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STORE Capital Corp (NYSE:STOR)
Q3 2019 Earnings Call
Oct 31, 2019, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to STORE Capital's Q3 2019 Earnings Webcast. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions.

[Operator Instructions] I would now like to turn the call over to Lisa Mueller. Please go ahead ma'am.

Lisa Mueller

Thank you, operator. And thank you all for joining us today to discuss STORE Capital's third quarter 2019 financial results. This morning, we issued our earnings release, and quarterly investor presentation, which includes supplemental information for today's call. These documents are available in the Investor Relations section of our website at ir.storecapital.com under News & Results Quarterly Results .

I'm here today with Chris Volk, President and Chief Executive Officer of STORE; Mary Fedewa, Chief Operating Officer; and Cathy Long, Chief Financial Officer. On today's call management will provide prepared remarks and then we will open up the call for your questions. In order to maximize participation while keeping our call to an hour, we will be observing a two question limit during the Q&A portion of the call. Participants can then reenter the queue if you have follow-up questions.

Before we begin, I would like to remind you that today's comments will include forward-looking statements under the federal securities laws. Forward-looking statements are identified by words such as will be, intend, believe, expect, anticipate, or other comparable words, and phrases. Statements that are not historical facts, such as statements about our expected acquisitions, dispositions or our AFFO and AFFO per share guidance for 2019 and 2020, are also forward-looking statements.

Our actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings, including our reports on Form 10-K and 10-Q. With that I would now like to turn the call over to Chris Volk. Chris, Please go ahead.

Chris Volk -- President

Thanks so much, Lisa, and good morning everyone and welcome to STORE Capital's third Quarter 2019 Earnings Call. With me today are Mary Fedewa, our Chief Operating Officer and Cathy Long, our Chief Financial Officer. On the investment front, we continued to be very active during the third quarter with investment activity of almost $400 million while adhering to the granularity and diversity that we're known for.

Mary will run through the numbers in more detail with you. But we're happy with our ongoing success of penetrating the large market that we address, while maintaining the focus on meeting needs of our existing customers.

During the quarter we also profitably divested approximately $290 million of real estate, which included our first transactions in the 1031 exchange market. Year-to-date, we have invested well over $1.1 billion in acquisitions and that's sold approximately $389 million in real estate investments.

Our year-to-date investments and property sales reflect our ability to consistently invest in and divest of assets in ways that are accretive to our shareholders. At the same time, our portfolio remained extremely healthy with maxi rate of 99.7% and about 73% of the net lease contracts rated investment grade in quality based upon our STORE Score methodology.

You will hear more about our property investment and sales activity and portfolio health from Mary. We raised our dividend by 6.1% during the third quarter and even so, our dividend payout ratio approximated 70% of our adjusted funds from operations, serving to provide our shareholders with a highly protected dividend

Reported AFFO per share growth of about 8.8% for the first nine months of the year. Our healthy dividend increase nonetheless, enables us to improve on our conservative AFFO payout ratio for the same quarter last year. Importantly, with such a low dividend payout ratio we've been able to fund a meaningful portion of our investment activity through retained cash flow. We paired that reinvestment with our historical focus on maintaining annual tenant same-store rent contractual increases of nearly 2% to drive the majority of our expected AFFO per share growth.

Cathy will illustrate the combined this internal growth with external growth that is accretively funded through new share issuances, which for the past two years have been successfully funded through our efficient at the market program. Such equity issuances have enabled us to also maintain it consistently conservative leverage profile, which at the conclusion of the third quarter was below our guidance range at 5.4 times.

Our 2019 investment activity was funded through a combination of retained operating cash flows, proceeds from asset sales, newly issued ATM equity, and proceeds from our first quarter public unsecured term note issuance and the limited use of our revolving credit facility.

Our balance sheet remained well positioned. At the conclusion of the third quarter our pool of unencumbered assets stood at $5.3 billion or about 63% of our gross investments. Given our performance consistency, STORE has enviable financing flexibility across a wide array of debt and equity options. Of particular note with our unsecured noteholders we have among the lowest REIT unencumbered asset leverage profiles that we know of.

Now as I do each quarter, here are some statistics that are relative to our third quarter investment activity. Our weighted average lease rate during the quarter was just under 7.7%, which is slightly below where we were last quarter. Add in the average annual contractual lease escalation for investments made during the quarter of 1.9% and you get a gross rate of return of 9.6%. With corporate leverage in the area of 40, our levered investor return will approximate 13%, with net returns after operating costs in the 12% range.

Our outperforming investor returns from STORE and from predecessor public companies have been mostly driven by having a favorable property level rates of return, which is why we take the time to disclose investment yields, contractual annual lease escalators, investment spreads to our cost of long-term borrowings, and our operating cost to the percentage of assets, which are the four essential variables that enable you to compute expected investment rates of return. The weighted average primary lease term of our new investments made during the quarter continues to be long at approximately 17 years.

The median post-overhead unit level, fixed charge coverage ratio for assets purchased during the quarter was 2.7 to 1. The median new tenant Moody's RiskCalc credit rating was Ba3 incorporate the potent contract level fixed charge coverages and the median new investment contract rating or STORE Score for investments with far more favorable at Baa2.

Our average new investment was made at approximately 70% of replacement cost, 80% of the multiunit net-lease investments made during the quarter were subject to master leases, and all 85 new assets that we acquired during the quarter are required to deliver us unit level financial statements, providing us with unit level financial reporting from 98% of the properties that are within our portfolio.

This fact is critical to our ability to evaluate contract seniority and real estate quality as well as to our access to capital. With that I will turn the call over to Mary.

Mary Fedewa -- Chief Operating Officer

Thank you, Chris, and good morning everyone. We had a strong third quarter with almost $400 million in real estate acquisitions at a weighted average cap rate of 7.7% bringing our year-to-date acquisitions to nearly $1.2 billion.

Our investments this quarter were spread across 29 separate transactions at an average transaction size of $13.6 million. We added 27 new customer relationships and closed the quarter with more than 460 customers, further diversifying our granular portfolio of net lease assets.

Approximately three quarters of our net-lease contracts are rated investment grade in quality based on our STORE Score methodology. Delinquencies and vacancies remained low due to our strong tenant partnerships and continued active portfolio management.

