is we don't walk in and say this is what we do. We walk in and say what is your business plan and what are your financing alternatives. We think we can beat them. We can either provide the same proceeds in a better structure, lower cost, less maturity risk or in some cases we can provide more proceeds so they can generate higher returns on whatever capital plans they have. Again, it's really a customer centric business, which is the key. I don't think anybody ever thinks of the ground lease business as customer centric. We're going to build a business that much like the other businesses we've built in our past at iStar really respond to what the customers need and create a better alternative for them. So sometimes it will be lower cost capital, sometimes it will be lower cost and more proceeds, sometimes it'll be more proceeds. But it gives them the ability to really match their capital needs in a way more efficient way than just taking down a single sort of conventional financing.

Your next question comes from Collin Mings with Raymond James. Your line is open.

First, just going back to the announcement last month, can you just discuss in a bit more detail the trade-offs that the Board contemplated taking more capital from iStar with making the management agreement more complicated and higher cost to safety?

Yes, I think it's little bit of two independent decisions; one, from a capital standpoint it was attractively priced capital, obviously given where the public screen was and where our advisers thought you could do execution in a more widely distributed fashion. So we had a nice meeting of the minds, iStar believed strongly in the business and Safe has a pipeline that represents what we think is a very attractive future business opportunity. So that piece of the trade made a lot of sense for both parties. On the management agreement, we start with the fundamental premise of what do we want to achieve, what is the incentive we want to create. And so if scale is the critical factor and we fundamentally believe once we reach scale, people will start to see what we see. We wanted to create proper incentives to invest now far beyond what the management fees themselves would justify to create this future of a much bigger, much more scale business. We would argue that the cost upfront here need to be viewed as investments and they need to be some prospect of over investing early and seeing the returns later. So we're spending a lot of time and effort upfront to make this business grow. We want to create a management agreement that is aligned with that scaling growth target. So I actually think it's a better aligned management agreement. It has no impact unless we scale. Once we can get the equity base of this company above 1.5 billion, there's really no change. So it's really meant to help us do what we laid out this morning which is take this new more efficient capital structure to the market in as many places as we can as fast as we can and have all the resources available to us to do that, both capital resources and intellectual property resources.

And then going back to Anthony's question just on the deal pipeline, I may have missed it but I didn't see the pipeline spot that you included in prior quarter. But can you maybe put a finer point on kind of quantifying where the pipeline stands and then maybe any sort of notable property mix shift since last quarter just as you look at kind of what you're going through right now either through LOI or some of negotiations?

It's Marcos Alvarado. So, we - in Q1 already we've closed four transactions totaling $62 million in Safehold's. We have another $100 million - approximately $160 million across three transactions - excuse me, $95 million that totals approximately $160 million that we expect to close in Q1. And the cumulative pipeline is approximately $300 million.

And then just as far as the property type mix and sort of bias. I know obviously there have been momentum if you will with the Company we're trying to do a little bit more on multi-family side, but just if you can kind of walk us through where that mix stands as you think of the pipeline now?

It's consistent with our strategy of creating a diversified asset base in broader markets. One of the closings that already occurred is in a new top 25 market which we're excited about. There's a few office assets and few multi-family assets and one hospitality asset.

One last one and I'll turn it over. Maybe just a little bit bigger picture just as we think about today's announcement and accounting changes, and the decision to move away from communicating FFO or AFFO metrics, how do you think - how does the potential reception from the re community and just having kind of a different metrics if you will for this Company factor into your thinking of kind of moving away from that decision?

Well, in many respects we're very different company than anything else in the sector and so we fundamentally believe it's not only appropriate for our real estate followers to understand the business and what it does but also much wider range growth. Growth in income, the financial sector should all be paying attention because we think we offer a combination of very safe dividends, very high growth rate potential, very large market opportunity. But we think the strategies and disciplines that will be attracted to that combination go well beyond just the REIT sector, that's our tax classification. But we do think there's a much wider audience that will be it attracted to those unique benefits. And so we'll try to continue to communicate within the real estate community why this is so special. It's really unlike anything that we've seen but also expand that well beyond just dedicated core real estate investors to a much wider audience that's looking for growth, that's looking for safety, that's looking for long-term capital appreciation. And we continue to believe this is a unique opportunity for lots of different types of investors to really find something that we hear very often from shareholders that they're looking for.

Your next question comes from Jade Rahmani with KBW. Your line is open.

In terms of the accounting change, does it effectively incorporate future anticipated rent growth and move it over time to calculate an effective yield?

It only uses contractual growth that's built into the leases. So it would not include anything that is not estimable or contractually stipulated in the lease.

