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Spirit Realty Capital Inc  (NYSE:SRC)
Q4 2018 Earnings Conference Call
Feb. 21, 2019, 9:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Greetings and welcome to the Spirit Realty Capital, Incorporated Fourth Quarter 2018 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded.

I would now like to turn the conference over to your host today, Mr. Pierre Revol, Senior Vice President of Strategic Planning and IR. Please proceed, sir.

Pierre Revol -- Senior Vice President of Strategic Planning and Investor Relations

Thank you, operator and thank you, everyone for joining us today. Presenting on today's call will be President and Chief Executive Officer, Mr. Jackson Hsieh; and Chief Financial Officer, Mr. Michael Hughes. Ken Heimlich, Head of Asset management will be available for Q&A.

Before we get started, I would like to remind everyone that this presentation contains forward-looking statements. Although the Company believes these forward-looking statements are based upon reasonable assumptions they are subject to known and unknown risks and uncertainties that can cause actual results to differ materially from those currently anticipated due to a number of factors. I'd refer you to the Safe Harbor statement in today's earnings release and supplemental information as well as our most recent filings with the SEC for a detailed discussion of the risk factors relating to these forward-looking statements. This presentation also contains certain non-GAAP measures.

Reconciliation of non-GAAP financial measures to most directly comparable GAAP measures are included in today's release and supplemental information furnished to the SEC under Form 8-K. Both today's earnings release and supplemental information are available on the Investor Relations page of the Company's website.

For our prepared remarks I'm now pleased to introduce Mr. Jackson Hsieh. Jackson?

Jackson Hsieh -- President and Chief Executive Officer

Thanks, Pierre. Good morning and thank you for joining us today. A year and a half ago, we announced the spin-off of SMTA. And I want to reiterate what I said back then. The separation impact to Spirit is simply awesome. Today Spirit is liberated from the impediments it faced in the past. The portfolio is stronger across every key metric, and our balance sheet is significantly enhanced. Over the course of this year, our results have proven out that statement. Our operational performance has been strong with de minimis lost rent, healthy same-store rent growth and record occupancy.

We are proud that we were able to deliver AFFO with the high-end of our expectations while maintaining low leverage. As I mentioned last month, the last step is to make Spirit a simplified pure play triple-net lead with a strong balance sheet that can deliver consistent AFFO and dividend growth. Much of the heavy lifting has been done. We believe our internal processes and tools are at the cutting edge of the industry, our portfolio with high quality and our balance sheet is efficient, flexible and low leveraged.

We have assembled the first class senior leadership team that is completely aligned, focused and able to take Spirit forward and maximize value for our shareholders. We have come a long way and I firmly believe that we are entering the final earnings of a plan that started with an unconventional idea that took a great deal of hard work and fortitude to realize. In short, I think this is an exciting time to be a Spirit shareholder.

Throughout 2019, we will focus on three critical initiatives to position Spirit for long-term success. The first is to assist the SMTA independent trustees in their accelerated strategic process. Finalizing this process and decoupling Spirit from SMTA is the most critical step in making Spirit simple and understandable for investors.

We are already under way with the marketing of the Master Trust and resolution of the other assets within SMTA. The second is to continue to improve predictive analytics and our tenant relationships in order to maintain high-quality operations and deliver strong consistent results. And the third is to execute on the acquisition and disposition targets that have been incorporated in this year's earnings guidance.

As I mentioned earlier we had a solid finish in 2018. Excluding the Haggen settlement, our fourth quarter and full year AFFO per diluted share of $0.84 and $3.78 respectively met the high-end of our expectations. Our leverage calculated as adjusted debt to annualized adjusted EBITDAre ended the year at 5.1 times which was one turn below the low end of our target. Our portfolio occupancy ended the year at 99.7%, the highest in Spirit's history with only five vacant properties. And our same-store sales grew 1.6% during the quarter principally benefiting from the QSR movie theaters, health and fitness, grocery and medical office categories.

Turning to capital allocation. We acquired three new properties during the quarter totaling $24.2 million which includes a new Topgolf facility in Baton Rouge, Louisiana. For the year, we invested a total of $287 million in acquisitions and revenue-producing capital projects with an initial cash yield of 7.1% and an economic yield of 8%. I would like to point out that at the end of the second quarter we had only deployed $19.1 million in acquisitions and revenue-producing capital projects. So the net $267.9 million all occurred in the second half of 2018. Many new service-oriented tenants were acquired in the second half of 2018 including Life Time Fitness which is our sixth largest tenant, Topgolf and Alaska Club gyms. We also expanded existing relationships with Main Event and Studio Movie Grill.