At the end of the third quarter, only eight of our more than 2,400 property locations were vacant and not subject to a lease. As we mentioned on our last call, we anticipated selling more properties in the second half of 2019 to take advantage of opportunistic gains and to balance our portfolio. During the third quarter, we sold 54 properties, which had an acquisition cost of $291 million generated net gains over that original cost of approximately $24 million. Of the 54 properties, 13 were opportunistic sales resulting in a 21% net gain over original cost, 27 sales were strategic and resulted in a 6% gain over cost, the remaining property sales were from our ongoing property management activities and resulted in an 87% recovery over original cost.

Now turning to our portfolio performance highlights. Our portfolio mix at the end of the third quarter remained consistent with 65% of our properties in the service sector, 19% in experiential and service-driven retail with a substantial online presence, and the remaining 16% in manufacturing.

Our portfolio remained highly diversified with no single customer representing more than 3% of our annual revenues. Our single largest customer Fleet Farm Group represented just 2.8% of our annualized rents and interest. Our top 10 customers were unchanged from last quarter and at the end of the quarter revenue realized from the top 10 was 18% of annualized rents and interest.

As we enter the fourth quarter, our acquisition pipeline remains quite robust allowing us to be highly selective in our investments, while creating value for our customers and getting paid for that value. Our unique direct origination team continues to identify attractive new opportunities across a variety of industries that will reinforce our diversified portfolio.

Before I turn the call over to Cathy. I want to mention that our fourth annual customer conference, the Inside Track Forum, is coming up on January 29 to January 31 here in Scottsdale.

We are thrilled to announce that our keynote speaker will be John Capper, host of the popular TV show, Bar Rescue, and a long time food and beverage industry consultant. In addition to Mr Capper, we have another stellar lineup of speakers for this year's event, including an industry-leading economist, a futurist, and several Capital Markets experts who will help our customers get the inside track for 2020. And now I'll turn the call to Cathy to discuss our financial results.

Cathy Long -- Chief Financial Officer

Thank you, Mary. I'll begin by discussing our financial performance for the third quarter of 2019, followed by an update on our capital markets activity and balance sheet, then I'll review our updated guidance for 2019, and introduce our guidance for 2020.

Beginning with the income statement, our third quarter revenues increased 25% from the year ago quarter to $171.8 million. The annualized base rent and interest generated by our portfolio in place at September 30th, increased 17% to $678 million. Total expenses for the third quarter were $119 million as compared to $90 million in the third quarter of 2018.

Just over one-third of the $29 million increase was due to higher depreciation and amortization expense related to our larger real estate portfolio. In addition, interest expense increased by $7.5 million to $39.3 million primarily due to additional long-term debt used to fund our growing pipeline of acquisitions .

G&A expenses for the third quarter were $13.6 million dollars up from $11.5 million a year ago. Reflecting the continued growth of our portfolio and associated staff additions. As a percentage of average portfolio assets, G&A expenses, excluding the impact of non-cash equity compensation decreased to 49 basis points of average portfolio assets from 53 basis points a year ago. Property costs increased by $2.4 million year-over-year.

Half of that amount was related to the new lease accounting standards that require us to present items, such as impounded property taxes and the ground lease payments, our tenants make on our behalf on a gross basis as both rental revenue and property costs.

On an annualized basis, excluding this lease accounting gross up property costs totaled about 10 basis points of average portfolio assets in the quarter with a slight increase from last year, primarily due to property taxes.

During the quarter, we realized $3.8 million of lease termination fee income and recorded a $7.3 million impairment provision. Both of these items were related to properties that we sold or are likely to sell in the near future, and the termination fee income serves to augment our recovery on dispositions of the properties.

While impairments are excluded from FFO and AFFO, we've chosen to also exclude the lease termination fee income from AFFO as we don't consider these fees to be part of our core operations.

As Mary noted, we sold 54 properties in the third quarter, which on a book basis resulted in a $59.3 million gain on sale. As we mentioned on last quarter's call, we expected property sales to be higher in the second half of 2019 and much of that activity occurred in September.

We continue to actively monitor and manage our portfolio and we may see some sales activity in Q4 as well, though likely a smaller amount. Of the 54 properties we sold, 17 were part of a 1031 tax deferred exchange transaction. We used the proceeds from these sales to acquire replacement assets .

AFFO increased 19% to $116.1 million in the third quarter from $97.4 million a year ago. On a per share basis, AFFO was $0.50 per diluted share, a 6.4% increase from $0.47 per diluted share a year ago.

Chris already mentioned our dividend increase, so I'll just point out that since our IPO in 2014 we've increased our dividend per share by 40% while maintaining a low dividend payout ratio and at the same time reducing leverage.

Now turning to our capital markets activity and balance sheet. We funded another strong quarter of acquisition volume with a combination of cash flow from operations, proceeds from property sales, availability under our credit facility, and equity proceeds from our ATM program. During the third quarter we issued over four million shares of common stock under the ATM at an average price of $36.28 per share, raising net proceeds of approximately $159 million.

Year-to-date, we've issued over 13 million shares of common stock at an average price of $34.20 per share, raising net proceeds of approximately $453 million. Our ATM program remains a very effective way for us to raise capital given the granular size of our acquisitions.

Substantially, all our long-term borrowings are fixed rate and our debt maturities are well laddered. The weighted average interest rate on our long-term debt at the end of the third quarter remained consistent year-over-year at 4.4%.

Our median annual debt maturity is $287 million and we have no meaningful near-term debt maturities. We expect that our free cash flow, which represents our cash from operations less dividends plus proceeds from property sales, will more than cover debt maturities coming due in any one year for at least the next several years.

At quarter end our leverage ratio was at the low end of our target range at 5.4 times net debt to EBITDA , on a run rate basis or around 39% on a net debt to cost basis. And at September 30th, approximately 63% of our gross real estate portfolio was unencumbered giving us considerable financing flexibility.

As we head into the fourth quarter, our leverage remains conservative and we have access to a variety of equity and debt options to fund our large pipeline of attractive investment opportunities. In addition to our ATM, we have the full $600 million of capacity under our credit facility, which also has an $800 million accordion feature.

Now, I'll provide an update on our guidance for 2019 and then introduce our guidance for 2020. Due to our strong investment activity in the third quarter, we are updating our guidance for 2019. We are now projecting AFFO per share in the range of $1.96 to $1.97, up from the previous range of $1.92 to $1.96.

