W. P. Carey Inc. (WPC) Q4 2014 Earnings Report, Transcript and Summary

[Starts Abruptly] Starting with some financial highlights, for the 2014 fourth quarter we generated adjusted funds from operations or AFFO of $125.6 million or $1.19 per share, which brought AFFO for 2014 to $480.5 million or $4.81 per diluted share. Looking ahead, we are maintaining our prior guidance for 2015 AFFO, which we continue to expect to fall between $4.76 and $5.02 per diluted share. During the 2014 fourth quarter, we declared a dividend of $0.95 which was a 1.1% increase over our third quarter dividend, marking our 55th consecutive quarterly dividend increase. Compared to the regular quarterly dividend we declared in the 2013 fourth quarter, it represented a 9.2% increase, driven primarily by our accretive merger with CPA 16. Our annualized dividend rate stands at $3.80 per share and based on yesterday’s closing stock price, our annualized dividend yield was 5.3%. Turning to our owned real estate portfolio, this is our core business representing over 80% of 2014 total net revenue. Investment volume for our owned portfolio was particularly strong during the fourth quarter, completing a strong year for acquisitions overall. Specifically during the fourth quarter, we completed six investments totaling $653 million, bringing on balance sheet investment volume for 2014 to ten acquisitions totaling $907 million. The largest acquisition we completed during the fourth quarter was approximately $380 million sale-leaseback transaction with the State of Andalusia in Spain for a portfolio of 70 office properties. This portfolio is highly diverse with limited exposure to any single property or location and occupied by a range of state government departments and agencies that provide critical services, including the ministries of health, labor and taxation. The lease is for a 20-year term with embedded rent growth based on Spanish CPI with a floor of 1.5%. This transaction provided the opportunity to acquire a significant portfolio of assets that what we believe was a bulk discount rather than the more typical premium prevalent in the United States. We therefore have the option of obtaining liquidity by selling individual assets should the need arise. Overall acquisitions for our owned real estate portfolio during 2014 had a weighted average cap rate of approximately 7% and a weighted average lease term of approximately 18 years. And all of the acquisitions we completed for our owned portfolio in 2014 included either fixed or inflation linked rent escalations. Furthermore, approximately half of the annualized base rent from real estate acquired during 2014 is from investment grade tenants raising overall investment grade annualized base revenues to 26.4% of the total portfolio as of year-end. Turning now to 2015, we have completed two acquisitions so far this year, including approximately $350 million acquisition of a portfolio of 73 automotive retail sites net leased to Pendragon, which is the UK’s largest automotive retailer. The portfolio has a long lease term with weighted average remaining term of 15 years and includes built in rent growth based on a UK inflation index for about two thirds of the sites and fixed at 2.25% for the remaining one-third. It’s a well-diversified portfolio of properties in terms of the geographic locations, as well as the range of brands carried across various price points and the onsite services provided. It’s also strategically important real estate, representing almost one-third of Pendragon’s dealership footprint in the UK in key locations. Furthermore, it is notoriously difficult to obtain permits for automotive sites in the UK. So once established they become critical real estate for both automotive retailers and the manufacturers they represent. Originally marketed as several smaller portfolios, we were able to negotiate the acquisition of the entire portfolio in an off market transaction and an attractive purchase price, which as I mentioned, we believe provided us with a bulk discount. Turning back to the key portfolio metrics for our owned real estate portfolio, we remained active capital recyclers in 2014 with dispositions totaling $304 million. The majority of which took place in the first half of the year. Consequently, at year-end, the company’s owned real estate portfolio consisted of 783 net leased properties with 87.3 million square feet leased to 219 tenants and for operating properties. Portfolio occupancy remained high at 98.6%, up from 98.1% at the end of the third quarter. The weighted average lease term for our owned real estate portfolio ended the year at 9.1 years, up from 8.5 years at the end of the third quarter. And it’s our current expectation that our average lease term will further increase in 2015 as a result of the two deals we