Realty Revenue (O) Q3 2021 Earnings Name Transcript | The Motley Idiot

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Realty Revenue (O) Q3 2021 Earnings Name Transcript | The Motley Idiot



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Realty Revenue (NYSE:O)Q3 2021 Earnings CallNov 02, 2021, 2:30 p.m. ETContents: Ready Remarks Questions and Solutions Name Individuals Ready Remarks: OperatorGood afternoon. My identify is Emma, and I might be your convention operator right this moment. At the moment, I want to welcome everybody to the Realty Revenue third quarter 2021 working outcomes convention name. [Operator instructions] Thanks. Julie Hasselwander, investor relations at Realty Revenue, you might start your convention.Julie Hasselwander — Investor Relations Thanks all for becoming a member of us right this moment for Realty Revenue’s third quarter working outcomes convention name. Discussing our outcomes might be Sumit Roy, president and chief govt officer, and Christie Kelly, govt vp, chief monetary officer, and treasurer. Throughout this convention name, we are going to make sure statements that could be thought-about forward-looking statements underneath federal securities legislation. The corporate’s precise future outcomes might differ considerably from the issues mentioned in any forward-looking statements. We are going to disclose in larger element the components which will trigger such variations within the firm’s Kind 10-Q. [Operator instructions] I’ll now flip the decision over to our CEO, Sumit Roy.Sumit Roy — President and Chief Government Officer Thanks, Julie. Welcome, everybody. Our robust relationships with all our stakeholders allow the success of our enterprise, and we thank everybody listening in your continued assist. Moreover, I want to specific my appreciation of our expanded Realty Revenue workforce for his or her tireless efforts in executing on our strategic targets. Immediately, our enterprise is at an inflection level the place some great benefits of our rising measurement and scale present us an accelerating variety of alternatives, compounding our aptitude for development. We see momentum accelerating throughout all sides of our enterprise on account of the next development catalysts. First, the depth and breadth of our lively international pipeline stays strong. Through the third quarter, we acquired over $1.6 billion of actual property throughout three nations, leading to roughly $3.8 billion 12 months so far. We now anticipate to put money into over $5 billion of actual property in 2021, a rise from our prior steering of $4.5 billion. Second, we consider our enlargement into Continental Europe in the course of the third quarter will considerably deepen our addressable market at enticing spreads relative to our weighted common price of capital, notably given the comparatively low unsecured borrowing charges within the European bond market. Third, our asset administration actions continued to generate robust outcomes. On the finish of the third quarter, our portfolio was 98.8% occupied, and we achieved a lease recapture charge of 107.2%, illustrating the relentless efforts of our asset administration workforce and highlighting the standard of our actual property. And eventually, with the closing of the VEREIT merger, we consider our measurement, scale and diversification will additional improve a lot of our aggressive benefits which we suspect ought to enable us to reinforce our funding actions sooner or later. The closing of our merger with VEREIT, in addition to the anticipated and subsequent spin-off of considerably all of the mixed corporations’ workplace properties, which, as beforehand introduced, is anticipated to be accomplished on November 12, permits us to supply enhanced readability on our near-term earnings run charge. To that finish, we’re rising our 2021 AFFO per share steering to $3.55 to $3.60, representing 5.5% annual development on the midpoint. And we’re introducing 2022 AFFO per share steering of $3.84 to $3.97, representing 9.2% annual development on the midpoint. Our 2022 steering assumes over $5 billion of acquisitions and over $40 million of 12 months one G&A synergies now we have recognized on account of economies of scale from the merger. These steering ranges additionally assume that the anticipated spin-off of our workplace properties is consummated, as anticipated, on November 12. With the closing of the merger, our mixed firm eclipses $50 billion in enterprise worth with measurement and scale to assist quite a few development verticals, offering flexibility to shut massive transactions with out creating focus threat. Moreover, via this merger, Realty Revenue has inherited a pipeline, platform and proficient acquisition workforce centered on sourcing high-yielding merchandise that might be additive to our current pipeline. Additional, over time, we anticipate to generate significant earnings accretion by refinancing VEREIT’s excellent debt, supported by our comparatively decrease borrowing prices pushed by our A3/A- rankings and capability to concern debt in lower-yielding markets. Lastly, we’re excited to combine the capabilities of many proficient VEREIT colleagues into the Realty Revenue enterprise as we proceed to execute our development initiatives as one workforce. Now, turning to the outcomes for the quarter. We proceed so as to add enticing actual property to our portfolio at a speedy tempo. Through the third quarter, we sourced almost $24 billion of acquisition alternatives, finally choosing and shutting on lower than 6%. Of the $1.6 billion of actual property we added to the portfolio in Q3, the most important trade represented was UK grocery shops. On a income foundation, roughly 38% of the acquisitions made in the course of the quarter we leased to funding grade-rated shoppers, and our complete investment-grade consumer publicity stays roughly 50%. The weighted common remaining lease time period of the belongings added to our portfolio in the course of the quarter was 13.4 years. And in mixture, all of our acquisition actions in the course of the quarter resulted in wholesome funding spreads of roughly 164 foundation factors. As of quarter finish, our portfolio stays nicely diversified, together with over 7,000 belongings leased to roughly 650 shoppers who function in 60 separate industries situated in all 50 US states, Puerto Rico, the UK and Spain. Giving professional forma impact to the closing of the merger and the anticipated spin-off of our mixed workplace belongings as of September 30, 2021, our portfolio now contains over 10,500 belongings situated in all 50 US states, Puerto Rico, the UK and Spain. Our worldwide pipeline continues so as to add significant worth to our portfolio, and we consider it’ll stay an necessary driver of development going ahead. In complete, of the almost $24 billion in acquisition alternatives that we sourced this quarter, roughly 34% was related to worldwide alternatives. Through the third quarter, we added roughly $532 million of high-quality actual property within the UK and Spain throughout 31 properties, bringing our complete worldwide portfolio to over $3.2 billion. This quarter, our worldwide acquisition accounted for about 33% complete acquisition quantity. As beforehand introduced in September, we made our debut acquisitions in Continental Europe via a sale leaseback transaction with Carrefour in Spain. Subsequent to quarter finish, we introduced the completion of a further Carrefour transaction in Spain, bringing the worth of our Continental Europe portfolio to roughly EUR 160 million. We’re optimistic about our momentum in Spain as we glance to duplicate the success of our worldwide development platform all through the continent with best-in-class operators who’re leaders of their respective industries. The well being of our core portfolio stays of utmost significance as we proceed to increase our platform. On the finish of the third quarter, occupancy was 98.8% primarily based on property rely, which represents a rise of 30 foundation factors as in comparison with final quarter. Through the quarter, we launched 50 items, recapturing 107.2% of expiring lease, bringing our year-to-date recapture charge to 105.5%. We proceed to report on quarterly recapture charges and consider this is without doubt one of the most goal methods to measure underlying portfolio high quality within the internet lease trade. Since our itemizing in 1994, now we have executed over 3,800 releases or gross sales on expiring leases, recapturing over 100% of lease on these launched contracts. At the moment, I will move it over to Christie, who will additional talk about outcomes from the quarter.Christie Kelly — Government Vice President, Chief