AFFO per share in any period is sensitive, not only to the amount, but also the timing of acquisitions, property dispositions, and capital markets activities. In addition, real estate acquisition volume is often weighted toward the end of the quarter, which results in little impact to AFFO per share in the current period.

Our AFFO per share guidance for 2019 equates to anticipated net income of $0.93 per share excluding gains or losses on property sales, plus $0.97 to $0.98 per share of expected real estate depreciation and amortization, plus $0.06 per share related to items such as straight-line rents, equity compensation, and deferred financing costs.

Finally, I'll turn to our initial guidance for 2020. Based on our current projections for real estate acquisitions for the remainder of 2019 plus estimated acquisition volume of $1.2 billion, which is net of projected property sales for 2020 we currently expect AFFO per share in the range of $2.5 to $2.9.

Our AFFO guidance is based on a weighted average cap rate on new acquisitions of 7.7% and a target leverage ratio in the range of 5.5 to 6 times run rate net debt to EBITDA. Our AFFO per share guidance for 2020 equates to anticipated net income excluding gains or losses on property sales of a $1.2 to $1.5 per share plus $0.95 to $0.96 per share of expected real estate depreciation and amortization, plus approximately $0.08 per share related to items, such as straight-line rents, equity compensation, and deferred financing cost amortization.

And now I'll turn the call back to Chris.

Chris Volk -- President

Thank you so much, Cathy. Before turning the call over to the operator for questions, I want to take a moment to highlight some of the added disclosure in our quarterly investor presentation.

This quarter we're likely to insert a tab on a Corporate Responsibility initiatives which are often referred to in the investor marketplace as the ESG, for environmental, social, and governance matter. Sometimes back we had the tab for corporate responsibility to the front page of our website.

So this effort is simply a continuation of that. Candidly, I prefer the notion of corporate responsibility to ESG because the essential point is that our corporate successes should ideally benefit all our many stakeholder. And those stakeholders naturally include our shareholders, employees, creditors, customers, suppliers, and the many communities around the country that we impact.

With regard to our corporate presentation, prior full responsibility slides were limited to a discussion of corporate governance, which is something, which we've always excelled and which impacts our shareholders. I would also note the store has been characterized from the outset by a highly disciplined business model. This has resulted in the highest growth unlevered rates of investment return among our peers and the highest spreads between those growth rates of return, and our cost of borrowings.

The result of this effort is we've been able to be a consistent leader in the creation of economic value added, and compound market value-added growth, which we disclosed in our appendix. which today it's performance metric emphasized by ISS and the evaluation of corporate leadership teams.

In addition to our hard work on behalf of our shareholders, we've included new corporate responsibility slide to illustrate our commitment to other stakeholders. We also included more extensive information on comparative lease durations this quarter. By page 38 of the presentation, we illustrate the comparative stability of newly originated primary lease terms over the past eight quarters which owes itself to our direct origination investment emphasis.

STORE is also consistently been among the leaders in portfolio lease term with among the lowest levels of lease maturities over the next five years. This leadership results from consistently realizing among the longest primary lease terms on newly originated investments.

Our comparative corporate yields relative to a few more season companies and our market leading use of master leases, which we often reset upon the addition of new properties. The importance of maintaining a low near-term lease maturity profile is to insulate our company from volatility and to make STORE more defensive should there ever be a recession.

Finally, on page 39 we included a slide that illustrates the comparative direct origination and a diversity and lease profiles. We have a number of slides that we delivered that illustrate our unique place and market position within the net lease sector.

Slide 39 adds to this list and illustrates some of the important business model differentiations that have enabled STORE to have among the most highly diversified and high performing investment portfolios in our industry.

And with those comments, I will turn the call over to the operator for questions.

Questions and Answers:

Operator

Yes, thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Nate Crossett with Berenberg.

Nate Crossett -- Berenberg -- Analyst

Hey guys, how are you doing?

Cathy Long -- Chief Financial Officer

Hey, Nate.

Mary Fedewa -- Chief Operating Officer

And how are you?

Nate Crossett -- Berenberg -- Analyst

Good. Maybe you can give us some color on the eight new tenants in the quarter. What were the areas they were in? What were the three new industries? And then on the disposition side, were there any trends there in terms of customers or industries? It sounded like you said, some of that was strategic. So any help there is appreciated.

Mary Fedewa -- Chief Operating Officer

Yeah, hey, Nate, it's Mary. So, the eight customers were actually -- was actually a net number. So we actually added 27 new customers and that was across the plethora of asset classes just like we always do. In terms of the dispositions, yeah, we did do. Primarily, a big portion of them were strategic and rebalancing the portfolio. And I think probably the biggest result you'll see is in the manufacturing portfolio that came down from 7.1 to 16.1 on that.

Nate Crossett -- Berenberg -- Analyst

Okay. So, was it a specific tenant or was it just an area that you've been working in?

Mary Fedewa -- Chief Operating Officer

[Speech Overlap] yeah, again, our plethora of tenants.

Nate Crossett -- Berenberg -- Analyst

Okay. Maybe one just on the amount. If you can -- amount of sales and underwriting people. Can you just remind us how many people you have in those departments, how that looks as you guys continue to scale? I'm just curious how that looks as you ramp because you put that slide and then you do the most direct origination of anyone in this space.

Chris Volk -- President

17.

Mary Fedewa -- Chief Operating Officer

Okay. So we have actually on about 17 each on the front end in those department.

Nate Crossett -- Berenberg -- Analyst

[Speech Overlap] Okay.

Mary Fedewa -- Chief Operating Officer

On sales and underwriting.

Nate Crossett -- Berenberg -- Analyst

And then the outlook for next year, I'm just -- is there need to be any ads, are you guys have enough for what you want to do next year, or ?

Chris Volk -- President

We expect there'll be some ads.

Mary Fedewa -- Chief Operating Officer

Yes.

Chris Volk -- President

There'll be at the margin, it's not going to be -- we're not looking to do a huge number. I mean, if you -- actually, Nate, if you look, this year, the net number is a bn1.

So we're keeping the guidance and we'll see if we could beat that guidance. I mean, if it were up to us, its -- we would like to beat it but given the sales activity that we've had this year, you can do the math for yourself. Your acquisition target total for this year isn't a whole lot different from last year.

So last year we did a little over bn6 for the whole year. This year depending on where the sales come in, the acquisitions come in, we could be very well, kind of in that same zip code.