closed in January, in addition to potential future acquisitions and capital recycling. Acquisitions during 2014 included single tenant office, industrial and warehouse or distribution facilities and at year-end, our overall diversification by property type remained high. At year end, approximately 65% of annualized base rent was generated by properties located in the United States. The remaining 35% was generated by our international properties, up moderately from 32% of annualized base rent at the end of the 2014 third quarter. Our portfolio remains widely diversified within the US by region and internationally with non-US properties located primarily in western and northern European countries. At year-end, approximately 95% of annualized base rent came from leases with built-in contractual rent escalations, either linked to CPI or through fixed rent increases and being net leases, tenants are generally responsible for substantially all of the costs associated with operating and maintaining the properties. So we have virtually no exposure to rising operating expenses. We have 15 leases expiring in 2015, representing approximately 3.2% of total annualized base rent, which is factored into our 2015 guidance. Turning to our investment management business, the 2014 fourth quarter was another strong quarter for investor capital inflows with gross offering proceeds totaling approximately $416 million, driven primarily by $363 million into Carey Watermark Investors, our non-traded lodging REIT, which is now closed. Also included is $53 million of inflows to CPA 18, which at year-end was approximately 91% subscribed and we expect to close at the end of the first quarter of 2015. Fourth quarter inflows brought total inflows for the managed REITs to approximately $1.5 billion for 2014, which was a record for a full-year period and which demonstrates the continued strong appetite for W. P. Carey products with income oriented retail investors and the strength of the W. P. Carey brand. Earlier this month, the registration statement for our second non-traded lodging REIT, Carey Watermark Investors Incorporated 2 was declared effective by the SEC and commenced a capital rise of up to $1.4 billion. Looking ahead, our view of the investment outlook remains much the same as it was on last quarter’s call. We believe investment conditions remained favorable in Europe where the continued slow growth environment has generally kept cap rates higher and debt costs lower than here in the US. In contrast, the environment in the US remains competitive and attractively priced transactions are more scarce. However, we do feel that conditions may improve in 2015 as we expect capital flows into non-traded net leased funds to abate somewhat, reducing competition for acquisitions and therefore pricing pressure from the non-traded REIT sector. On the supply side, if US economic growth continues, we would expect more companies to explore sale-lease back transactions as an attractive alternative to debt which would increase the opportunities available to us. Lastly I would like to outline our key priorities for 2015 and beyond. Our primary goal is to continue to make accretive acquisitions for our owned real estate portfolio. As we did in 2014, we expect to fund our net investment volume by accessing the public capital markets and continuing to move towards becoming a predominantly unsecured borrower. We will also seek to lower our overall cost of capital using an appropriate mix of debt and equity that maintains our conservative investment grade balance sheet. We will continually - we will continue to actively recycle capital with a focus on extending lease term, improving credit quality and increasing asset criticality within our owned real estate portfolio. And lastly over time we expect to further diversify the products offered through our investment management platform away from net leased products, which have several benefits for our shareholders. First and foremost, all the income we generate from that business flows to W. P. Carey shareholders. There are no outside vehicles unlike certain of our competitors. Adding new products like our recently registered BDC therefore, provides additional avenues for AFFO growth. Over time such products should also provide greater consistency and predictability to our investment management revenues with a growing proportion coming from stable asset management fees and a lower proportion from one-time structuring fee. And importantly, once CPA 18 is fully invested, which we currently expect to happen in 2016, our allocation strategy will pivot such that all net leased acquisitions will first be considered for our owned real estate portfolio, which will expand the accretive acquisition opportunities available to us. And with that, I’ll hand over to Katy.