Monetary Officer, and Treasurer Thanks, Sumit. This quarter, our enterprise generated AFFO per share of $0.91, strengthened by our acquisition tempo and the gathering of just about 100% of contractual rents within the third quarter. Through the quarter, our theater shoppers paid roughly 99.6% of contractual lease, representing a significant enchancment in comparison with the 38% assortment charge within the second quarter. We proceed to be inspired by the robust box-office efficiency of current blockbuster releases, which we consider indicators the long-term viability of the theater trade. I used to be wanting ahead to the discharge of the James Bond movie, No Time to Die, for months. And primarily based on current box-office numbers, so had been many throughout the globe. We presently have 34 of our 79 theater belongings on money accounting with roughly $37 million of non-straight-line reserves on our stability sheet. Like our enterprise technique, our strategy to evaluating when these 34 theater belongings moved again to an accrual foundation and the suitable time to reverse the allowance for unhealthy debt reserves might be conservative and knowledge pushed. Extra particularly, we are going to assess the probability of gathering on these quantities by evaluating store-level and industrywide knowledge along with sustaining funds of overdue rents over a wholesome time period. As we proceed to increase our platform, we are going to stay steadfast in prioritizing low leverage and a conservative stability sheet technique whereas financing our development initiatives with attractively priced capital. On the quarter finish, our internet debt-to-adjusted-EBITDA ratio was 5 instances or 4.9 instances on a professional forma foundation, adjusting for the annualized affect of acquisitions and inclinations in the course of the quarter. Our fastened cost protection ratio hit an all-time excessive for the third quarter in a row coming in at 6.1 instances. And in the course of the quarter, we raised over $1.6 billion of fairness, roughly $594 million, which was via an in a single day providing that closed in July and the rest primarily via our ATM program. Through the quarter, we additionally issued our debut inexperienced bond providing, a $750 million multi-tranche, sterling-denominated unsecured bond providing, which priced at a blended yield of roughly 1.48% for an 8.8-year blended tenor. We sit up for persevering with to accomplice with our shoppers round sustainable practices in accordance with our Inexperienced Financing Framework. And now, I would like at hand our name again to Sumit.Sumit Roy — President and Chief Government Officer Thanks, Christie. In abstract, we’re energized and happy by the momentum we see throughout all areas of our enterprise. We’re proud to have closed the merger with VEREIT, and we anticipate the advantages of this transaction to be broad and lasting, enhancing our aggressive benefits and producing shareholder worth for years to come back. Going ahead, the chances of our enterprise might be constrained by solely our creativeness. We sit up for persevering with to execute on our strategic development initiatives to strengthen our place as the worldwide consolidator of the extremely fragmented internet lease area whereas offering our shareholders with compelling risk-adjusted returns over the long term. At the moment, I want to open it up for any questions. Questions & Solutions:Operator[Operator instructions] Your first query comes from the road of Nate Crossett with Berenberg. Your line is unmuted.Nate Crossett — Berenberg Capital Markets — Analyst Hey. Thanks for taking my query, and congrats on the merge.Christie Kelly — Government Vice President, Chief Monetary Officer, and Treasurer Thanks, Nate.Nate Crossett — Berenberg Capital Markets — Analyst Yeah. I recognize the colour on the pipeline. I used to be simply — possibly you would give a bit of bit extra element, simply heading into the top of the 12 months and into subsequent 12 months, what does the combo appear to be when it comes to industrial versus retail, US versus Europe? Was there quite a lot of overlap within the deal pipeline between VEREIT and O earlier than the merge? After which I will ask my second query on the similar time. Simply in case you can touch upon pricing dynamics, US versus Europe.Sumit Roy — President and Chief Government Officer Thanks, Nate. Good questions. And sure, we’re so pleased to have the merger behind us. When it comes to the composition of the pipeline forward, in addition to what we have achieved, what now we have — we shared with the market that they need to anticipate the worldwide acquisition to signify a couple of third of our acquisition quantity going ahead. When it comes to pricing, surprisingly, once I seemed on the spreads that we’re producing, both right here within the US and evaluating it to what we had been in a position to do in Europe, they’re very related for this quarter. And in some quarters, we have seen that we had been in a position to get barely greater yields within the worldwide markets. And in different quarters, it has been the alternative. So there’s actually — the best way we’re occupied with our portfolio is thru the macro lens that we have recognized, what it’s that’s of curiosity to us. And the realm that we play in, in Europe is barely narrower, and it is a perform of the product that is out there than what we play within the US When it comes to retail versus industrial, as a lot as we want to do extra industrial, the pricing on this market retains us pretty constraint to that 10%. On a superb quarter, we’re in a position to get to that 15%, 17% ZIP code. However that is the composition of the economic make-up of the general acquisition. The remainder of it’s primarily retail. When it comes to funding grade versus non-investment grade, we have mentioned this previously, and I will repeat it once more. Once we have a look at credit score and we do our personal evaluation, we do not exit saying, if it is a non-investment-grade credit score, we instantly disqualify it for consideration functions. For those who have a look at what we had been in a position to obtain within the third quarter, solely 38% of what we did was funding grade. So we’re very comfy taking a look at non-investment grade. And non-investment grade doesn’t essentially imply sub-investment grade. It simply signifies that it does not have a score from one of many two main score businesses, and/or it would even have a sub-investment grade score. However we’re very comfy with that. The final query that you simply had as a subpart to your first query was when it comes to there being an overlap with what we’re inheriting from VEREIT, and there actually is not a lot. There are specific acquisition alternatives that we’d discover VEREIT as a competitor, however they performed in an space that we consider can really be additive to our total platform within the higher-yield facet. And we’re so blessed to inherit this workforce, and we’re actually wanting ahead to with the ability to utterly combine them into our acquisitions workforce and have them proceed to pursue the transactions that they had been pursuing and probably not be constrained by the price of capital. So we genuinely consider that that is going to be an incremental to the acquisitions that we had been in a position to obtain on a stand-alone foundation. After which, with respect to pricing, I feel I type of addressed that via my unfold remark. So Nate, I do not know if there’s something particular you need me to dive into.Nate Crossett — Berenberg Capital Markets — Analyst No. That is all very useful. Thanks. I will get again within the queueSumit Roy — President and Chief Government Officer Thanks.OperatorYour subsequent query comes from the road of Greg McGinniss with Scotiabank. Your line is unmuted.Greg McGinniss — Scotiabank– Analyst Thanks.Christie Kelly — Government Vice President, Chief Monetary Officer, and Treasurer Good morning, Greg.Greg McGinniss — Scotiabank– Analyst Hello, Christie. So occupied with the merger with VEREIT, the place they’ve, I feel, possibly fewer true triple-net leases, on common, than you guys do, what p.c of leases, after the acquisition and spin, are really triple internet or will really be triple internet? And can you be trying to offload a few of these non triple-net leases? After which basically, simply how ought to we be occupied with the extent of inclinations versus the $5 billion or extra of acquisitions in 2022?Sumit Roy — President and Chief Government Officer Sure. Good questions, Greg. Look, I feel the one space the place I felt like they in all probability had non-triple-net leases was on the GSA facet of the equation on the workplace