We will continue to focus on adding high-quality tenants with solid real estate and favorable lease terms in the industries that align with our heat map. Fourth quarter dispositions totaled $55.4 million at a weighted average cap rate of 6%. For the year dispositions totaled $103.3 million at a weighted average cap rate of 6.5%. Our 2018 disposition plan for income-producing properties focused primarily on optimizing industry concentrations. Some of the assets sold included Circle K c-stores, drug stores and grocery stores.

We have some other notable highlights this quarter. First, we are pleased to announce that we received a final Haggen bankruptcy settlement payment of $19.7 million in the fourth quarter. To recap the Haggen situation, our original $224.4 million investment was committed in late 2014 and funded through the course of early to mid-2015. Subsequently Haggen sought Chapter 11 relief (ph) in 2015. Since then Spirit has been able to generate $165.5 million in property sales and settlement fees and $43 million in rent.

We have seven former Haggen properties currently long-term leased to Smart & Final and Albertsons and one remaining vacant property in Las Vegas which is currently on the market. The total annual rent of $6.2 million for the remaining income-producing properties implies a current yield of 11% on our remaining $59 million original Haggen investment.

The positive outcome from this investment is a result of the efforts and effectiveness of our asset management team. More detail on these results can be found in the Investor Relations section of our website in the presentation titled Haggen update which was posted this morning. We are also happy to announce that we recently completed the restructuring of our Taco Bueno master lease.

Prior to Taco Bueno filing Chapter 11 bankruptcy, our 35-unit master lease had less than three years remaining term. We recently restructured the lease with the new owner of Taco Bueno resulting in a 23-unit master lease and three individual leases all with 17 years of lease term. We agreed to take back seven vacant stores which are currently being marketed for sale or lease by our asset management team. Thus far, we have received a great deal of interest in our vacant stores for both sale and the leasing.

The new Taco Bueno owner operator purchased all of the company's senior debt leaving the restructured company a much stronger tenant. Overall with the enhanced credit profile of Taco Bueno, our extended lease term and our expected recovery on the vacant stores, this lease restructure is very favorable to Spirit and I again credit our asset management team for securing this outstanding result.

Finally, we recast and expanded our senior unsecured credit facility which addresses all of our near-term maturities. Mike will elaborate more on this in his prepared remarks, but we believe this quarter's results represent strong execution across the Board. Before I turn the call over to Mike to walk through the specifics of our 2019 guidance, I want to give you some color on the key components and how they relate to our go-forward strategy.

As I discussed last quarter we have invested a lot of time and effort improving our analytics and processes internally. As a result of our analytical tools and processes we have a deeper understanding of where we want to take Spirit's portfolio in the future. Our acquisition target of $400 million to $550 million will be focused on existing and perspective tenants that fit our heat map and our efficient frontier and I am excited about our pipeline. These acquisitions will improve our weighted average lease term, credit quality and organic growth.

On the disposition front we are using our proprietary analytical tools and property rankings to identify the $250 million to $350 million we plan on disposing this year. These dispositions will further improve Spirit's weighted average lease term, reduce our double-net and multi-lease tenant exposure, improve our portfolio credit quality and optimize our industry winnings.

While this year's disposition pipeline is large and was originally targeted to be spread over the next three years, we believe that finalizing our portfolio repositioning this year, concurrent with the resolution of SMTA best achieves our ultimate goal of making Spirit a simplified pure play triple-net REIT that will generate steady and predictable earnings and dividend growth for our shareholders.

In summary, our acquisition and disposition plan in combination with an SMTA resolution, solid operations and maintaining low leverage will best position Spirit for future success and value creation for our shareholders.

Finally, I want to note, the additions we have made to our Board of Directors over the last several months. As part of our effort to promote strong corporate governance, Diana Laing who is most recently CFO at American Homes 4 Rent; and Elizabeth Frank, who is the EVP, Worldwide Programming and Chief Content Officer for AMC Theatres have both joined our Board. With these changes, we have expanded our Board to nine members from eight previously. Eight of which are independent and we have reduced overall Board tenure. We expect to benefit from the real estate and service-oriented retail experience and look forward to both of their contributions as we move forward.

With that I'll pass the call over to Mike.