Thank you, Trevor and good morning to everyone on the call. I’ll start with a brief review of our 2014 fourth quarter and full-year AFFO, following which I’ll touch upon some of the highlights regarding our balance sheet and capital structure before turning it back over to the operator for your questions. Starting with AFFO for the 2014 fourth quarter, we generated AFFO per diluted share of $1.19, which was up 5.3% compared to $1.13 for the 2014 third quarter, driven primarily by higher structuring revenue due to increased investment activity on behalf of the managed REITs. Specifically during the fourth quarter we completed approximately $783 million of acquisitions on behalf of the managed REITs, compared to a 123 million during the third quarter, which tends to be a slower time for deal closings, particularly in Europe. Compared to the 2013 fourth quarter, AFFO per diluted share increased 6.2% from $1.12, due primarily to additional real estate revenues from properties acquired in our merger with CPA 16, which closed at the end of January 2014, partially offset by the loss of asset management fees from CPA 16, which obviously stopped once the merger was completed. For the 2014 full-year, we generated AFFO of $4.81 per diluted share, up 14% from $4.22 for the 2013 full-year, again primarily due to the income generated from properties acquired in our merger with CPA 16 and partially offset by the subsequent loss of asset management fees from CPA 16. As Trevor noted, approximately 35% of our 2014 annualized base rents came from real estate located outside the US, primarily in Europe. The weighted average euro, US dollar exchange rate used in the calculation of AFFO declined from approximately $1.33 for the third quarter to approximately $1.25 for the fourth quarter 2014, a 6% downward movement. This reduced our fourth quarter AFFO by about $0.02 per diluted share. Historically we funded European acquisitions with local mortgage debt and then hedged our net euro cash flows using forward contracts and options. We’ve always been mindful of protecting our earnings and dividends from foreign exchange fluctuations. Now as an investment grade unsecured borrower, we plan to naturally hedge by issuing euro denominated unsecured debt and hedging additional net cash flow as needed. We’ve recently issued our first euro denominated unsecured bond and we benefited from the low interest rates in Europe while also increasing the proportion of our earnings in assets that will be naturally hedged. Now looking ahead to 2015, as Trevor mentioned, we are maintaining our prior AFFO guidance range of between $4.76 and $5.02 per diluted share. This is based on assumed total acquisition volume of approximately $2.4 to $3.1 billion with roughly $400 to $600 million of that going to W. P. Carey’s owned real estate portfolio and approximately $2 to $2.5 billion of acquisitions on behalf of the managed REITs. It also assumes approximately $100 to $200 million of dispositions from our owned real estate portfolio as part of our capital recycling efforts. Given our European investments, we thought it would be helpful to give you a sense of the potential impact that a further decline in the euro would have on our 2015 AFFO guidance. Taking into account the foreign currency hedges we currently have in place, if the euro moved to parity with the US dollar for example, we would expect it to reduce our full-year 2015 AFFO per diluted share by approximately $0.07 equivalent to a 1.4% reduction at the midpoint of our guidance range. And that assumes the euro dropped to parity on January 1st and remained there for the remainder of the year. But this is obviously a theoretical impact rather than what we would expect to happen, but it does give you a feel for the sensitivity of AFFO to a lower euro. Turning to our balance sheet and capitalization, at the end of the fourth quarter, our total equity market capitalizations stood at approximately $7.3 billion and our enterprise value was just over $11 billion. At year-end, our key leverage metrics remained at comfortable levels with pro rata net debt to enterprise value of 34.4% total consolidated debt to gross assets at 46%, and pro rata net debt to adjusted EBITDA of approximately 5.2 times. Given the two acquisitions we’ve completed so far in 2015, our key leverage metrics have increased slightly since year end. As Trevor discussed, we’ve completed several sizable on balance sheet acquisitions since our last earnings call, initially funded by the revolver under our credit facility. In order to appropriately match the duration of our liabilities and assets and as part of our ongoing strategy to become a primarily unsecured borrower, we also completed two bond issuances in January of this year. First we issued €500 million of unsecured notes with a 2% coupon, followed by $450 million US dollar denominated unsecured notes with a 4% coupon. Net proceeds were used primarily to repay amounts under our revolver. Also in January of this year, we executed - exercised the accordion feature under our senior unsecured credit facility increasing the maximum borrowing capacity as a revolver from $1 billion to $1.5 billion. We view our debt maturities over the next two years as very manageable with approximately $145 million maturing in 2015 and $279 million in 2016. With respect to liquidity, we expect our two recent bond transactions in conjunction with the increased capacity limit on our revolver to provide ample liquidity for the remainder of 2015. At year end, the weighted average cost of our nonrecourse debt was 5.3% and our overall weighted average cost of debt was 4.2%. And with that, I will turn it back to the operator to take your questions.