And so will dividend policy be based on cash flow or GAAP earnings?

Primarily cash. Now we think the economic model will support more flexibility than being 100% rigid to that metric, but right now you'll see a track cash.

And what are your expectations for Safe's dividend growth will attract land escalations that are contractual in the portfolio and so it's reasonable to anticipate some growth in 2019?

I would tell you it's not our core metric. Unfortunately we're old bond guys and fixed income investors. If we can take our money and reinvest in the high rates of return, we think that if you're creating excess return on a credit quality that we think we are creating, we want to keep that money working and compounding at those high rates of return. So our metric is are we creating a lot of value above and beyond a market level for our credit exposure, and as long as we do that, dividend growth will happen but it won't be our primary emphasis.

And if cash is less than GAAP, will you finance the difference through leverage, will that ultimately depress book value to the extent that dividends run ahead of cash?

Yes Richard I think cash will try dividend will track cash. So we don’t expect any material situation like you're outlining?

Looking at the balance sheet there is some accumulated depreciation and I don’t believe land is depreciated what’s the source of that?

That’s primarily related to the hotel portfolio, the Park Hotel portfolio.

We’re actually on the overlying buildings and to get that depreciation.

And finally in your view why do you think Safe’s stock price didn’t react more positively to iStar investment at material premium to where is Safe than and is now trading?

Yes, right now we don't think the stock really has any information in it its trading de minimis volumes. We have a number of very large shareholders who have reached their limits by our bylaws. And so we really view 2019 is the year we start telling our story of expanding a reach of the company into the shareholder community into the lending communities. So right now we just don't think the stock actually reflects any of the information that some of our people who are following the company closely now understand.

Your next question comes from Joshua Dennerlein with Bank of America Merrill Lynch. Your line is open.

I am just still trying to wrap my head around effective yield firstly kind of the old way using cap rate. It might be helpful for 4Q deals that you closed if there is a five big effective yield. How would like GAAP and cash rates compared to that effective yield?

Yes I mean, think about it as you were buying a treasury bond that had a five, six effective yields. You're going to get that yield because it's AAA credit quality if you're getting cash of 3.5%, 4% upfront and the rest of that yield over time that gets constantly reinvested at that rate. Our view is if you can make excess returns to AAA level of credit risk and compound it continually its really great place to be from a fixed income investor standpoint from an equity investor standpoint. You're recreating that Alpha every time you rollover a portion of that. That's really what's happening here, think of it as the bond, think of it as a AAA bond or a treasury bond. Part of it of your return is paid in cash every year, part of it is rolled over and compounds of that same rate going forward. So if your cash yield year one is 3.5% to 4% and you got bumps of 2% over time you're going to make a 5.5% effective yield. And there's no if here because of the quality where we are sitting in the capital structure it’s not like a maybe an equity deal where you can't really predict whether you ever get that future accrued amount. Here we’re still starting I think Andy said 35% LTV you are going to get the amount. What's best about it is actually going to compound that these high rates of return that were creating are really are not replicable anywhere else in the market. There is a little bit of a different mentality and its one that comes naturally to us given a fixed income and lending backgrounds. We look at this as a way to create very attractive long-term return long-term compounding returns and we think the cash on cash yields out of the box are attractive in and of themselves relative to the marketplace. What was really driving the business is much more of this effective yield relative to other effective yield for similar credit quality instruments.

So it seems that you are taking the cash flows and reinvesting them at – into the market rate or the internal rate?

No, if you think about - if you get 4% of your 5.5 in cash the other 1.5% is in effect going to compound that's how effective interest is calculated. What is the constant return that will create the stream of income that we contractually have over the life of the instrument. Assuming we receive part of the end and pay part at the beginning. That is standard bond math effective yield and effective interest is really what the accounts are now trying to create out of leads streams particularly long dated lead streams. They look at them and they try to understand the economic reality. We think that is the long-term economic reality. Now if we were at 90% of the capital structure 80% or 100% we would not use this methodology because those future cash flows are not assured. But when you start at a, the fact they are AAA credit quality location of the capital structure and as you build a diversified portfolio, these credit metrics are exactly what we've been doing our entire careers here trying to find long-duration non-callable cash flow that create above market returns that create Alpha every time you create them. And if you can let them run and compound and not have them get repaid on you, those are really good businesses. We’ve seen tremendous success in the last two decades when we found those businesses. So we think Safehold has the ability because of its unique skill sets, because of the financial support and personnel support for iStar to really start telling the story both for our customers about why this is a better more efficient capital structure for them. And now for shareholders and frankly for lenders why a diversified scale of portfolio of these assets starts to look very much like some of the businesses we built in the past. So we tend not to look at any single individual deal as the way to think about our company you have to think about as a growing scaling business generating what we think are these attractive risk adjusted returns. And evaluate whether you think we can continually repeat that and build an ever larger business. And we certainly believe it we believe iStar believes it we have repeat customers who I think believe it, but we now need to bring that message to the broader market.