Next year our initial guidance is for of the in tune net which is basically a net number that's up 9% from this year. The gross number if you are like looking at the growth number of the sales of the number maybe just -- maybe 6% difference. So it's not -- we're not looking at doing a quantum leap in terms of acquisition or investment activity. And so you're not going see us do a quantum leap in terms of hiring new salespeople or new credit people.

Nate Crossett -- Berenberg -- Analyst

Okay, thanks. I'll get back in the queue. Thanks guys.

Mary Fedewa -- Chief Operating Officer

Thank you.

Operator

Thank you. And the next question comes from Caitlin Burrows with Goldman Sachs.

Caitlin Burrows -- Goldman Sacchs -- Analyst

Hi, good morning. Because of your exposure to non-investment grade tenants. I think some investors are sometimes concerned about your risks in your portfolio in the case of a downturn. So I was just wondering if you could go through some of the other important aspects of your strategy that mitigate this perceived risk. I know there's probably a long answer that we could talk a long time about, but maybe some earnings call type response. Thanks.

Chris Volk -- President

Yeah. No worries. Also Caitlin you're leading with a massive cognitive bias. I'll start there, which is to suggest that if you don't have investment grade tenants that somehow you're more vulnerable in the event of a recession or an economic downturn. And that might be true if our industry is loaded with investment grade tenants. But in fact they're not loaded with investment grade tenants.

So if you're looking at fitness clubs, there no investment grade fitness clubs or they are no investment grade veterinarian clinics, they are no investment grade early childhood education companies. There are a handful of investment grade restaurant companies, but they've never seem to put the other restaurant companies out of business in a recession.

So I would put our portfolio up with anybody else's portfolio anytime during a recession. And in fact, -- the fact that we're investing in just profit centers tells you that we're going to be ahead of the boat. So we're not just dealing with cost centers, we are dealing with profit centers, and most of our leases have enhancements like master leases or additional credit enhancements that we might have. And then finally, you just look at the new slides that we've added in our deck about the lease term, and our lease terms are far and away the longest in the industry.

So -- and that's important, there is a recession and people in recession might be able to sort of walk away from leases. And over the next five years we have virtually none. And one of the reasons we keep these leases long term is because since we have so many master leases it's very common for us to recharacterize master leases when we actually add on new properties. And so we extend those lease terms, which is why we've been able to keep up kind of consistent lease term out there in our portfolio. So -- and then finally I just -- FYI, I mean, if you look at the last great recession and say who added all the jobs, I mean, all the jobs, were added by middle market companies, and they were not added by large investment grade companies. And so I hope that puts you at ease.

Caitlin Burrows -- Goldman Sacchs -- Analyst

Got it, and then maybe if you could comment STORE share price has been pretty strong this year. Can you go through what impact this has, if any, on the team's thinking regarding acquisition volumes and funding of that activity?

Chris Volk -- President

Yeah, I -- it's interesting, so the marketplace when they -- when people get multiple expansion, and the whole net lease space has got multiple expansion this year. So when people get multiple expansion, the notion somehow is that the street is asking you to buy a lot of real estate. You'll note that this quarter our net acquisition activity was about $100 million.

So in fact we stuck to the game plan that we set out for ourselves at the beginning of the year and we were very clear that we would be selling real estate of recycling the cash, which is an important way of adding to our internal growth and also mitigating risk. We're all about here not being the biggest company and not growing the fastest from an acquisition perspective.

We're about trying to be creating the best investment opportunities to offer the highest versus adjusted rates of return and create the most market value added, the most economic value added. And so while the high multiples basically tell you could sort of fog a mirror and add to AFFO per share growth, I mean, you could buy almost anything and add to AFFO per share growth from our accretion perspective.

That doesn't mean that you're actually generating the highest risk adjusted rates of return and they are two totally different things. And so STORE has had multiples in this bandwidth before, we had it in the middle of 2016. And we just stuck right through our knitting and just continued to make investments that were hugely accretive market value added.

I mean, we just want to create the most wealth for our investors and and the most benefit for our stakeholders. And we're not going to just chase deals, because they are accretive.

Caitlin Burrows -- Goldman Sacchs -- Analyst

Got it. Thank you.

Operator

Thank you. And the next question comes from Craig Mailman with KeyBanc Capital Markets.

Craig Mailman -- KeyBanc -- Analyst

Hey guys. Cathy, just curious, you mentioned you guys are kind of at the lower end of your leverage target here heading into the 4th quarter and next year. I'm just curious as we think about again where your cost of capital is, versus where you guys are buying versus maybe where we are in the cycle. Should we anticipate you guys trying to keep that a little bit lower and maybe raising a little bit of incremental equity or would you expect that to kind of trend up back into the range, maybe kind of middle range type of movement

Cathy Long -- Chief Financial Officer

Hi, Craig . It's Cathy. Yeah, we are at the lower end of our target range at the moment, we feel very comfortable with our range. So you'll see us take advantage of opportunities to issue debt. This is a nice market to issue debt. That being said, the equity market is great too. And as you know, we make good use of our ATM all during the year.

So we're mindful of keeping our leverage within the range. We feel comfortable with the current range, I don't think that we will take it lower though. I mean, I think we are very, very comfortable.

Chris Volk -- President

And Craig this is Chris. I mean, our leverage today, I think at the end of the quarter is 40% of the 39.

Cathy Long -- Chief Financial Officer

39, yeah, on a cost basis.

Chris Volk -- President

39 on a cost basis, which is. So if you're looking at this, and you're trying to pair companies cost basis prior pretty good way to go about it. So we're at 39% on a cost basis, normally we've been in some of the range of 40% to 42%.

It's a ridiculously low number. I mean, if you think about just 40% leverage is just as well and our secured leverage is close to 70% and we get single A plus and even AAA financing. We get AAA financing to 40% leverage on the -- as a back side. So think about this. I mean our unencumbered assets which are 60% of our assets at the end of this quarter are levered a whopping 25%.

So if you asked us to lower our guidance and we are keeping our secured guidance the same then our 25% leverage will drop down to 20% or 15% leverage on our unencumbered assets, which is something I think our shareholders shouldn't like because it doesn't really help them with returns which is important.