portfolio that that they had publicity to. In any other case, largely, Greg, these are triple internet leases. And if you concentrate on how this explicit portfolio was put collectively, we’ll be capable to offer you much more shade as soon as we have all of it built-in. However I would be very shocked to search out gross leases — a preponderance of gross leases on the retail facet and the economic facet of the equation. Clearly, industrial merchandise, the owner tends to be answerable for issues like roof and construction, which one might argue will not be a pure triple internet lease, however that’s largely the identical case with respect to our portfolio as nicely. However the property upkeep continues to be the accountability of the consumer, the property taxes. The insurance coverage on these buildings, that is nonetheless the accountability of the shoppers. So we nonetheless view these as predominantly internet leases. So with the separation of the workplace belongings via the spin and the GSA leases, I feel we’re going to be largely a internet lease portfolio, similar to the one which now we have. So I do not suppose that that is going to pose any main points, Greg.Greg McGinniss — Scotiabank– Analyst OK, sure. I used to be simply taking a look at their — VEREIT’s disclosure has 30% on the retail facet, 40-something p.c on the economic facet of double internet. However I get your level on the extent of obligation that is actually entailing. After which, when it comes to the extent of inclinations we ought to be occupied with whether or not there is a cleanup there or simply basically versus the $5 billion of acquisitions?Sumit Roy — President and Chief Government Officer Sure. So we have been doing about $100 million to $150 million. The odd 12 months, we have gone previous $200 million in inclinations on a stand-alone foundation. We want to inherit and actually do the same evaluation on the portfolio that we’re inheriting with VEREIT to see if that must be altered. Lots of the capital recycling that they had been doing pre-merger was on the workplace facet of the equation. And so, I do not know if the quantity will dramatically enhance past a leaner extrapolation of going — including one other $10 billion, $14 billion of belongings. So possibly the $150 million turns into $250 million, $275 million. However give us 1 / 4 to digest this and filter it via our personal asset administration lens, and we’ll be capable to come again to you with much more exact indication. However we do not suspect that it is going to be dramatically completely different from the run charge that we had been doing on a stand-alone foundation.Greg McGinniss — Scotiabank– Analyst OK. After which, only one fast level of clarification on the $24 billion of supply alternatives. You mentioned 34% was worldwide. Is that each one of Europe? Or is that simply UK and Spain for now?Sumit Roy — President and Chief Government Officer Primarily UK and Spain, however we’re definitely taking a look at different geographies that now we have recognized as core to our enlargement targets, however it’s primarily within the UK and in Spain.Greg McGinniss — Scotiabank– Analyst So we might see that supply quantity go up as you begin wanting?Sumit Roy — President and Chief Government Officer Roughly. As we begin increasing, sure, it is best to anticipate that to go up.Greg McGinniss — Scotiabank– Analyst OK. Thanks.Sumit Roy — President and Chief Government Officer Positive.OperatorYour subsequent query comes from the road of Brad Heffern with RBC Capital Markets. Your line is open.Christie Kelly — Government Vice President, Chief Monetary Officer, and Treasurer Hello, Brad.Brad Heffern — RBC Capital Markets — Analyst Hey, how are you. On the acquisition information for 2022, you’ve got talked about how the VEREIT workforce is additive, however then the information is identical, the identical over $5 billion for 2022. So is that simply starting of your conservatism as a result of there’s restricted visibility within the pipeline? Or how ought to we take into consideration that?Sumit Roy — President and Chief Government Officer Look, what did we begin this 12 months with? It was proper round $3.25 billion, then we went as much as $4.5 billion. And now, we’re above $5 billion. And we wish to come out with numbers that we’re — now we have a really excessive stage of certainty related to it. And as we begin to develop our pipeline and visibility, we anticipate that quantity to go up. However we do not wish to come out with a quantity that we really feel like is overly aggressive popping out of the gate. So this has been one thing that has been crucial to us to have the ability to ship to the market what we are saying we are going to ship. And as such, it is best to take into account this to be our preliminary steering. And the hope is we will do higher than that. And with time and as quickly as we’re within the subsequent 12 months, we hope to have the ability to get extra exact round what the acquisition steering will finally transform.Brad Heffern — RBC Capital Markets — Analyst OK. Is sensible. And possibly for you, Christie, additionally on the ’22 information. Is there something in there that might be thought-about type of onetime in nature, like possibly a reserve launch from the theaters or something like that, we have to have in mind?Christie Kelly — Government Vice President, Chief Monetary Officer, and Treasurer Hello, Brad. There’s nothing of a onetime nature, together with reversal of the theater returns.Brad Heffern — RBC Capital Markets — Analyst Thanks.Sumit Roy — President and Chief Government Officer You guess.OperatorYour subsequent query comes from the road of Haendel St. Juste with Mizuho. Your line is now open.Haendel St. Juste — Mizuho Securities — Analyst Hey on the market.Sumit Roy — President and Chief Government Officer Hello, Haendel.Christie Kelly — Government Vice President, Chief Monetary Officer, and Treasurer Hello, Haendel.Haendel St. Juste — Mizuho Securities — Analyst Hello. So Sumit, I used to be intrigued by your feedback. You talked about inheriting a workforce that is skilled in buying high-yielding belongings that might be added to your platform. After which, you additionally talked about being very comfy with buying greater yields. So I used to be going to ask you if this quarter’s 38% investment-grade quantity was an anomaly, however it does not sound like it’s. So possibly are you able to speak us via your ideas on portfolio technique close to high-grade going ahead and in case you’re signaling maybe a slight shift in your total considering of portfolio technique?Sumit Roy — President and Chief Government Officer I am right here to alleviate any confusion, Haendel. There are quite a lot of — in case you have a look at our prime 10 shoppers, Haendel, now we have Carrefour that exhibits up there. And Carrefour is a non-rated firm. But, in case you had been to have a look at its stability sheet and also you had been to have a look at its credit score metrics, it could indicate a really robust investment-grade credit score. However that doesn’t present up within the 38% funding grade. So we have been enjoying within the space that we have recognized popping out of the technique periods that we have alluded to previously, and we really feel — sorry, it is truly Sainsbury’s, not Carrefour. Carrefour is definitely rated BBB. So once we come out and we share with you the precise investment-grade numbers, it’s really an investment-grade score by both S&P or Moody’s. However we play throughout the spectrum. However we’re so centered within the space that we have recognized as our space of development that — are we as centered on a number of the high-yielding product that our inherited workforce from VEREIT was centered on? Probably not. Are we going to do all the pieces that VEREIT was buying as a stand-alone firm? Most likely not. However we try to create a workforce, and we really consider the workforce to be complementary to ours, and now it is one workforce, that’s going to have the ability to play throughout the credit score spectrum and be capable to really be an incremental supply of acquisitions for us going ahead. So there might be quarters the place we do greater than 38%. In actual fact, we have carried out as much as 50%, 60% of funding grade, after which there might be different quarters the place we do not. So I do not need you to place an excessive amount of weighting to this headline variety of how a lot funding grade are we truly pursuing as a result of, as I’ve mentioned to you, that that is a by-product of our technique, not what drives our technique.Haendel St. Juste — Mizuho Securities — Analyst Nice. Admire the ideas in clearing that up. Christie, to