Michael Hughes -- Executive Vice President and Chief Financial Officer

Thanks, Jackson. Good morning, everyone. As Jackson mentioned, we had a very active fourth quarter. I'm very pleased with the results on all fronts. We're at the high end of our AFFO expectations for both the fourth quarter and the year behind our expectations for capital deployment and dispositions and beat the low end of our leverage targets. Successful outcomes of our final settlement with Haggen and our lease restructure with Taco Bueno also provided for a strong finish.

Finally in January we executed a new $1.62 billion credit facility which replaced our previous $800 million revolver and $420 million term loan. The draw spreads of the new revolver and term loan reduced by 15 basis points and 10 basis points respectively. The facility also included a $400 million delayed draw term loan that will be used to repay our $402.5 million convertible notes due on May 15th. In conjunction with the new facility, Spirit entered into a $400 million interest rate swap that fixes LIBOR for five years at a rate of 2.816%. This new facility resolved all of our near-term maturities and pro forma for the repayment of the convertible notes extends our weighted average debt maturities to 4.5 years.

Now turning to the income statement. First we have changed the geography of one of our revenue line items. The new accounting statement ASC 842 requires all components from a lease contract accounted for under ASC 842 to be included in one revenue line item which is required to be adopted January 1st on a prospective basis. To give our investors comparable presentations for historic periods we have chosen to retrospectively apply this presentation in our current 10-K resulting in the inclusion of tenant reimbursable income and rental income.

During the fourth quarter, rental income excluding $2 million of tenant reimbursements grew $2.5 million compared to last quarter. Annualized contractual rent which annualizes the rents in place at quarter-end grew $700,000 compared to last quarter. Net dispositions reduced contractual rents by $1.7 million primarily offset by contractual rent escalations. We had very few tenant credit issues during the fourth quarter and reserve for lost rent remain low at 0.3% of contractual rents. We had several non-recurring items this quarter. Other income was $19.4 million or $18.9 million higher than last quarter, of which $19.1 million was attributable to the Haggen settlement.

General and administrative expense was $13.2 million during the quarter, of which $1.8 million was associated with one-time employee bonuses related to work performed to effectuate the spin-off of SMTA. You will also note a new line item titled other expense and the amount of $5.3 million. That expense represents the reserve for a loan guarantee that Spirit assumes during equity acquisition of a former tenant many years ago. This credit profile has deteriorated. Aside from this reserve, Spirit has no further exposure. As each of these previously mentioned revenues and expenses are one-time and non-recurring in nature, they're excluded from our conclusions of AFFO and adjusted EBITDAre.

Now, turning to guidance. Due to the timing uncertainty of SMTA's accelerated strategic process we have included a fee and dividend income from SMTA for the entire year. For the full year 2019 we project AFFO per share of $3.32 to $3.38. Capital deployment comprising acquisitions, revenue-producing capital and redevelopments of $400 million to $550 million; asset dispositions of $250 million to $350 million; and adjusted debt to annualized adjusted EBITDAre of 5 times to 5.4 times.

In regards to a few points I want to make about our guidance before I open up the call for questions. On the surface, our AFFO per share guidance growing $0.01 per share in 2019 at the mid-point of our range compared to our fourth quarter 2018 annualized, may seem conservative. But there are few factors that are driving that projection.

First, we are repaying our 2.875% convertible notes coming due on May 15th with proceeds from our delayed draw term loan. That repayment of loan results in $0.03 of AFFO per share dilution compared to 2018. Second, 14.6% of our AFFO is currently is derived from the fees and preferred dividends paid by SMTA which are flat and puts a drag on our year-over-year growth rate. If you were to just pro forma our AFFO for those two factors, meaning remove both the interest impact from the convert repayment and remove SMTA-related income from each year, our AFFO per share growth rate at the mid-point of our guidance range would be approximately 3.5%.

In addition, our capital allocation strategy, mainly our sizable disposition pipeline and low leverage maintenance does mute our AFFO per share growth this year. However as Jackson mentioned, we believe these strategic initiatives paired with the resolution of SMTA put Spirit in the best possible position to produce consistent and sustainable earnings and dividend growth for years to come. And there are two last points I want to make about the cadence of our projected earnings throughout the year.

First, the impact of the convertible notes repayment will primarily be felt in the back half of the year. Second, we expect our dispositions to also be heavier in the last two quarters. This simply means that we expect AFFO per share to be somewhat better in the first half of 2019. So please keep that in mind for your earnings models. Again, we're pleased with our 2018 results which met or exceeded all of our expectations. And we look forward to another good year that will position Spirit for long-term process.

I will now open up the call for questions.