Craig Mailman -- KeyBanc -- Analyst

Maybe that makes sense. Then the blended yield you guys had this quarter came down a bit sequentially. It's kind of consistently you guys are viewing for 2020. Is that -- are you guys seeing cap rate compression in specific parts of where you guys are putting capital out or is it just a function of the 10-year coming back in and you guys are trying to be a little bit more conservative?

Chris Volk -- President

We're not seeing like an abundance of cap rate compression, but a year ago today, roughly. We did our guidance for this year. And at that time we said our cap rate would be around 785, the 10-year treasury was around 3% at the time.

I'm expecting, we'll probably close out this year at a cap rate of somewhere around 70, 80. So we're likely to fall short of the 785 number. As you saw this quarter was 770. So what's happening is there's like a slight trend on this. Now that's on the cap rate side.

On the borrowing side comp we issued $350 million for the senior debt in the first quarter of this year at a cost of $465 million. Today If we were to do that same debt, we'd probably be sub $350 million. So through our cap rates have come in five basis points. Our cost of debt has come in 115 basis points. So our spreads basically 110 basis points better.

And by the way, the numerator does matter. So like, I think, if -- we're not just in the spread business. So whether we do a deal at an eight cap or a seven cap or a six cap, that top of the line number matters and really adds to return to investors need to pay attention to that as well as to the spread.

But nonetheless, I would say our spreads are lot juicer than they were. If we're at 770 for next year, it's really a function of the fact that we see rates low. There is a loose correlation between 10-year treasury rates and cap rates because obviously it affects the price through which people can borrow money.

And keep in mind at 90% of the marketplace that gets done away from all the public companies that you cover, so -- and all those people that are financing, all those assets are doing it with secured debt and are using higher level of their leverage than we are. So they're way higher -- much more high level than 40% on a transaction basis, which in fact helps them with a lower cost of capital in some respect, right, than public companies.

So since those people are going to be focusing on the cost of that to be able to finance the assets, if 10-year treasury rates fall or live wall falls, all things being equal, you're going to see the cap rates tend to get compressed throughout the space.

The thing that will stop that is if banks start getting nervous and they get concerned about where we are in the cycle, which is the other question. So their concern about recession and then they may elevate the spread.

So we're going to see some give and take on this. We think 770 is a doable number for next year. And if the spreads hold then will have one of the nicest spread years that we've had in our history hopefully.

Craig Mailman -- KeyBanc -- Analyst

Great, thank you.

Operator

Thank you. And the next question comes from Vikram Malhotra with Morgan Stanley.

Vikram Malhotra -- Morgan Stanley -- Analyst

Hi everyone. This is Kevin on for Vikram. Just a quick question here. So the first question was, just in terms of the real estate expenses. I noticed if I take a look at that as a percentage of the GAAP rent and I understand there was an accounting change, so obviously it went up over 2018, but it was a little bit higher than we thought it would be of around 2% of GAAP rent for the third quarter.

Just looking forward, is that kind of a run rate you'd expect to see about 2% real estate expenses as a percentage of GAAP rents or is that really is going to kind of fluctuate and kind of hard to determine?

Cathy Long -- Chief Financial Officer

Hi, it's Cathy. So we kind of look at it as a percentage of assets, as a percentage of the portfolio itself, and it does range. I mean, we've had quarters as lowers as four basis points of our assets and as high as 10 basis points of our assets.

So projecting next year, we're not projecting as high as 10, but we're not projecting as low as four either. So I think if you think of it that way as a percentage of assets is probably easier for you to model.

Chris Volk -- President

The other thing is a lot of -- some of the accounting driven relating to the lease accounting this year...

Cathy Long -- Chief Financial Officer

[Speech Overlap] Right. About half of it.

Chris Volk -- President

...about half of it was reimbursable. So if you're looking at compared to last year, they are not really comparable because of that, so you have to back out the reimbursable.

Vikram Malhotra -- Morgan Stanley -- Analyst

Got it. Thank you. Very helpful. And then just one additional one. Just in terms of the STORE scores of the assets you disposed off, I was just kind of looking into, can you disclose or just give us any idea of where those were add relative to the median of the portfolio?

And I guess really kind of what I'm looking at it is, with this I understand some was opportunistic, some were strategic, but was it also just managing the portfolio and looking at tenant credit and kind of just doing some pruning? if that makes sense.

Mary Fedewa -- Chief Operating Officer

Yeah, this is Mary, Kevin. So, as you know our disposition strategy is across, you're correct. We have some opportunistic sales, some strategic sales, and then property management. And I would say in the strategic area in particular, we are always looking to make the portfolio that we hold better. So you can probably assume that that is the case -- on the opportunistic side same say mission. But a lot of times, we're looking at that, we haven't done business -- this isn't a repeat customer. This is someone -- maybe a reverse inquiry someone would like to buy the property. I mean we have a credit upgrade and we're going to -- and we won't be doing business with that customer.

So a little bit different than the opportunistic side. But yes, as we're calling the portfolio, we definitely are looking to have -- to make a stronger portfolio

Vikram Malhotra -- Morgan Stanley -- Analyst

great, thanks a lot. Very helpful.

Operator

Thank you. And the next question comes from Giovanni Sood with Deutsche Bank.

Giovanni Sood -- Deutsche Bank. -- Analyst

Hi, good morning. Apologies if I missed this earlier, but just on the lease termination that you highlighted, Cathy, can you give us some more color on who the tenant was, and what the remaining exposure might be there?

Chris Volk -- President

So, this is Chris Volk, and I'll -- Cathy can answer it. We can all answer the question. But I'll -- but I think I want to take you to a higher plane. So the lease termination fees this quarter amounted to $3 million. And the lease $3 million bucks related to three individual tenants. They related to assets that were non-performing and about to be sold.

One of the reasons we did not include our lease termination fees in the AFFO which can be a common practice is because we thought that from a principal perspective, they are really associated with the sales of assets. I mean, we are looking at trying to liquidate properties and lease termination fees were part of that. And so if you take a look at the big picture, I'm just going to give you some food for thought here.

So last year we sold off $227.8 million worth of assets at cost and our gain on that was $23.6 million which is about 10.6% gain on cost. The more important number actually, though, is it -- the cap rate at which we saw a 50 basis points less than the cap rate that we were buying.