Ladies and gentlemen, at this time we’ll begin the question-and-answer session. [Operator Instructions] And our first question comes from Dan Donlan from Ladenburg Thalmann. Please go ahead with your question.

Thank you and good morning. Katy, I really appreciate the detail on the currency impact. But just thinking about your guidance for this year, which you’ve maintained, I think since you gave your guidance in early November the euro is down roughly 9% to 10%. So just kind of curious, as you look at your guidance that hadn’t happened do you think you probably would have raised it or was there some embedded potential weakness in the euro in your guidance when you first announced it back in early November?

Yeah, I mean, you are right. Most of the euro decline last year occurred late in the year and really the way we look at our guidance model is we update for sort of current euro prices. So in our 2015 model right now, I think we have a euro rate of about €1.13 which is flat all year. The current euro-dollar curve is actually upward sloping for the year. So I think we’re being relatively conservative in our modeling right now, keeping the euro flat at €1.13 versus using the upward curve and I think that’s just a view that we take in trying to be a little bit conservative. But as I mentioned in my prepared remarks, the impact of the euro because of our hedges, our actual hedges and our natural hedges which are the expenses in euro, we have a team in Amsterdam and London - well, London is not euro, but in Amsterdam and then our debt reduced our euro revenues and then we hedged that net cash flow. So we do try to make sure that the hedges are adequate to reduce the volatility going forward and protect the dividend.

Understood, thank you for the clarification and then just kind of curious, a couple of hardball questions here, but Trevor, as it pertains to cap rates for 2015, what should we be thinking about from a modeling perspective? I think you said that for the owned portfolio cap rates in the fourth quarter were about 7%. I’m assuming that’s cash. So can you maybe talk about where ‘15 is trending versus ‘14 in kind of maybe what your average cap rate fall of ‘14 was on a cash basis?

Sure Dan, thanks for the question. The cap rates for 2014 were roughly 7%. Our guidance for 2015 assumes cap rates in the mid 6s just to be conservative, it’s quite difficult to predict this as you know and there’s a lot of factors that go into that particularly when you invest as we do in different countries, different geographic markets in the US and different property types. But for now that is what we are assuming 6.5 - mid 6s.

Okay and then just as far as the lease expirations schedule, it looks pretty manageable until 2018 where it jumps up a little bit. Is that just care for [ph]?

In 2018, you would see the [Indiscernible] exposure that’s correct because they do have an option at that point to get out of the lease.

Okay, thank you. And then CPA 18, I notice they acquired some multifamily assets in the fourth quarter. I was just kind of curious is that something we will see from them going forward or was that just kind of a one-off, you got a good deal on it and if something else happens, great, but it’s not a direction you are taking the investment strategy?

Well, in fact, in the investment management platform per se, so we will be doing more of that type of investment. That was very consciously the combination of a couple of years of study of that sector and the formation of some strategic relationships that we believe will be useful and originating and managing - asset managing and property managing those assets on behalf of our funds. So I think that will be an ongoing effort for us. However, I believe in a very limited relative just sort of our historical volume in the net leased space and you are likely to see no more than, say, $100 to $150 million per year in that I would think for now and that’s just a very rough estimate, Dan.

Sure, sure. And then just lastly, is there any chance that we may not see another CPA product for quite some time and potentially the reason why you may not move into another net leased non-traded strategy would be - you might want to at some point in time, look at splitting up the broker dealer investor manager platform from the REIT in which case that way you wouldn’t necessarily be competing with each other if you had two separate entities?