not beat a lifeless horse, and we have talked about it over the past quarter or two. It has been requested on the decision right this moment. And I suppose I am actually nonetheless a bit of perplexed or nonetheless shocked that there hasn’t been a recognition of revenues within the movie show facet. You identified various the optimistic trade dynamics that the trade is experiencing right here. So is it simply extra time? And it appears like, definitely, proper now, there’s no of that in your 2022 steering. So simply attempting to sq. your feedback with the, I suppose, the dearth of recognition or any sense of timing on that.Christie Kelly — Government Vice President, Chief Monetary Officer, and Treasurer Positive, Haendel. It actually — I imply, in a nutshell, it truly is timing. We did within the third quarter skilled payoffs in response to our deferred preparations, a handful of theater properties, they usually’re again on pool accounting. And we’ll proceed to guage on an asset-by-asset foundation. And we nonetheless have remnants of COVID on the market. We needed to make it possible for we’re evaluating this, not solely on an asset-by-asset foundation, but in addition simply when it comes to what’s occurring from a macro perspective. So extra time, and we’ll be again to report back to you.Haendel St. Juste — Mizuho Securities — Analyst OK. Truthful sufficient. Thanks.Christie Kelly — Government Vice President, Chief Monetary Officer, and Treasurer You guess, Haendel.OperatorThe subsequent query comes from the road of Caitlin Burrows with Goldman Sachs. Your line is open now.Caitlin Burrows — Goldman Sachs — Analyst Hello, everybody. Congrats on the merger and all of the current progress. Perhaps digging a bit of deeper on the pipeline. I am questioning in case you can speak concerning the distinction in what you are excited by overseas versus the US I feel you talked about that the overseas pipeline is perhaps a bit of bit extra slim.Sumit Roy — President and Chief Government Officer Sure, Caitlin. It is simply not as developed — I imply, partly, it is pushed by being land constrained. You do not have as many freestanding triple-net alternatives when it comes to varied industries and varied tenants enjoying in that area. Clearly, the scale of the particular market is 2 instances what now we have right here within the US, however the variety of industries that lend itself to type of this triple-net idea are a bit narrower. We have already talked about grocery as being one of many areas that we would prefer to focus in on. Residence enchancment is one other space. However it is extremely uncommon to search out a number of the different industries that we’re uncovered to on the retail facet being out there in Mainland Europe. And that is actually the purpose I am attempting to make. This isn’t a constraining issue as a result of I feel we have put out some numbers, and so on., sharing with you ways a lot larger the precise market is, the addressable market is in Europe that lends itself to internet leasable investing. However it actually is extra of a — it is only a slim group of industries that play in that area.Caitlin Burrows — Goldman Sachs — Analyst Bought it. OK. After which, given your bigger measurement now, do you anticipate there to be any change in sourcing over the following 12 months? And on account of that, do you suppose there might be any significant change in your acquisition cap charges?Sumit Roy — President and Chief Government Officer I hope so. I completely consider that with the newly expanded workforce that features of us from what was VEREIT, we will enhance our run charge on the acquisition entrance, and we will cowl the credit score spectrum much more exactly and acutely than we had been in a position to do on a stand-alone foundation. And that ought to lead to not solely greater sourcing however getting extra transactions over the end line. And that’s completely one of many levers that we hope will play out for us. And primarily based on all the pieces that we have seen and primarily based on attending to know our new colleagues higher, I completely consider that that’s going to play out subsequent 12 months and past. So time will inform, however that’s our expectation.Caitlin Burrows — Goldman Sachs — Analyst OK, nice. Thanks.Sumit Roy — President and Chief Government Officer Completely.OperatorYour subsequent query comes from the road of Ronald Kamdem with Morgan Stanley.Your line is now open.Ronald Kamdem — Morgan Stanley — Analyst Hey. Congrats on the VEREIT merger.Only a fast one from me…Christie Kelly — Government Vice President, Chief Monetary Officer, and Treasurer Thanks, Ronald.Ronald Kamdem — Morgan Stanley — Analyst The primary is simply type of going again to acquisitions, and I feel you’ve got talked about type of a brand new $50 billion-plus enterprise worth, much less focus threat. There are simply extra alternatives that current themselves. So I suppose the query is actually, is the workforce doing something organizationally completely different to attempt to supply these offers? Or is the purpose that, traditionally, when these offers have come up, you’ve got needed to move on them, however now you’ll be able to check out it.Sumit Roy — President and Chief Government Officer It wasn’t that we had been passing on offers, Ronald. It was extra alongside the traces of in case you have a look at a few of our trade focus, they had been beginning to creep to double-digit ZIP codes and considerably past that. And the complementary nature of what we’re inheriting from VEREIT, I consider, helps us on a few industries. For those who have a look at just a few of our largest industries, like comfort shops and groceries, and so on., all of these concentrations on a professional forma foundation is definitely going to come back down. And so, it offers us extra capability to aggressively pursue alternatives that we’re discovering extremely compelling to attempt to recover from the end line. So it simply offers us extra capability. That is one. The second is being a a lot bigger firm, and this can be a more moderen phenomenon. I feel two years in the past, possibly a bit of bit longer than that, was the primary time I heard of $1 billion sale-leaseback alternative in our area, and it was on the retail facet of the equation. And we have by no means heard of alternatives of that measurement. And even for us, if we had some prior publicity to the consumer, doing a $1 billion transaction, what is going on to type of begin to push the focus threat concern. And now being 1.3, 1.4 instances the scale that we had been, it’s much less of a difficulty. And the scale of sale-leaseback alternatives that at the moment are in play are $1 billion alternatives. Now, we’ve not actually seen — there have been bulletins, however we’ve not seen something type of but over the end line on that entrance. However that, to us, is strictly the kind of transactions that we want to have the ability to present up for and be capable to do and be a single-point answer for a few of our shoppers that we maybe wouldn’t have been in a position to pursue in our earlier model. And so, I feel that actually is what we really feel might be one of many largest beneficiary. And likewise, proactively to go to a few of these bigger corporations and be capable to say — after which, for giant corporations, by definition, doing a $500 million sale leaseback does not actually transfer the needle for them a lot. And so, to have the ability to be an answer and supply multibillion-dollar sale-leaseback alternatives for them, I feel, could possibly be much more compelling. And so, these are the varieties of issues that we would be able to pursue put up this closing that we clearly thought rather a lot about previously, and now we have approached sure shoppers. However it was — we had been guided by what we had been listening to when it comes to what is actually related for a few of these of us. So I feel, look, time will inform, however it definitely creates the platform for us to now be capable to pursue a few of these transactions which we weren’t in a position to as aggressively pursue previously. Ronald?Ronald Kamdem — Morgan Stanley — Analyst Sure. Sorry about that. Nice. My second query was simply going to 2022 steering. Clearly, I recognize the transparency, and I can recognize these are preliminary numbers. However once I take into consideration the AFFO steering vary, are you able to possibly share what that assumes when it comes to same-store lease development and the assumptions for reserves for credit score losses?Sumit Roy — President and Chief Government Officer Sure. We clearly gave you a few numbers once we got here out with this. The purpose of