So there was a 50 basis points accretion there when we are buying new assets, so -- and where we've been fortunate to be able to do that. Year-to-date, we sold $389.2 million of cost. The gain over cost is $20.7 million, but that does not include the $3 million in lease termination fees which were really part of the strategy for that gain. And when I'm doing this by the way, ignore all the notions about loss impairment.

Loss impairment are just timing issues, like I'm going to be selling a property the next quarter, but I'm impairing it this quarter. It's an accounting convention, not a finance convention. So what I'm giving you is to sort of the raw financing which encompasses all the accounting. So we had 389.2 at cost assets. Our gain over that cost, original cost was $20.7 million, which is a 5.3% gain.

But if you add in the $3 million in disposition fees that get you to a 6.1% gain. And because we think that way and we're thinking about -- and we're not adding back our gains or losses on the AFFO, then we thought it was not proper for us to add lease termination fees either in AFFO, even though a lot of people do do that and it prior would have been acceptable we chose not to do it.

Giovanni Sood -- Deutsche Bank. -- Analyst

I appreciate that. I was just trying to get more color on the actual tenants and what -- and if there is more exposure to the tenants?

Chris Volk -- President

No, the estates have no exposure to the tenants. They are done. so, I mean they are free individual assets.

Giovanni Sood -- Deutsche Bank. -- Analyst

Okay, great. And then I'm just -- can you give us an update on how you're thinking about exposure to the full service restaurant space, just given sort of the softer comps we're seeing come out of that sub-sector and where we are in the cycle? It looks like ahead ticked down as a component of the pipeline, but wasn't sure if that was a numerator or a denominator impact .

Mary Fedewa -- Chief Operating Officer

so, yes, you're correct. It is down this quarter, this is Mary, and it's probably a combo of pipeline and actually denominator effect to as we grow. But for the most part restaurants -- and we've talked a lot about this, they're well-heeled asset class people like them, they get a lot of activity.

Again, Chris mentioned earlier 90% of look at the time gets on away from us. So you got a lot of people sort of bidding on restaurants. So we pick our spots. We are going to stick to our vision of creating our own contracts having profit good profitable units to be able to get paid for the risk that we're taking and so on. So oftentimes, we don't win.

We don't get to play much in the restaurant space as a result. But I would say, we like the space and we take a look and pick our spots and we don't see any concerns in it at this time.

Giovanni Sood -- Deutsche Bank. -- Analyst

Thanks, Mary.

Mary Fedewa -- Chief Operating Officer

Welcome.

Operator

Thank you. And the next question comes from Haendel St Juste with Mizuho.

Haendel St Juste -- Mizuho -- Analyst

Hey, there?

Cathy Long -- Chief Financial Officer

Hey, Haendel.

Chris Volk -- President

Hey, Haendel.

Haendel St Juste -- Mizuho -- Analyst

Hi. can you talk a bit about I guess the level of dispositions in the quarter, how much was it sort of budgeted on your plans versus maybe incrementally opportunistic? Do they include any bulk or mini portfolio sales and what was the cap rate on the asset sold?

Cathy Long -- Chief Financial Officer

Hi, Haendel, I'll start. when we first gave guidance for the year, we were anticipating that the sale would occur earlier in the year. And so, we are fortunate that the bulk of the sales activity happened in September, so we were able to keep more of the AFFO that was being generated by that portfolio in the quarter. So outperforming where we expect it to be for the quarter. And then I'll let Mary comment on the mix and things like that.

Mary Fedewa -- Chief Operating Officer

Yes. So we, Haendel, as I mentioned earlier, well, you'll see the biggest result of our sales in third quarter were the manufacturing portfolio coming down from 17.1 to 16.1. So you'll see that that was a rebalancing of the portfolio. A lot of it was just rebalancing.

So a little bit more on the strategic side, but certainly some opportunistic wrapped in their. And as Chris mentioned earlier, we are still able to sell assets at about a 40 or 50 basis point least cap rate lower than what we're acquiring at. So I'll give you some feel for disposition cap rate.

Chris Volk -- President

And then as far as whether were at the portfolio, stuff we don't really tend to comment on how we do. We play as our individual acquisition. I mean, sometimes we do small groups. But it's is very...

Haendel St Juste -- Mizuho -- Analyst

Got it. Fair enough. And then maybe a bit on the use of the 1031 channel. I guess I'm curious how much of that channel you may use going forward and maybe outline some of the benefits you see via using that channel?

Chris Volk -- President

So -- I -- Cathy, will give you some specific numbers on this, but the-- at a high level the issue is that as we get more seasoned to the Company and we're selling assets the tax basis of assets declines over time. And so the gain for tax purposes exceeds the gain for -- on a cost basis, I mean.

And so -- and those gains are sort of fundamental underlying pendings of what you're AFFO or your funds from operations, your dividend payout ratio needs to be. And so the dividends that we pay out are dictated by taxable income, non-GAAP income.

So to be able to minimize taxable income, one way so you can do it one of the tools you have, is to be able to 1031 changes were basically, it does -- there is a whole sale doesn't go through taxable income. It doesn't give you the same kind of issue that let's say most of the big REITs out there offer you. So they have incredibly low tax basis on all of our assets underlying the REIT.

In our case, we don't, we just -- but we'll start to have some lower tax base. It's not hyper low, but lower tax basis on some of the assets as we decide to 1031 assets over time to be able to essentially defer those gains and you could defer them pretty much infinitely as long as you just keep doing you want 1031 exchanges.

Cathy Long -- Chief Financial Officer

And, Haendel. This is Cathy. So there were 17 properties where we deferred the gain and it was about $35 million tax gain that was able to be deferred through this transaction, and we've already replaced the property. We've used the proceeds for replacement assets. So that's -- [Indecipherable] will move forward and we'll be watching it going forward.

Haendel St Juste -- Mizuho -- Analyst

Great, thanks. And one last one. Maybe you could talk a bit art ban. Still at top -- looks like top three or four tenant here 2% of revenue unchanged. Just curious how you're feeling about that exposure today? It looks like there is a lot of art bans on the market. So a lot of other people seem to be wanting to sell just curious about how you're thinking about your exposure. Thanks.

Mary Fedewa -- Chief Operating Officer

Hey, this Mary. So I will tell you like, our advantage you know, is sponsored by Thomas H. Lee. They have an acquisition and integration strategy that they're working on. They've also -- they bought other furniture companies as well. So they're working through that integration. And as you know the integrations can sometimes be difficult and take some time.