Well, I’ll speak to the first part of the question and as we mentioned CPA 18 is 91% invested, we’re still raising capital for that vehicle and that’s a diversified net leased fund that does currently invest in net leased assets. You’re quite correct in highlighting the fact that we will deemphasizing at least in the CPA platform, our two current offerings for the year are lodging fund as we mentioned Carey Watermark advisors to a second lodging fund and then a new business development corporation or BDC would focus on middle market lending. And so for our current focus for the investment management platform is on those two funds and we will not have a CPA fund 2015. Beyond that we will have to see what the climate looks like, we have mentioned that when CPA 18 does close we will - any subsequent fund whatever it might be called, we’ll have to give first priority to all net leased investments to W.P. Carey. And that’s a direct 180 degree pivot from our current policy with respect to our CPA funds.

Okay, Trevor. Thank you so much for the clarity. I appreciate it.

Thank you.

Our next question comes from [indiscernible] from Bank of America. Please go ahead with your question.

Hi, good morning guys. Thanks for the time. I was just hoping you could speak to another one of the transactions you did in the fourth quarter, the deal in Australia with Inghams, I’m not sure if I pronounced that correctly. Sort of the pricing, why that asset is the first asset in Asia, it seems a little bit unusual, it’s tied to agriculture and kind of just the strategy behind that?

Certainly [indiscernible]. Thanks for the question. This was not W.P. Carey’s first investment in Asia per se, one of our managed funds has done several transactions in Asia. We do have an office in Shanghai and have had that office there for ten years. Australia was - a return to Australia from the company’s earliest routes are going way back when Phil Carey did a - one of the first foreign transactions there actually in the 60’s. So we have historical ties to the region. Our Asia team came upon the transaction after looking at many transactions in Australia over the last several years. So it was with careful consideration that we did do that. Inghams is the name of the company and it’s the number one poultry products producer in Australia, it commands 36% of the Australian market. It has a very vertically integrated business model and we acquired the most critical operating assets that are critical to the logistics chain for the whole company in the key locations throughout Australia. And we like the transaction because it is a critically important real estate as I mentioned. It’s a long term lease with - rent bomps that are attractive [indiscernible] have 2.5 % or twice Australian CPI and the overall returns were quite attractive as well. So you have a dominant food producer or the food production industry is not new to W.P. Carey, these assets themselves are a mixture of different types of facilities that are critical to the production of the poultry. And there is a granularity, there’s a portfolio that was important to us and by that I mean, you don’t have one huge plant of any kind that should diverse come to pass in Inghams [ph] or to depart and you would have difficulty releasing that. This portfolio does not have that risk, the assets are fungible and we spent quite a lot of time even though these are 20 year leases. We don’t expect Inghams to depart prior to the end of 20 years. Should that come to pass we felt very comfortable with the residual values of the properties themselves. So for all those reasons it’s actually was from our point of view down the middle of the fairway with respect to a good credit, a dominant industry and a very solid real estate both in the pure sense of the real estate itself and then it’s criticality to the tenant.

Can you talk to the cap REIT or any other evaluation metric we should think of?

Well, the cap REIT was certainly higher than we would have expected in the US in the 8% range.

Okay, that’s helpful. And just another question on the 15 lease expirations, where do you think those rents are versus market or what should we expecting on it on a roll down or a roll up assumption for [indiscernible]?

I don’t have the 2015 row down numbers at my fingertips right now Warren [ph]. We’re actively working on all those transactions and some of them are actually in negotiation now. So with respect to 2014 and to put it into perspective the population size of row downs in 2014 was about 2 million square feet out of 80 plus million square feet, so about 2% of our portfolio rolled and with respect to that small segment that rolled the row down was 7.6%. On a same store basis when you just look at properties excluding vacant properties and the properties for which new leases were signed and were modified, we had 1.9%, approximately 1.9% growth in rent income.