Questions and Answers:

Operator

Thank you. At this time, we will conduct a question-and-answer session. (Operator Instructions) Our first question comes from Greg McGinniss with Scotiabank. Please proceed with your question.

Greg McGinniss -- Scotiabank -- Analyst

Hey, good morning.

Jackson Hsieh -- President and Chief Executive Officer

Hey, Greg. Welcome.

Greg McGinniss -- Scotiabank -- Analyst

Thank you. Jackson, you mentioned one of the main goals for Spirit is being able to generate dividend growth. Now the payout ratio to date is obviously below peer average, but following the loss of SMTA related income, how should we be thinking about dividend growth and the target payout ratio?

Jackson Hsieh -- President and Chief Executive Officer

Well, I think we initially accept the payout ratio to encompass this reduction in the participation of SMTA. So, we expect to hit obviously the high end of our acquisition guidance this year. And in combination with that and having less lost rent, better same-store growth, still enable us to move our dividend rates up as the portfolio continues to increase.

Michael Hughes -- Executive Vice President and Chief Financial Officer

Yeah. I think I agree -- I think, if you just look at the pro forma for SMTA, and like Jackson said, we did set it low cost spend in anticipation of SMTA going away at some point. We would kind of drift up just pro forma to a level that we're comfortable with, kind of low 80s and then grow the dividend from there.

Greg McGinniss -- Scotiabank -- Analyst

Okay. And Mike, in your view what is the threshold you need to tap an RS (ph) or tap an ATM as the source of funds? And if stock price holds or grows from that point, we potentially see the ATM held fund to capital deployment above the guidance range?

Michael Hughes -- Executive Vice President and Chief Financial Officer

Absolutely. I mean I don't want to give a number of my target pricing, but I think you saw us hit the ATMs a little bit in the fourth quarter. We certainly are willing to tap the ATM to fund acquisitions, especially if we're able to meet or exceed the height of our acquisition range. As long as the capital is well priced, similar what our peers do. So, we definitely think there are opportunities for us that happened and we will be using the ATMs if those opportunities occur. But, with that being said our guidance, we can hit our guidance without issuing any equity, and so, we'll just have to see what opportunities present themselves.

Greg McGinniss -- Scotiabank -- Analyst

Great. And just one more question here. Jackson, I just want to dig into the comment on dispositions you made in your opening remarks, pulling forward the three years of disposition pipeline. So how much do you envision -- how much do you envision that forward dispositions will be less than the $300 million in 2019? And does this imply less future capital deployment as well? Just kind of how should we be thinking about those two items?

Jackson Hsieh -- President and Chief Executive Officer

Well, I mean I'd characterize what's in this disposition plan as just give you some categories. We talked about, drugstore, supermarkets, multi-tenants, there's a big PetSmart facility in there. There's some Haggen assets that are in this disposition bucket. This is really for us, I'd call it opportunistic, sale opportunity. We -- these are things that I think over the course of three years that have been identified as things that we would potentially sell. And I think in my view right now we've got an opportunity this year to kind of clean everything up, which we plan to do.

If I go back to, I really believe we're in this final 10%. None of us ever talked about that big tenant with the S word behind us. So the things that are in front of us now are just, are very manageable. And were -- I'd like the Company to be at the mid-to-late part of this year, as people can sort of see this is a very clean Company, looks just like the peers. And as it stands today, I think we're pretty cheap -- to the best-in-class, triple-net peers that are out there.

Greg McGinniss -- Scotiabank -- Analyst

All right. Thank you.

Operator

Our next question comes from Shivani Sood with Deutsche Bank. Please proceed with your question.

Shivani Sood -- Deutsche Bank -- Analyst

Hi, good morning. I appreciate that first being general, refrains from commenting on SMTA, but Jackson you spoke about the marketing the Master Trust there. Can you give us some color on how demand has been sort of versus your expectation?

Jackson Hsieh -- President and Chief Executive Officer

Look we sort of categorically said, we wouldn't talk about that, but I would tell you that we're aggressively in conjunction working with the trustees to move as fast as we can to get this resolved in terms of the completions. I would characterize the interest to be better than I expected, I'll just leave it at that.

Shivani Sood -- Deutsche Bank -- Analyst

Fair enough. And then in terms of Taco Bueno and the restructuring of the master lease, if we look at the contractual rent level, where it was as of 4Q December, can you give us an idea of how many more at-risk master leases are in that amount and sort of the exposure from an annual rent perspective?