So from that perspective where we've committed to being a partner with them and they're working through that. So I would say that's where we are with them.

Chris Volk -- President

We feel good about what we are doing. Just so you know, not all of our art fans are art fans. And so our fans name, but actually it includes [Speech Overlap] Wolfan Lab and Furniture. So early on when we sold some of the our art fans off. We did it to diversify and make sure that we had a geographic diversified footprint .

Haendel St Juste -- Mizuho -- Analyst

got it, got it. Okay, thank you.

Operator

Thank you. And the next question comes from Rob Stevenson with Janney .

Rob Stevenson -- Janney -- Analyst

Hi, good morning, or afternoon, guys. Chris, can you talk about how close you guys were to 100% payout of taxable earnings run rate when you did the dividend increase? In other words, how much of the 6% increase was required because of strong earnings growth over the last year plus versus how much was discretionary and how the Board thought about that making their decision?

Cathy Long -- Chief Financial Officer

Hi, this is Cathy, actually. So we do pay out pretty much all of our taxable income. Part of the issue is gains. Right? gains on sale of property do create taxable income and you have to consider that when you're thinking about dividends and the pay out there. And the gains of course are hard to predict.

So one of the tools we use is to do the 1031 transactions to be able to defer those gains, so that you're not looking at having to increase your dividends because you happen to have a lot of gains -- taxable gains in the year. Does that help?

Rob Stevenson -- Janney -- Analyst

Yeah, I mean, I guess the other thing was from your standpoint, how much of the 6% increase was discretionary versus what you were going to need to do to maintain the 100% payout and whatever you needed to do with gains, etc?

Chris Volk -- President

Yeah, I'm thinking I'm just going to say this. It could be -- I could be a little bit off here but -- because what you're asking wasn't really discussed that way at the Board meeting, because we haven't really been close to the issue of having to increase dividends in order to meet our taxable REIT status. So we have room that we could move lower if we want to on our payout ratio. The issue, -- the volatile issue that Cathy is talking about is the gains from the sale.

So if you're looking at sort of core FFO, our core AFFO from operations need more gains on sales activity. We would have been fine, there would have been no issues at all. So if we wanted to raise our dividend last we could have done that.

But -- and how much less we might have been able to not raise for dividends. So, I mean but if you included the gains on sale, then that creates a different picture altogether, which is why you want to make -- avail yourself to the 1031 market .

Rob Stevenson -- Janney -- Analyst

Sure. Okay, and then Mary what's been your success ratio these days. In terms of when a property goes dark or a tenant moves out in terms of you guys releasing it versus just deciding to sell it?

Mary Fedewa -- Chief Operating Officer

So, year-to-date we've had actually an 87% recovery, Rob.

Rob Stevenson -- Janney -- Analyst

Okay. And that includes [Indecipherable] and sales?

Cathy Long -- Chief Financial Officer

That lease percent sales. [Speech Overlap]

Chris Volk -- President

And that includes sales and acquisition. And I would say we're agnostic on whether we release and sell them. So which you have to be. So if we, -- and when we calculate recoveries we don't calculate it necessary the way everybody else. So, for example, let's say, we have a property in cost of million bucks and we get a million bucks back for it. That may not be 100% recovery.

The recovery is defined by what you can do with the proceeds you are reinvesting. We're really focusing on AFFO growth per share. So, if we have a $1 million in rent coming in, we replace it with $900,000 in rent. That's a 90% recovery. If we have, a $1 million property cost and we sell it and we get -- and we reinvest the money and we get 90% of rent back from reinvesting it, then it's a 90% recovery. So we're looking at it from that perspective and we're going to try to maximize the per share, which is the whole goal.

Rob Stevenson -- Janney -- Analyst

Okay, thanks guys.

Mary Fedewa -- Chief Operating Officer

You're Welcome

Operator

Thank you. And the next question comes from Ki Bin Kim with SunTrust.

Ki Bin Kim -- SunTrust -- Analyst

Thanks. Just wanted to go back to the kind of earlier topics about tenant quality and recovery ratios. Hi, I'm not sure how you want to answer this question, but maybe this year or over the past five years, how often are you giving rent relief to tenants? Just trying to get a sense of the leakage -- the cash leakage that may occur over time.

Chris Volk -- President

Well, the ihe answer is it once a year in our book we actually put down -- we have a whole slide on losses. And we do it on an average basis, so we don't do it on an annual basis. But in [Indecipherable] page 43.

And so you have losses on an annual basis for property management and also you have this sort of work in process storage. Yeah, work in progress includes all the leakage you were talking about. So you want to include everything. So if you're giving somebody a 50% rent break or something like that, it's going to get included in that, a special servicing it's a loss. And we're treating that the same way as we're treating a vacant asset.

Net lease companies are good at reporting vacancies while net lease companies tend not to report how many vacant and paying less than optimally, our properties are all right. And just because it's just, -- there is no consistent way of doing it. So what we do is we sort of calculate this for you and then we basically do it on an annual average for you. It's going to swing from year to year and sometimes the swings can be meaningful.

And now -- and that's one of the things that we also tried to get people to sort of avoid looking at because if you have like some year that's a bad year, it doesn't mean that there are some huge secular trend going on. It's just part of the business cycle, like 12 months in this business does not equate to a business cycle,

A quarter is not a business cycle. So what we're having from a portfolio non-performance issue on a quarter is not going to be a business cycle. So the reason we disclose our cumulative non-performance is you, ever today..

Mary Fedewa -- Chief Operating Officer

It's ever today once a year.

Chris Volk -- President

And I would say that collectively out of the whole portfolio there have been, let's say 40 instances, 40 something instances of tenants non-performing that we've had recoveries for including people that went bankrupt and never paid us, to people that just let us out, been like 40 plus tenants over nine years. And it's -- if there in the -- , it's all there for you to see.

Ki Bin Kim -- SunTrust -- Analyst

Did you say at page 43, is that what you're looking at?

Mary Fedewa -- Chief Operating Officer

Yeah.

Ki Bin Kim -- SunTrust -- Analyst

Okay. And--

Chris Volk -- President

[Indecipherable] Page 43 at the end of the Q1. So for Q1 and we're doing this 2019 numbers of see page 40 to pick it up. And if you see those numbers tick up, it will mean that we had more activity that happened in 2019 than we had previously. So you'll know that the trend with higher. And then on next quarter's earnings call you can ask us about it.