And I’d just add, one thing Warren [ph] about the numbers that Trevor gave you with respect to lease expirations or roll downs or releasing. Our portfolio is not uniform in many respects, so sometimes there are outliers within those numbers both on the positive and the negative that skew the numbers. So I don’t know that the average is necessarily - are great indicators of frankly much of anything. But we’re happy to give you the numbers, but they represent a variety of transactions.

Okay, but I mean do you expect to be a roll down in ’15 or do you have any sense in earlier discussions whether or not the trend from ’14 will continue?

Well, I think generally speaking with respect to the net leased - the diversified net leased business, when you have leases that are running for 15, 20, 25 years and each year you’re getting rent bumps tied to CPI or with the floor often in the 2% to 3% range, it’s fair to say that over that 15 to 20 year period the rents will continue to raise no matter what’s happening in the market itself. And so of course during the lease term you’re enjoying, in other words rent growths that exceeds what may be happening in that particular sub market. So of course when you do come to that point where the lease needs to be renewed, you’re often going to have some modest row downs, but what Katy said is accurate. That’s an average number, so at times we’ll have rent bumps even on lease renewal and sometimes we’ll have declines.

Great, thanks. And just a last question, what are you guys thinking about potential monetization’s of CPA 17 and 18 once those are fully invested and just the strategy there?

That’s a decision that’s made by the independent boards of the companies. Obviously in the past we’ve merged with two of those funds after a long dialog and when each of them had decided that it was time to seek a liquidity event, but right now no such discussions have taken place with respect to CPA 17. CPA 18 is only at the 91% mark in terms of just raising the money, so it would be pretty mature for the board to even contemplate an exit. And I would emphasize that W.P. Carey’s strategy with respect to all our funds and this is over a 35 to 40 year period has always been to focus on longer term funds typically with eight to 12 year lives and the phenomenon of quick turnarounds and two year liquidation strategies I think has come and gone and we’ll continue to stick with our strategy of building income overtime and letting the portfolio season before we seek liquidation [ph].

Great, thanks very much.

Thank you.

Our next question comes from Sheila McGrath from Evercore ISI. Please go ahead with your question.

Yes, good morning. The year bond issuance was at a very attractive rate. I’m just wondering is there room in the balance sheet for more - to tap that market additionally in 2015?

Yeah, I feel - as you know one of our strategies is becoming an investment grade rated company to tap the unsecured markets. It opens not only the US dollar market but the Euro bond market. We had a nice reception there and spent a lot of time with investors in late 2014 over there and we hope overtime to somewhat overweight the leverage - so US dollar to Euro denominated debt that we have in Euro. One, to take advantage of the natural hedge but two, to take advantage of the very low rates because we’re not bringing those Euro’s back to dollars. So we’re actually getting the advantage of those lower rates.

Okay and when we think of the foreign currency impact, is there a line item that runs through on the operating statement or is it just adjusted at the bottom line?

Yeah, there is not a line item that you can look to, so that’s why we try to break out in some of my prior remarks kind of the sensitivity of it and obviously it’s marked through the AFFO each quarter depending on where the Euro, dollar exchange rate is.

Okay and then on the line item provision for taxes, it was higher than we’ve had forecasted, just wondering is there anything onetime in there or impacting the quarter, that line item?

Yeah, the provision and this is really going to be moving forward to some degree, but first it was a little higher because of structuring revenue from the managed REIT, the higher volume in the managed REIT segment. So there was elevated structuring revenue that comes through, which is obviously taxable, but going forward and that would be lumpy as you know quarter-to-quarter depending on our acquisition volumes. But going forward we’re also now taking 50% of the asset management fee from CPA 17 in cash versus in shares in accordance with our management agreement with them. So there’s a higher cash proportion coming through asset management fees, which is obviously taxable.

Okay and did that just kick in, in fourth quarter?

Yes.

I see, okay.

And that will be the case going forward.

Okay and then you did in 2014 by a fair amount of self-storage about a $100 million and you already have a lot. Is there anything strategic that you’re thinking about in terms of aggregating the larger self-storage portfolio?