Jackson Hsieh -- President and Chief Executive Officer

Sure. I mean, look -- look the portfolio is very clean. I mean we -- Taco Bueno was something we had mentioned before. I guess, the best way I'd think about our Company Shivani is look at our lost rent. I mean that has continued to drift downwards. The operations of this Company are really, really good right now. We obviously, we're able to move a lot of at-risk tenancy, interest income. So, I think just one, Taco Bueno was in a -- as a unique circumstance as it related to that opportunity, but we don't really see a lot of other at-risk situations right now.

Shivani Sood -- Deutsche Bank -- Analyst

Okay. Great to hear. Thank you.

Operator

Our next question comes from Vikram Malhotra with Morgan Stanley. Please proceed with your question.

Vikram Malhotra -- Morgan Stanley -- Analyst

Thanks. Jackson, just wanted to -- it's great, I guess you are pulling forward the dispositions and trying to get everything sort of cleaned up. What sort of changed in the last three months into thinking in terms of just pulling forward all those dispositions to this year?

Jackson Hsieh -- President and Chief Executive Officer

I mean, if we did not have that situation with the big tenant, that SMTA sort of change direction and the Board had not ended up accelerating their strategic process at SMTA, we would not have pulled forward these acquisitions. So, this really was something -- sorry, dispositions. This really came about kind of in relation to once again, the fact that this earnings stream from SMTA, we know was going to go away in pretty short order, we decided at that point, this is the right time to pull forward our disposition program. So, it wasn't contemplated two months ago, it really -- we'd look at this is a unique opportunity to do it now.

Michael Hughes -- Executive Vice President and Chief Financial Officer

Yeah. I think Vikram, we identify the assets two months ago, to pull them forward. Our whole goal this year is, let's get Spirit to be just a clean company that looks great in every metric. We're going to execute on everything we can. We think that gives us a right cost of capital that really makes the machine work and so just get it all done.

Jackson Hsieh -- President and Chief Executive Officer

I mean, Vikram, I think you've seen our BI tools, I mean if I -- if we showed you the model of what happens when these assets move out, and what it does with the RemainCo of Spirit, I mean across every measurement, metrics improved dramatically. Then you couple that in with the high end of our acquisition target, really makes a big difference in the Company. And that's where we want to be at the end of this year when we kind of show what our weighted average lease term is, our industry mix, it's just going to -- it's going to look very favorable for it will execute on this plan.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay. And just to clarify the -- when you say you identified them in the past two months, I thought, your earlier question you said these are all the assets that you had identified a while ago, the drug store, et cetera. So are there more assets in the year than you had previously anticipated?

Jackson Hsieh -- President and Chief Executive Officer

No. Remember like -- we have every asset that's ranked in this Company, right? So, we sort of know top to bottom every single asset. And so -- it's, the simple answer is, these were identified, just our general ranking process of things that we in time, not on myself, but if the right opportunity come up, we would sell. And so that's how we kind of do our forward planning. And like I said, this -- so that's part of our, sort of annual review process. And that was really around late September, early September is when we completed our ranking process. So that's when I would say in September of 2018 is where we sort of formulated that these are the assets that we believe makes sense to move out of the portfolio over the next three years. And remember -- we've got the ability with some of these tools that we have to run different scenario analysis, just what the actual impact on the portfolio is, if it's moving or not. So it's quite unique in that regard.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay. And then on the remaining, on the Taco Bueno assets that will retain -- restructure -- what is the new rent versus the prior rent? What's the difference?

Jackson Hsieh -- President and Chief Executive Officer

I'll let Ken do that one.

Kenneth Heimlich -- Executive Vice President and Head of Asset Management

Yeah. It's -- depending on how you look at it. The -- if you remember we had a 35-unit master lease, we now have 26 units, 23 of those in other -- in a new master lease and the three individual leases. If you look at the aggregate rent for those 26 units compared to the 35, it's about a 20% reduction. I would kind of echo what was mentioned earlier. At the end of the day, we feel there is a perspective that we're in a better position today, given the new 17-year term, the seven units we took back, we think will do very well on as far as vacants.

Michael Hughes -- Executive Vice President and Chief Financial Officer

Their tenant credit.

Kenneth Heimlich -- Executive Vice President and Head of Asset Management

Yeah.

Jackson Hsieh -- President and Chief Executive Officer

For the way -- I would say like, if you've looked at that portfolio, pre-bankruptcy with the three-year remaining lease term versus what we had today, the cap rate differential is over 200 basis points on the value of those assets, just given the nature of the long-term lease we're able to retain and the fact that the tenant now has no debt, no long-term debt versus the prior owner.