And just sort of paired for the 1Q release, what are you guys going to show I assuming like they look very similar just Page 22 you’ll kind of get rid of Page 23 of your presentation. I don’t know if there is anything else that we should kind of focus on their models already kind of the new accounting change?

I think that the old the pre-January 1 announced and presentation will stay exactly the same. And all the new deals will be recorded under the new accounting that we described earlier which is the revenues will be recorded as interest income from sales type lease which is effectively the IRR implicit in the lease cash flow stream. And the amount that we paid for the asset will be recorded as investment in lease on the balance sheet. And we will report straight net income.

[Operator Instructions] Your next question comes from John Massocca with Ladenburg Thalmann. Your line is open.

This is a [Brendon Travis] on for John. On your purchase of the existing ground lease in San Antonio can you discuss the terms of the transaction and what made it attractive asset?

We won’t discuss the specific terms and the yields on it. The reason we like the transaction is it’s on the Riverwalk in a central location, the coverage exceeds our metrics. And the cash yield we’re getting exceeds the metrics in our portfolio plus it got us into a market that we’ve not been in before.

And then how big is the market for third-party ground lease acquisitions and non-top five MSAs?

You mean to say acquisition of existing ground leases or the ability to create them in these markets.

Existing ground leases?

Yes, there are more ground leases than you might think of there but they don't trade very often. So it will be a part of our business, but we don't think it's the driver of the business.

Your next question comes from Collin Mings with Raymond James. Your line is open.

Just a follow-up going back to really the last question. I recognize you don't want to provide maybe the specific on the San Antonio deal but just more broadly can you talk a little bit more about asset pricing and then just benchmarking as you think about obviously there's been some moves in the interest rate environment just as far as benchmarking deals and kind of the - from a deal flow perspective where pricing stands?

Again, we're credit dependent. So depending on the market thing on the quality of the outset, depending on the capital structure, these numbers can bounce around. I think when we first gave metrics to the market, we gave a range and I think those ranges are still reasonable. We're seeing coverage ratios that we still like to see in the 3x to 5x range and depending on how good all those other factors are, initial cash yields have been in the. 3.5 to 4 is kind of a centering number. The effective yields on those type of assets will be in the 5 to 6 range. And as Andy explained, I think our financing costs we think are in the 4.5-ish for diversified pool of assets. So the metrics you'll see going forward from a GAAP income statement are driven by those imports and they're still pretty consistent. Now we think there are opportunities to grow this business very fast. So the rules are somewhat flexible in terms of - there are markets we want to be in, and there are asset qualities that are at the very high end. And so we have flexibility on both sides of that equation but those metrics are still kind of the ones we want. We want to be in that 35 you know third to a 40% of the total value of the property. I think that's the appropriate optimal space that allows us to be leasehold lender friendly and cap rate neutral. We don't like to move above that, we don't like to move below 3x coverage. Other than that we price against the market and try to create a better alternative for our customers. So as the markets move for capitalizing real state, we'll move with them.

Appreciate the detail there. I guess but it doesn't sound like that kind of moves in the tenure one way or the other have really had an impact in terms of the pricing you're able to achieve. Is that a fair take away?

I would say on a pipeline we try to be very disciplined and take a look at obviously the moves in treasuries. We have floors in our term sheets, we price off the treasury. It is deal dependant. If I take a look at the cash cap rates that we've closed already in Q1, I would say that they fall within the outline that Jay gave you. We're getting better pricing in what I would call outside of the top five markets, and you're getting pricing on the lower end of the range in the more core markets. But again, those cash cap rates we think are strong but the weighted average effective yield is what we're really focused on.

Mr. Fooks, we have no further questions.

Great. Thanks for joining us everyone. If you just have any additional questions on today's earnings release, please feel free to contact me directly. Operator, would you give the conference call replay instructions once again?

Certainly. To access the replay for today's call, you may dial 1800-585-8367 or 1855-859-2056 and enter passcode 4794594. Again, to access the replay for today's call you may dial 1800-585-8367 or 1855-859-2056 and enter the passcode 4794594. The replay will be available approximately two hours from now. Thank you and have a good day.