developing with a steering at this level within the cycle, which is nontraditional for us, was largely pushed by this acquisition that we did of VEREIT. And there was quite a lot of uncertainty round what does professional forma Realty Revenue actually appear to be put up separation of the workplace belongings, and this was our try to type of tackle that going ahead. And so, when it comes to the opposite ascensions like same-store lease and different inputs that go into the mannequin, it’s largely alongside the traces of what we have carried out previously. And so, it is best to — and naturally, as we study extra concerning the portfolio that we have acquired and we glance out into the long run, and we, extra importantly, digest the $5 billion acquisition steering that now we have for this 12 months, I feel we’ll be in a a lot better place to provide you way more exact numbers on same-store development, and so on., and so on. However for proper now, it is best to assume it to be the 1% of what we often type of level to.Ronald Kamdem — Morgan Stanley — Analyst Nice. Thanks.Sumit Roy — President and Chief Government Officer Positive.OperatorYour subsequent query comes from the road of Brent Dilts with UBS. Your line is now open.Brent Dilts — UBS — Analyst Nice. Thanks, guys.Christie Kelly — Government Vice President, Chief Monetary Officer, and Treasurer Hello, Brent.Brent Dilts — UBS — Analyst Hello, Christie. So look, I’ve simply bought a qualitative one at this level. However with the acquisitions in Spain in the course of the quarter, might you discuss what you realized from the transaction? And simply how does that affect your strategy in Continental Europe going ahead? I feel in current calls, you guys have spoken about simply attempting to study the native markets, and there is quite a lot of nuance to it. So possibly you would simply present a bit of shade round your expertise there.Sumit Roy — President and Chief Government Officer Sorry, are you asking us what’s our filter of going into new markets? Is that the query, Brent?Brent Dilts — UBS — Analyst No. Sorry, Sumit. It is extra simply what did you study particularly from the method itself so far as like nuance to the deal buildings or the negotiations or simply something concerning the market that possibly you picked up.Sumit Roy — President and Chief Government Officer Sure. Brent, I will let you know very actually, we did quite a lot of homework earlier than we truly went into any explicit market. We checked out transactions which have taken place previously. We attempt to perceive the nuances of the construction as we took under consideration the tax implications. So quite a lot of the homework was carried out previous to us truly partaking with potential shoppers or the advisory group to begin to pursue transactions. So I might say that we weren’t overly shocked by the construction of the deal that we have been in a position to recover from the end line. The one factor that has shocked me, personally, and I do not know if Neil and Mark are going to share in my remark however is the amount remark. I do consider that now we have been in a position to create these relationships which have cemented to and have translated into subsequent transactions way more shortly than what we had initially thought. That is very a lot a relationship-driven market, which we anticipated, however to not the extent that we have seen it play out. They’re in search of long-term companions. They’re in search of companions that aren’t out there to flip out belongings, and that’s proper down the green for who we’re and the way we consider we’re producing worth for our traders long run. The knowledge of near some is extremely necessary, much more so than maybe right here within the US It is not that certainty of shut will not be necessary, however they’re much extra price-sensitive right here within the US than maybe in Continental Europe, in addition to within the UK So status, measurement, scale, the truth that we do what we are saying does appear to be weighed much more considerably in all of Europe than what we had anticipated. In order that’s the place the shock got here in, not when it comes to the length of the lease or the cap charges or the expansion that we discover embedded in these leases. Lots of that was recognized to us earlier than we went into these markets.Brent Dilts — UBS — Analyst OK. Nice. That is it for me, guys. Thanks.Sumit Roy — President and Chief Government Officer Positive.OperatorYour subsequent query comes from the road of John Massocca with Ladenburg Thalmann. Your line is now open.John Massocca — Ladenburg Thalmann and Firm Inc. — Analyst Good afternoon.Christie Kelly — Government Vice President, Chief Monetary Officer, and Treasurer Hey, John.John Massocca — Ladenburg Thalmann and Firm Inc. — Analyst So simply taking a look at type of the leasing spreads on type of renewals and type of releasing of vacant belongings, the third quarter, we type of have been nicely above, I suppose, what, even type of current historic stage. Do you suppose that type of above 100% restoration is sustainable right here? Or is that possibly extra a mirrored image of the place we’re in type of the macroeconomic cycle given the pandemic?Sumit Roy — President and Chief Government Officer John, that is a superb query. And in case you’re asking me can we do optimistic 7% with subsequent to no capital investments each quarter going ahead, I feel the reply might be no. However I do suppose that over the past eight, 12 and even in the course of the pandemic, the type of releasing that we have been in a position to obtain with no bunch of capital investments is a testomony to the standard of the portfolio that now we have. However way more importantly, it is a testomony to the asset administration workforce underneath the tutelage of Janeen that we’re in a position to generate these numbers. And so, I really feel like in case you have a look at the development and also you have a look at what we have been in a position to do over the past three, 4 years, now we have typically achieved north of 100% releasing spreads. And this, by the best way, contains not simply shoppers who’re renewing an possibility but in addition new shoppers that we’re bringing in into both empty buildings or buildings which are about to go empty. So that is the entire image of what we have been in a position to obtain. And that is without doubt one of the factors that we have been attempting to speak about that our enterprise on a normalized foundation goes to turn into a seven-year vault enterprise. And quite a lot of worth is both going to get created via this channel or not. And we have been anticipating this and constructing out our asset administration workforce in anticipation of with the ability to generate the type of outcomes that we’re posting on a quarter-by-quarter foundation. So we really feel excellent that we — and we often goal about 100% each quarter, and we have been in a position to do much better than that. And I will go away it at that.John Massocca — Ladenburg Thalmann and Firm Inc. — Analyst OK. After which, switching gears a bit of bit again to worldwide, I feel it is type of possibly pre-pandemic in case you have a look at type of cap charges for the UK acquisitions versus the US, proper? UK was at all times pretty considerably decrease than US acquisitions, and that unfold has type of disappeared. Each are type of on prime of one another when it comes to type of day one cap charge. So is {that a} issue, you suppose, of macroeconomic pushes and pulls, rates of interest, and so on.? Or is that extra reflective of various type of investments that you simply’re concentrating on, both internationally or right here domestically?Sumit Roy — President and Chief Government Officer It’s definitely the latter. For those who’re taking a look at grocery companies right here within the US, there was an amazing quantity of compression that we have seen on the cap charge facet of the equation. And I might say that the US market has moved extra towards the UK market than the opposite manner round. However there are variations to the lease buildings, and so on. And as soon as once more, I am not going to enter the small print. However what you see because the headline cap charge, sure, you are seeing that they appear to be very shut. There are some inter-quarter variability. Like I consider within the second quarter, we had a barely greater cap charge related to worldwide, and it was a perform of the kind of belongings that we bought and the size of the lease phrases that we had been in a position to obtain which translated to greater cap charges. However by and huge, the unfold which takes under consideration each the cap charge, in