Kenneth Heimlich -- Executive Vice President and Head of Asset Management

This is the tenant that is one of the largest restaurant operators, franchisees on the country. So we're very comfortable with that.

Vikram Malhotra -- Morgan Stanley -- Analyst

And the bumps are the same?

Kenneth Heimlich -- Executive Vice President and Head of Asset Management

We retain bumps in the structure that are equal to what they were prior.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay. Thank you.

Operator

Our next question comes from Ki Bin Kim with SunTrust Robinson Humphrey. Please proceed with your question.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Thanks. Going back to your dispositions commentary. I know it's all hindsight, but I thought that was kind of cleaned up portfolio would have been in 2018 with the spin-off, why not -- why didn't you add more to the spin-off? I know it's kind of like 2020, but just curious if it was, was there any element of credit deterioration or just kind of risk with these tenants that made you put these in the disposition bucket this year?

Jackson Hsieh -- President and Chief Executive Officer

Well, I mean, remember when we laid out this plan, I'm going back to when we did the first path forward, we laid out very specific debt-to-EBITDA end targets, AFFO kind of targets. That was a pretty precise calculation to get to that end for each of those pieces. As you know, I think if you kind of did a scorecard we exceeded pretty much everything we said, if not, we're met -- most of them we exceeded, most of the things that we laid out since I took over this Company. If we had taken out these assets early on, it would've had an impact in how we set up the restructuring. How much debt had to be raised on the master trust, the end result. So this was -- it might seem like, why don't you just throw those in? But it was quite a complex derivative to kind of get this Company to end where we ended up which is now, we're 5.1 times. And well Ken, if you want to add something else?

Kenneth Heimlich -- Executive Vice President and Head of Asset Management

Yeah. I think there is -- I just want to make sure there -- if there's a perception that this, call it $300 million is a workout pool and that is not the case. There are lot of factors that we used when we identify what we think we want to dispose of, double-net leases, multi-tenant, there's a variety of factors. These are not tenants that we're afraid or going to not make the rent payment next month. That's not the idea, not what was behind building this disposition plan.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

So, if you exclude the...

Kenneth Heimlich -- Executive Vice President and Head of Asset Management

Go ahead.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

So, if you exclude any kind of vacant assets that you might be selling this year, what is the cap rate range that we should expect on the sale?

Kenneth Heimlich -- Executive Vice President and Head of Asset Management

We're not putting out a cap rate range at this time. This disposition pool is going to be flexible. Some of the assets that we think we want to dispose of -- right now that may evolve throughout the year, but we will hit the overall guidance.

Jackson Hsieh -- President and Chief Executive Officer

I mean as Ken laid out, there's going to be some low cap assets, some high cap asset and just -- we're just going to have to see how it progresses through the course of the year. So, I know, that's kind of (inaudible) but that's the best we can tell you right now.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

All right. And just a quick one on Albertsons, I noticed that the ADR decreased, is that because of the sale or something happened or something else? And it -- wasn't it listed as the top 100 tenant in page 13 of your supplemental, was that just a typo or something else happened there?

Kenneth Heimlich -- Executive Vice President and Head of Asset Management

No, we did sell one Albertsons in the fourth quarter. But if you're looking us up, we changed the identification to United Supermarkets which is a wholly owned sub of Albertsons.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Okay. I figured it was something like that. All right.

Operator

Our next question comes from John Massocca with Ladenburg Thalmann. Please proceed with your question.

John Massocca -- Ladenburg Thalmann -- Analyst

Good morning.

Jackson Hsieh -- President and Chief Executive Officer

Good morning.

John Massocca -- Ladenburg Thalmann -- Analyst

So, just a question -- regards to the kind of the other side of your guidance, what kind of waiting are you expecting for capital deployment spending kind of quarter-over-quarter? And as we look out over the course of the year just could it potentially end it being more back-end weighted, specifically looking at what you guys did in terms of capital deployment in 4Q which is maybe a little bit light versus 3Q?

Michael Hughes -- Executive Vice President and Chief Financial Officer

Yeah. I mean there's always a chance that disposition and acquisitions can shift only, which we have in the fourth quarter. But I would expect from an acquisition standpoint we're pretty level throughout the year for '19 on the acquisition side. We've had more time to build our pipeline, and last year, when we're dealing with the spin-off. For dispositions though, they are going to be more heavily weighted toward the back-end I would say very, very light in the first quarter and kind of spread pretty evenly between second, third and fourth quarter which means obviously a lot more in the back half compared to the first half. That's the only way I think about it.