Yes, within the investment management platforms certainly Sheila, I think that we’ve had that effort as you know for many years and have a fairly high profile in the business, but nowhere near the level of the top four of public REIT’s. The strategy has been really to just consolidate so that our team sources attracted transactions that are small, one offs or at times portfolios and so we’ll continue to aggregate at the pace that we’ve established over the past two or three years and I think that makes a nice sized portfolio for an ultimate strategy that could involve one of several things. Nothing is imminent with respect to our liquidation because we still feel we’re seeing attractive pricing.

Okay, thank you.

Thank you.

Our next question comes from Chris Lucas from Capital One Securities. Please go ahead with your question.

Good morning everyone. Just going at this lease expiration from a slightly different perspective Trevor, what’s the expected or modeled retention rate for the year and do you have any insight not only for ’15 but how you’re thinking about the ’16 expirations as well on a tenant retention basis?

Chris, actually that number moves around so much that we don’t have a single number for you on that. But we have just - qualitatively speaking we have an active list of all these properties that includes not just this year’s but next year’s at least expirations in fact going out for several years. And so we’re all proactive in front of the tenants and one year we can have a 90% retention and in another year less or it’s very difficult to boil it down to one number.

Okay and then on the managed fund side, given that the businesses are trending away from your net leased business, should we be expecting consistently higher capital raising efforts? It seemed in the past that the capital raising was somewhat managed by opportunities given the more diversified efforts that the managed funds are going into. Should we be expecting maybe a little bit more robust capital raising going forward?

Well, we like to pace our capital raising to date and it is true you mentioned and our firm that we - we’ve always tried to maintain an equilibrium between the capital that we raise and the opportunity sets that we see. In 2014 in fact we had a record amount of capital raising within our whole history and we were able to deploy that capital in good risk adjusted returned types of investments. So I think that discipline will continue and we’re enthusiastic about the two funds that we’re launching this year, Carey Watermark 2, the lodging fund and then the BDC. We think that the opportunity sets are strong and so we feel very positive about those.

Okay and then earlier in your comments you mentioned that on the I think the Pendragon transaction that you felt like you got a bulk discount. I guess I was wondering if you could quantify what your thoughts were in terms of maybe about basis points differential on the cap rate between what you were able to do and what you thought the maybe the smaller portfolios were traded at?

Well, I can say that our perception of the bulk discount came from the knowledge that the portfolio had been marketed in smaller sizes prior to our involvement and so we had a rough idea as to what the smaller portfolios were trading at. And as the transactions unfolded through our due diligence, we affirmed those levels. I wouldn’t want to get too granular about that in the 50 to 100 basis points range. I think it would be a reasonable amount for that bulk discount.

Okay and then last question for me. Just in terms of capital allocation. You have been - I think the trend has been more outside the US in terms of just relative proportion. Is that something that we should continue to see and is the strengthening dollar playing any role in your thought process there?

I think that the strengthening dollar for all the challenges that represent - that we have addressed through our hedging strategy does enhance the opportunities somewhat to buy end currencies that are for the moment depressed in value. And so I think that certainly helps in the immediate sense. Also the European opportunity remains the cost of debt as much lower there and the supply very attractive opportunities continues. It maybe not widely known that Europe rely - European companies rely 70% on bank debt and only 30% on other sources through the capital markets and that’s a reversal with the United States and so in the absence of a capital market union in Europe you’ll continue to have borrowers who either have the bank’s or a sale leaseback type of transaction because they don’t have the capital markets available to them. And so for those reasons as well as their continued slow growth, we still think it’s a good time to be investing in Europe. That said there are some natural limits overtime that we’re aware of, we’re not going to become too over rated in Europe and we also expect that opportunities will swing back to the United States at some point.

Okay, great. Thank you.

Thank you.

[Operator Instructions] And ladies and gentlemen, at this time and showing no questions, I would like to conclude today’s conference call. We do thank you for attending. You may now disconnect your telephone lines.