addition to the price of capital, may be very related proper now, very, very related in each these markets. However I do suppose it is partly pushed by we’re enjoying in a a lot narrower trade spectrum in Europe, and now we have been doing much more industrial right here within the US And it type of balances out, and it yields a quantity that you simply see because the headline quantity posted on our supplemental.John Massocca — Ladenburg Thalmann and Firm Inc. — Analyst That was very useful. Thanks very a lot.Sumit Roy — President and Chief Government Officer Thanks.Christie Kelly — Government Vice President, Chief Monetary Officer, and Treasurer Thanks.OperatorYour subsequent query comes from the road of Wes Golladay with Baird. Your line is now open.Wes Golladay — Robert W. Baird and Firm — Analyst Hello, everybody. Fast query on the acquisition quantity this 12 months. Hello, Christie. Once you have a look at what’s driving the upside, is it extra on the sale-leaseback facet? Or is it developer takeouts, dealer offers? I am simply attempting to get a deal with on the place the deal is coming from.Sumit Roy — President and Chief Government Officer It is a mixture of all types of improvement. We’re doing takeouts. We’re doing — we’re truly financing 100% of developments. The one widespread thread is that, within the overwhelming majority of the circumstances, there is a lease in hand. You would possibly see that there is a retail asset the place I feel on the retail facet, it was 93% occupied, and that is largely pushed by a repositioning that we’re doing. And we do not fairly have the lease in hand for that one explicit unit. However in any other case, it is all constructed to swimsuit, however we play throughout the spectrum, offering all the improvement funding, in addition to doing takeout.Wes Golladay — Robert W. Baird and Firm — Analyst OK. After which, once we look to subsequent 12 months’s steering, you do have about $750 million of excessive coupon debt in 2022 that’s due. Is it protected to imagine that is not within the quantity or prepayment of that?Sumit Roy — President and Chief Government Officer I will let Christie reply that.Christie Kelly — Government Vice President, Chief Monetary Officer, and Treasurer That is right.Wes Golladay — Robert W. Baird and Firm — Analyst OK. Thanks for taking the questions.Sumit Roy — President and Chief Government Officer Thanks.Christie Kelly — Government Vice President, Chief Monetary Officer, and Treasurer Thanks, Wes.OperatorYour subsequent query comes from the road of Katy McConnell with Citi. Your line is now open.Michael Bilerman — Citi — Analyst Hey. It is Michael Bilerman right here with Katy. Sumit, I wish to come again on type of the pipeline, simply come again on the $5 billion for subsequent 12 months. I feel in your feedback, you had been attempting to be conservative. It is early. You wish to type of see what the mix of the groups can do. However how did you provide you with the $5 billion? You did not pull it out of skinny air. There has to have been some rigor to provide you with that. So are you able to simply stroll via type of the evaluation that you simply went via to provide you with that $5 billion?Sumit Roy — President and Chief Government Officer Positive. Look, I feel as we get an increasing number of comfy with the technique that we’re presently executing, Michael, it offers us much more confidence to have the ability to say, look, that is the product that we’re seeing. That is the interpretation charge on that product on the sourcing numbers. We really feel very comfy, given the workforce and infrastructure now we have in place, that we’re going to have the ability to accomplish the numbers that we posted. This 12 months was a really fascinating 12 months for us as a result of we had a really wholesome pipeline, similar to we do right this moment, coming into the 12 months. However it was put up pandemic, and we did not fairly know the way issues are going to play out. However we felt excellent about coming in and saying $3.25 billion, which now we have since revised a few instances. And so, as we’re getting an increasing number of comfy with the brand new markets that we’re getting into into, with the sourcing volumes that we’re seeing, with the maturation of the workforce that now we have in place, that is what is giving us the boldness. At first, I used to speak with my colleagues, and we’d earmark about 20% to 25% worldwide. Nicely, right this moment, it is nearer to 30%, 35%. We constructed out the workforce within the worldwide facet. We’ve a way more mature workforce and a unbelievable workforce on the US facet. And now, we’ll inherit a gaggle of veterans from this acquisition. In order that’s actually the build-out that we have carried out internally, and we really feel pretty assured about to come back out and say, Look, this 12 months, we’ll do north of $5 billion. We should always be capable to try this with the extent of visibility and one 12 months behind us now in 2022. In order that’s how we got here up with that math.Michael Bilerman — Citi — Analyst I suppose, listening to that might sound terribly conservative given all of the arrows that you’ve got in your quiver to have the ability to execute extra acquisitions, particularly given your different feedback about being a much bigger firm means that you can tackle completely different dangers, which, arguably, being a giant firm, in case you went out and bid a $1 billion portfolio after which have $100 million of belongings that you simply did not need, nicely, $100 million or $50 billion ain’t that a lot. How does that type of play into your occupied with deal movement from right here? And I feel you and I talked a bit of bit about this, I do not know if it was final quarter or the quarter earlier than, when it comes to your willingness to now settle for what beforehand was bigger dangers that you could be be prepared to take right this moment when it comes to both sort of asset, location of asset, credit score of tenant, all of the number of issues that made you move on offers earlier than?Sumit Roy — President and Chief Government Officer I hope what you are saying is strictly proper. In a 12 months from now, now we have a quantity that’s far in extra of the $5 billion that we’re popping out with, Michael. What we do not wish to do is have a specific quantity dictate our decision-making. We wish to come out — and that is proper alongside the traces of how we have operated the enterprise. That is the most important acquisition quantity quantity that we’ll be popping out with in our historical past. You are proper. That is by design that we have created all these avenues, and we ought to be rising our steering. And maybe there’s a stage of conservatism, however we want nothing higher to come back in, in February and revise our numbers and say, you already know what? We have had an opportunity to revisit and be capable to are available in with a excessive stage of confidence, given all of those different new methods that we’re placing much more effort into, i.e., greater yielding, newer markets, with the ability to have one quarter underneath our belt in Spain, determining what we will or can not do there. All of that, hopefully, will translate into greater numbers. However that is the place we really feel that we do not wish to overpromise and underneath ship. And that is the rationale why we’re developing with what we’re popping out with.Michael Bilerman — Citi — Analyst After which when it comes to simply from a company perspective, I’ve seen time that you will speak to massive tenants which have quite a lot of actual property on their books. You might be a lot better outfitted right this moment at your measurement to have the ability to do these elephant-hunting varieties of transactions. How lively are you in going to these firms which have the true property on their books the place you are able to do a direct deal on a a lot bigger scale? And are these additional alongside? And I suppose do you’ve different capital companions? As we have seen, there’s quite a lot of institutional capital that might like to get entry to the kind of portfolios and higher-yielding levered performs that you simply’re doing. And so, I am simply — I would prefer to know a bit of bit extra on that entrance, whether or not we might anticipate that to be a a lot larger a part of the story.Sumit Roy — President and Chief Government Officer Previously, we needed to take into account companions once we had been coming throughout these multibillion-dollar sale-leaseback alternatives. However I feel the necessity for that has diminished put up this acquisition. We had inbounds from traders who needed to take part on these one-off