John Massocca -- Ladenburg Thalmann -- Analyst

Okay. Very helpful. And then with regards to the kind of leverage, given any final resolution, to kind of the situation with SMTA could be considered kind of a derisking transaction for SRC, could that type of event, cause you maybe raise your leverage targets going forward?

Michael Hughes -- Executive Vice President and Chief Financial Officer

It could, but we are very focused on our long-term cost of capital. And I think that, getting say an upgrade, credit rating would be extremely helpful for that on the debt side. So, I think we'll continue to be pretty conservative to make sure that we are, get the highest rating we can and help the weighted average cost of debt side of it, and so we -- I wouldn't expect just to increase at any time soon. I think that's just more of our long-term philosophy than it is any short-term risk that we see with SMTA.

John Massocca -- Ladenburg Thalmann -- Analyst

Okay. That's it for me. Thank you very much.

Michael Hughes -- Executive Vice President and Chief Financial Officer

Thanks.

Jackson Hsieh -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Joshua Dennerlein with Bank of America. Please proceed with your question.

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

Hey, good morning, guys. Can you maybe elaborate a little bit more on your internal growth assumptions and provide any guidance? How long do you expect those seven vacant Taco Bueno assets to remain? And then are there any other like move outs or renewals that you're watching or maybe there are other credit events that you might be assuming?

Kenneth Heimlich -- Executive Vice President and Head of Asset Management

Regarding that Taco Buenos we are not in a position where we think we need to start disposing of those. We -- those, I would say would be opportunistic. Now that they're restructured, they are highly liquid assets and they're what we call bite-sized. So they are very well accepted in the 1031 market. But right now, we don't see, there's no risk reason to jump on and throw those into the dispo plan. But other than that, right now, no -- they do not see anything on the horizon, any meaningful things. You're always going to have a tenant here and a tenant here that struggle, but as far as anything meaningful, don't see anything on the horizon right now.

Michael Hughes -- Executive Vice President and Chief Financial Officer

Hey, Josh there's nothing unique kind of big one-time non-recurring stuff built into our '19 guidance. It's pretty straightforward as we laid it out. You guys know about the convert refi and obviously where the flat fee is affecting growth, it's really at the end of the day, it's going to move our numbers around the range are going to be acquisitions and dispositions, how quickly we reduce double cap rates we get. So nothing big on the tenant credit issue side or anything unusual that would -- that's built into our guidance for '19.

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

Okay. Thank you. And just to clarify the seven assets you took back from Taco Bueno like how long of the downtime do you expect, before you could pre-lease them?

Kenneth Heimlich -- Executive Vice President and Head of Asset Management

We don't have a specific target, but we're always on a sooner, rather than later, we look at each one and identify whether it makes more sense to work on a relet versus a sale. We're suffice to say we're pretty happy with the quality of those seven sites. QSR sites tend to be very fungible having -- we're pretty happy with those and we've gotten a lot of activity already.

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

Okay. Good. Good. And then, you mentioned in the opening remarks that was reserved for that credit event -- or that credit enhancement that you inherited years ago, could you just elaborate on that a little bit more and then how should we think about that, kind of.

Michael Hughes -- Executive Vice President and Chief Financial Officer

Yeah. I mean just structurally sometimes when you buy a group of assets, you have to do an asset purchase or you do an entity purchase. This particular one that was done -- this acquisition that was done a while back, long time ago was the purchase of an entire entity versus the assets. And so when you purchase an entity, you're going to inherit it, unfortunately the liabilities that can come with that entity. As soon as you do those for the tax driven and whatnot and we inherited a loan guarantee with that. Now, that reserve going to hit the former tenant not the current tenant, that reserve is, it's a non-cash reserve. We don't know for sure, it will -- actually ever have to -- to ever be a claim on that. We'll certainly update you guys if that does become an actual cash charge, but we thought it was prudent to just go ahead and reserve it, because tenant's credit quality has deteriorated significantly.

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

Okay. Thank you. I appreciate it -- appreciate that.

Operator

(Operator Instructions) Our next question comes from Brian Hawthorne with RBC Capital Markets. Please proceed with your question.

Brian Hawthorne -- RBC Capital Markets -- Analyst

Hi. Good morning. First which I was -- so I haven't seen the heat map, has been any -- any industry has changed in terms of what you're looking to invest in?