transactions, bigger transactions outdoors of the realm of the general public eye. And we have largely stayed away from that as a result of we felt just like the transactions that we had been truly seeing out there that was close to time period, we might deal with all on our personal. So we’ve not needed to pursue a partnership very aggressively. And I feel the necessity for that has diminished much more so now with this — with professional forma for the VEREIT transaction. And I do consider that our willingness and need to extra actively pursue potential shoppers that we have talked about, that we would wish to converse with and have interaction with is rather a lot greater right this moment on condition that the focus points that we might have entered into are considerably muted now. And so, I do suppose that these varieties of conversations are going to be a bit of bit extra entrance and middle when it comes to what we do, and we’re going to do it way more proactively. That is right.Michael Bilerman — Citi — Analyst OK. After which, the second subject, final subject is simply concerning the workplace spin. Clearly, once you introduced the transaction, there was a dialogue about not having a plan in place to take care of these belongings that you simply did need and be capable to contribute the workplace belongings in your stability sheet. And also you mentioned you had been going to pursue two paths you’d have the spin as you are principally a backup possibility and also you have a look at the gross sales course of. Are you able to speak us via type of what led you down the trail of an workplace spin and occupied with the dissynergies from a G&A perspective, how you considered the worth that you’d be delivering to mixed shareholder base versus a sale and taking the money. So why spin versus sale?Sumit Roy — President and Chief Government Officer Sure. So it is best to assume that once we mentioned the separation of the workplace belongings, we had been very clear with the market that we’re going to pursue both a spin or a sale, and we did. And the place we concluded going via these two parallel paths was that the spin is a much better possibility given the place we had been popping out on the gross sales facet than not, which is exactly why we determined to decide on to go down the spinning of the workplace belongings. Placing a workforce that was very conversant in all of these belongings have been working very arduous on asset managing these belongings — was very able to creating worth long term. And what we — the evaluation that we went via was to say, OK. They’ve a thesis. It is a thesis that is sensible. There are some tailwinds in that exact subsector given the success that they have been in a position to obtain over the past couple of years. You have a look at that, and then you definately type of see what they will do with this portfolio going ahead. From another perspective, this looks like absolutely the proper various for us to pursue, although promoting the belongings would have been a better step for Realty Revenue to take. However we did pursue each these efforts in parallel, and that is the trail that, on a risk-adjusted foundation, yielded the superior final result for us. And that is the rationale why we pursued it.Michael Bilerman — Citi — Analyst OK. Thanks for the time.Sumit Roy — President and Chief Government Officer Positive.OperatorYour subsequent query comes from the road of Josh Dennerlein with Financial institution of America. Your line is now open.Josh Dennerlein — Financial institution of America Merrill Lynch — Analyst Yeah. Hey, guys. Hope you are all doing nicely.Christie Kelly — Government Vice President, Chief Monetary Officer, and Treasurer Hey, Josh.Josh Dennerlein — Financial institution of America Merrill Lynch — Analyst Hey. Now, with the VEREIT merger behind you, curious, you added a bunch of teammates. Any type of ability set possibly that was introduced in that might aid you guys widen the aperture?Sumit Roy — President and Chief Government Officer That is what we — yeah. Sorry, I did not imply to interrupt. Go forward.Josh Dennerlein — Financial institution of America Merrill Lynch — Analyst No, no, please, please.Sumit Roy — President and Chief Government Officer That is what we have been adhering to, Josh, once we’re speaking about with the ability to have a workforce that may be very able to enjoying throughout the credit score spectrum, for a scarcity of a greater phrase, the higher-yielding belongings, the lower-yielding belongings and with the ability to cowl that whole spectrum with a much wider workforce. That is without doubt one of the largest benefits that we’re inheriting from — via this acquisition. And there are different benefits of teammates that we’re inheriting, not simply on the acquisition entrance, but in addition on — once we have a look at a number of the knowledge analytics work that we’re planning on doing, a number of the course of reengineering work that we’re doing. They’ve just a few very proficient of us of their workforce that can turn into a part of a few of these alternatives that we’re already constructing out and executing upon and be capable to be tremendously additive and assist us speed up a few of these alternatives to the end line and creating much more effectivity. So it is actually — I’m so pleased with the workforce that now we have inherited, and it is circa 100 folks that can actually assist us turn into an entire workforce, and naturally, assist us take in north of three,000 properties, which isn’t a small feat.Josh Dennerlein — Financial institution of America Merrill Lynch — Analyst Bought it. And my different query, I suppose, pertains to dividend technique going ahead. Simply type of curious to listen to your ideas on possibly how the board thinks concerning the payout ratio and retained earnings.Sumit Roy — President and Chief Government Officer So our payout ratio is within the excessive 70s right this moment. We are going to at all times be The Month-to-month Dividend Firm. It took us over 25 years to turn into a part of the Dividend Aristocrat index — the S&P 500 Dividend Aristocrat index. That is very core to our technique going ahead. And so, in areas the place we will develop 9.5% or 9.2% within the midpoint of the vary that we have simply shared with you, that can simply proceed to assist us develop our dividends sooner or later. And that’s — there might be no change to that technique of annual development on the dividend going ahead. So actually, no change, Josh. However I simply needed to ensure, given that you simply requested a query that I emphasised how necessary core dividend development is to Realty Revenue. And nothing that we have carried out, both not too long ago or previously, goes to alter that.Josh Dennerlein — Financial institution of America Merrill Lynch — Analyst Bought it. Thanks.OperatorYour subsequent query comes from the road of Linda Tsai with Jefferies. Your line is now open.Josh Dennerlein — Financial institution of America Merrill Lynch — Analyst Hello, Linda.Linda Tsai — Jefferies — Analyst Hey. With 85% of your leases having some sort of contractual lease enhance, are you able to remind us what sort of will increase you obtained on the European leases versus home? After which throughout all the portfolio, going ahead, what is perhaps common lease enhance appear to be versus what it’s now.Sumit Roy — President and Chief Government Officer Sure. Linda, I am not going to provide you exact info. I feel it’s of strategic significance to us to not be that exact on development by geography. I’ll let you know that 85% of our leases have contractual development. Both they’re within the type of fastened development or they’re within the type of CPI changes or there are share lease clauses into the contract. So it is a kind of three variations that make up the expansion profile. You may proceed to underwrite to a 1% same-store development for our enterprise going ahead, and we are going to replace you as and when warranted. However for proper now, that’s the assumption it is best to have in your fashions.Linda Tsai — Jefferies — Analyst After which how ought to we take into consideration the tempo and mixture of capital elevating exercise in 2022 as you progress ahead with a plus $5 billion acquisition run charge?Christie Kelly — Government Vice President, Chief Monetary Officer, and Treasurer I feel — go forward, Sumit.Sumit Roy — President and Chief Government Officer No, no, no. Please, Christie. Go forward.Christie Kelly — Government Vice President, Chief Monetary Officer, and Treasurer I will simply kick it off to say, I feel, Linda, you’ll be able to anticipate that to be according to our efficiency this 12 months in funding our enterprise and persevering with to pursue a really aggressive price of capital whereas sustaining our internet debt to EBITDA.Linda Tsai — Jefferies — Analyst Thanks.Sumit Roy — President and Chief Government Officer Thanks, Linda.OperatorYour subsequent query comes from the road of Chris Lucas with Capital One Securities. Your line is now open.Chris Lucas — Capital One Securities — Analyst Good afternoon, all people. Thanks for taking my query.  Actually simply two — quite a lot of the questions have been requested and answered. However I suppose simply, Sumit, given the dimensions of the corporate at this level and the place your credit standing is, I suppose simply curious as to your conversations with the score businesses post-merger, in case you’ve gotten any flexibility or indication from them that you’ve got extra flexibility in your leverage facet to take care of these very excessive credit score rankings.Sumit Roy — President and Chief Government Officer I will share the headline, however I will let Christie converse thus far as a result of she truly had the dialog, together with Jonathan, with the 2 credit standing businesses. They had been very supportive. Once we, the truth is, went again after our third quarter bulletins and spoke with them, they had been, once more, very complimentary. They noticed the capital elevating that we did and basically front-loaded the funding of our acquisition pipeline. They proceed to reaffirm their present stance of A-/A3 score and a secure outlook. So we really feel like we — after all, we’ll have two months of earnings related to this closing however all the stability sheet, day one. So the numbers are going to look a bit of bit off. However on a professional forma foundation for annualized earnings, it is going to be proper the place we play and the place the score businesses are extremely comfy. So I do not see us being placed on any type of a detrimental watch or what have you ever. We have tried to be very clear. We have shared all of the evaluation with the score businesses, and we really feel very assured that they’ll proceed to assist us and preserve us on the present ranges. Christie, do you’ve something so as to add on?Chris Lucas — Capital One Securities — Analyst I used to be simply — I used to be going to flip it the opposite manner. I am questioning whether or not the dimensions of the corporate and the diversification of the portfolio goes to mean you can do extra leverage and maintain the score. That is actually the place I am going with this.Sumit Roy — President and Chief Government Officer That is a superb query, Chris. I do not know the reply to that, and it’s totally troublesome to even enter right into a hypothetical with the score businesses about that exact state of affairs. They are usually a little bit of a black field. And we did not change our leverage profile that — once we had been on this fashion up. And this, I feel, lends credence to the remark you are making, Chris. However we will not anticipate that. And reality be advised, we’re very pleased with A-/A3 score, I feel. I do not know what the incremental profit could be attending to an A/A2 score, however I do not know if it is going to be as vital as going from BBB+ to A-. However it’s a superb query and one which I feel, now that you have requested, will pose to the score businesses to determine how they are going to consider this.Chris Lucas — Capital One Securities — Analyst After which simply type of a secondary query. When you concentrate on the way you wish to finance your small business, you talked about, I suppose, European charges are extra enticing proper now than the US for financing. Would you concentrate on financing at the next stage relative to asset base in Europe at this level than you do within the US from a debt finance perspective? And the way excessive would you go?Sumit Roy — President and Chief Government Officer Sure. For us, Chris, we have been very clear about what the limiting issue has been for us in Europe. We wish to use home capital to finance as a lot our acquisition as doable, however the limiting issue is at all times going to be the asset worth. And so, that is one of many largest benefits that now we have is we will increase debt in any geography. And in an surroundings the place we see right here within the US, there is a rising tenure, US Treasury, not a lot right this moment, however anticipated. We might do much more on the unsecured facet, assuming we proceed to develop within the UK or in Mainland Europe as we develop on the market. However the constraining issue will at all times be what’s on the left facet of the stability sheet, and does it assist the elevating or not? However might or not it’s extra levered there than right here within the US? Completely. That is one of many large benefits of why we did what we did. And on a completely consolidated foundation, which is how we take into consideration our enterprise, we’re very comfy in implementing that exact technique.Chris Lucas — Capital One Securities — Analyst Tremendous. That is all I’ve right this moment. Thanks a lot.Sumit Roy — President and Chief Government Officer In fact, Chris. Thanks.Christie Kelly — Government Vice President, Chief Monetary Officer, and Treasurer Thanks, Chris.OperatorYour subsequent query comes from the road of Spenser Allaway with Inexperienced Road. Your line is now open.Christie Kelly — Government Vice President, Chief Monetary Officer, and Treasurer Hello, Spenser.Spenser Allaway — Inexperienced Road Advisors — Analyst Hello. I do know you guys spoke about improvement earlier. Are you able to possibly simply extra broadly discuss how the event economics fluctuate between US and Europe? And if doable, are you able to simply present some shade round what sort of yields you are anticipating on the one UK improvement you’ve underway?Sumit Roy — President and Chief Government Officer Spenser, we’ll avoid talking about particular transactions. We simply do not try this. After which, I will be requested to recollect of the 400 properties that we acquired, what’s the cap charge on the 388th property? It is simply going to be inconceivable. That is actually the rationale why we’re staying away from being very exact about particular transactions, and we attempt to report it to you on a completely consolidated foundation. There is no such thing as a doubt that we’re in a position to get barely greater yield on improvement tasks than we’d on belongings which are prepared for supply. And that might vary. It might vary anyplace between — and by the best way, that has compressed. However it might vary anyplace between 25 foundation factors to, on the odd event, possibly 75, 80 foundation factors. It was north of 100 foundation factors not too way back. However for us, we’re a yield-driven enterprise. Each incremental yield is a optimistic for us. Spenser. So I do consider that, in our complement, we do present that stage of readability. We do escape what the event yields are, and so it is best to be capable to monitor that as a part of our total acquisition quantity and the way a lot of it’s attributable to the event funding. And you will notice that it is undoubtedly greater than what we are literally buying belongings, and that is only a testomony to {our relationships} and with the ability to type of stability out the general portfolio. And that technique will proceed to play out.Spenser Allaway — Inexperienced Road Advisors — Analyst OK. Thanks.Sumit Roy — President and Chief Government Officer Thanks.Christie Kelly — Government Vice President, Chief Monetary Officer, and Treasurer Thanks, Spenser.OperatorThis concludes the question-and-answer portion of Realty Revenue’s convention name. I’ll now flip the decision over to Sumit Roy for concluding remarks.Sumit Roy — President and Chief Government Officer [Operator signoff] Period: 75 minutesCall contributors:Julie Hasselwander — Investor RelationsSumit Roy — President and Chief Government OfficerChristie Kelly — Government Vice President, Chief Monetary Officer, and TreasurerNate Crossett — Berenberg Capital Markets — AnalystGreg McGinniss — Scotiabank– AnalystBrad Heffern — RBC Capital Markets — AnalystHaendel St. Juste — Mizuho Securities — AnalystCaitlin Burrows — Goldman Sachs — AnalystRonald Kamdem — Morgan Stanley — AnalystBrent Dilts — UBS — AnalystJohn Massocca — Ladenburg Thalmann and Firm Inc. — AnalystWes Golladay — Robert W. Baird and Firm — AnalystMichael Bilerman — Citi — AnalystJosh Dennerlein — Financial institution of America Merrill Lynch — AnalystLinda Tsai — Jefferies — AnalystChris Lucas — Capital One Securities — AnalystSpenser Allaway — Inexperienced Road Advisors — Analyst
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