Jackson Hsieh -- President and Chief Executive Officer

No meaningful change.

Brian Hawthorne -- RBC Capital Markets -- Analyst

Okay. And then just second one, on your developments, what kind of developments are those? Are those ground up or are they just kind of repositioning back through?

Kenneth Heimlich -- Executive Vice President and Head of Asset Management

It's a combination. There are some ground up, some of them are situations where we work with a tenant if they want to, say renovate the facility that they're in, we will contribute some dollars and get a return on those dollars.

Jackson Hsieh -- President and Chief Executive Officer

Some of the acquisitions are development-oriented like the Topgolf facilities were development oriented, some of the CircusTrix are development oriented. Sometimes we're doing takeouts on completion from a broader -- so, across the Board. But -- you suffice to say you're going to get a better return on opportunities where you're either forward committing or providing development capital. And obviously, if we're going to be mindful of that overweighting that as it relates to the overall -- overall contribution to the acquisition plan.

Brian Hawthorne -- RBC Capital Markets -- Analyst

So, what's the -- and kind of this, I think maybe $100 million a year range is that what your expectations are?

Jackson Hsieh -- President and Chief Executive Officer

It depends. We're focused on dealing with a lot of tenant, existing tenants. The nice thing about when you develop a really strong tenant relationship is, you kind of understood what's important for them, what's important for us -- trying to meet in the middle. And that's what we're seeing our best opportunity, then some of them are, I would call them, development sort of take-out opportunities. So, for us I guess what we do is, we look at how important is that tenant, how is the line up on our heat map? What's the pricing relative to our cost of capital? And how we would compare it relative to buying existing asset? And all of that factors in, I wouldn't say there's like a hard-line number. So we're just, stepping back, we're just looking for the best risk-adjusted returns right now, given our cost of capital. So, it's -- I would say it's a balance.

Brian Hawthorne -- RBC Capital Markets -- Analyst

Sure. Okay. And then just looking at G&A, how do you kind of balance that with the -- kind of the delusion from the dispositions in a post-SMTA world.

Jackson Hsieh -- President and Chief Executive Officer

Well -- SMTA, first of all, even if it disappeared tomorrow, no just contractually, it doesn't just disappear for us. As I've said in the past, for that contract to go away requires six-month notice, eight months transition. So there's already a built-in, lump-some amount, even if SMTA resolve tomorrow which it can't, obviously, because it's a public company. So I think that's one. So we have some time regardless of the outcome of the resolution, there's some built-in time.

I'd say, the second is, look, this is going to be a bigger company and we're going to find more things that we can do that generate positive returns and spread and improve the quality of this company. So we're committed to that and we've come a long way. And so I think our G&A is right-sized, where this company will be in 18 to 20 months.

Brian Hawthorne -- RBC Capital Markets -- Analyst

Okay. Great. Thanks.

Operator

Thank you. There are no further questions in queue at this time. I would like to turn the conference back over to Mr. Jackson Hsieh for closing comments.

Jackson Hsieh -- President and Chief Executive Officer

I think, still one more, OK. All right. In closing, I guess I was -- I sort of leave you with a couple of things as we finish. And thank you all for joining. I guess, first and foremost, why own Spirit today? I think there are really four -- four sort of reasons main reasons why. We have an excellent portfolio, people and processes. We're very cheap in comparison to our best-in-class peers. We are in the final 10% and it's -- I'd say it's a pretty short put to complete, what we need to do this year. We've exceeded, most if not, all the things that we've said, since I've taken over as CEO. We're focused on what I'll call the big three in 2019, that's what I'm going to brand it. Sell SMTA, continued operating excellence and meet or exceed our acquisition disposition and debt targets. If we do all that, SRC will result in a simplified pure play triple-net REIT. And so I thank you all for joining us. And, thank you.

Operator

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

Duration: 45 minutes

Call participants:

Pierre Revol -- Senior Vice President of Strategic Planning and Investor Relations

Jackson Hsieh -- President and Chief Executive Officer

Michael Hughes -- Executive Vice President and Chief Financial Officer

Greg McGinniss -- Scotiabank -- Analyst

Shivani Sood -- Deutsche Bank -- Analyst

Vikram Malhotra -- Morgan Stanley -- Analyst

Kenneth Heimlich -- Executive Vice President and Head of Asset Management

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

John Massocca -- Ladenburg Thalmann -- Analyst

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

Brian Hawthorne -- RBC Capital Markets -- Analyst

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