Ki Bin Kim -- SunTrust -- Analyst

Okay. Similar question. When you look at the credit quality and how resilient that credit quality is or medium cash for a coverage ratio, whichever metric you want to look at. Over time as the cohort H, meaning your 2014 investments. All right. How that credit quality ages over time, how that 2015 cohort investments age over time. Obviously there is a natural tendency prior to come down a little bit in credit quality. That's just normal business, but any kind of lessons learned from that?

Chris Volk -- President

We learned lessons things like [Indecipherable] and whenever we had issues we we're looking at what those issues are and we try to look, and we try to learn from this stuff. I think I've come to conclusion like even the thing to look at is -- two things are really important. One is do we really like the business people that are in? I mean, do we think they have a good business model. And the second is, we're focusing on the unit level coverages and the third is, of course, we are looking at the leadership and the management team and their alignment of interest. I mean, if you're looking at big things look at -- we look at that stuff.

Credit moves around all the time. So credit individually, companies that were really great credits then sell to other private equity firms and then they get up and the credit profiles change. We spend a lot of time looking at capital stack issues.

So, for example, if you're Looking at slide 40, which will give you three years worth of credit histograms over time overlaid off to each other, which will give you an idea of sort of how the whole portfolio looks at ,you're going to see that they're going to be some gaps where on a Moody's EDF Score basis the credit profile of the pool has gapped out a little bit.

So in other words, where we were better in 2017 as a pool, then we are in 2019. And so then the question is why -- what would cause those issues? and a lot of them are driven by by growth of our tenants. So they're just growth driven, i.e, we don't have a full year's worth of revenues.

But we have debt stack that reflects less than a full year for the revenues. So that's a big piece of it. Another piece of it is some of the corporate recap some of our tenants have gone through and that's part of it. But if you look at the STORE scores, the STORE scores haven't really changed at all. I mean, they've been pretty flat.

And one things that we're going to be looking at in the years to come, are going to be capital adjusted STORE scores. For example, a lot of our tenants have massive amounts of unsecured or undersecured borrowings that are way behind us, which is sort of equity-like from a performance perspective, which would effectively make the credit a lot better.

and I think that would take up the credit by probably three, not just from a credit rate perspective and move those bottom numbers on the corporate EDF just way up. So we spend a lot of time looking at this.

We've been investing a lot of BI through using SAP and Tableau and looking at how to train this and you'll start to see the fruits of that become more evident in the years to come.

Ki Bin Kim -- SunTrust -- Analyst

All right, thanks, Chris.

Chris Volk -- President

Sure. Thank you.

Operator

[Operator Instruction] And the next question comes from John Massocca with Ladenburg Thalmann

John Massocca -- Ladenburg Thalmann -- Analyst

Thanks, good morning, afternoon actually on our end. Just a question. Should -- do you expect given in 2020 Guidance, do you expect the disposition volumes to kind of remain more than 2019 level versus kind of what you're doing in 2018, 2017, a lot more elevated ?

Cathy Long -- Chief Financial Officer

yes, this is Cathy. We do.

John Massocca -- Ladenburg Thalmann -- Analyst

Okay. And then touch again maybe on page 40 -- the slide 43 of the presentation quickly. If I'm trying to think about maybe backing into kind of an SSNOI growth number for you guys, it's essentially just the internal growth unlevered ex the kind of portfolio management, kind of your ability to realized gains on dispositions. I mean, is that kind of a fair assumption? And then, as a result, where is that number kind of trended in prior years? I mean, because this is a -- as you were kind of saying to Steven's question, a measurement of the entire history of the portfolio.

Chris Volk -- President

All right. So if you look at our average Capt lease escalation number is 1.8%, 1.9%. We have not historically always gotten the 1.8%, 1.9%, because inflation is sometimes dip below the 1.8%, 1.9%. So which if that happens, that's going to create issues.

But you would take your basically -- and also by the way, keep in mind that that 63% of that happens every year and then the other, the rest of it is mostly every 5 years. And that 5 years could be lumpy too in terms of when it comes in. But on average it's 1.8, 1.9%.

So then you take your 1.8, 1.9%, subtract your losses from property management, subtract your losses from work in process, which is 50 basis points, that gets you to -- that could be the same-store NOI long run average of 1.3%.

Okay? Which is what you look at, if you were looking at like office REITs or anything else. I mean, if you're trying to compare same store, same store, if you kind of 1.3%. And of course then you add in the fact that we're reinvesting all this AFFO and then you get more internal growth on top of the 1.3%, but that's how you do it.

John Massocca -- Ladenburg Thalmann -- Analyst

Okay. So that 1.3% that kind of comes out in slide 43 is fairly comparable today to the entire history of the portfolio?

Chris Volk -- President

We don't make comments about what happens in 2019 versus 2018 in specific. I mean, we obviously -- I have some views on where it is. But we -- I would say we're not seeing anything in 2019 that's strange and we're seeing in fact a watchlist. It's less than it was the beginning of the year. So of assets, so.

John Massocca -- Ladenburg Thalmann -- Analyst

Okay, that's it for me. Thank you very much.

Operator

Thank you. And the next question comes from Spenser Allaway with Green Street Advisors.

Spenser Allaway -- Green Street Advisors -- Analyst

Thank you. And just going back to the credit loss discussion, I realize you guys provided that average annual or the annual average of that kind of hops us back into the same property NOI number, but why not provide like the enhanced disclosure and show a true same property NOI number of quarterly.

I realize you said, Chris is not reflective of a full business cycle. But I think the investment community obviously realizes that and which is benefit from having the enhanced disclosure and then the transparency on how the business is doing quarter to quarter?

Chris Volk -- President

Well, look, etc -- I mean, we've -- I got a nice question, I mean I think that -- I think we're the only REIT in the net lease base to even do page 43. So -- and -- if everybody else wants to sort of give you a revenue walk-on -- and by the way, you can -- it's got to be a cash revenue walk.

So it's going to be sort of an AFFO revenue walk. You got to back out all the non-cash stuff which there is a lot of non-cash stuff and the revenue stuff. It's like having, for example, we have on the revenue side, 10% of our business, includes construction.

We don't always get the rents on the construction and there is thing since you're accruing some of that stuff or you're not getting the rents. But, so -- it is what you were asking for is a very big undertaking and it will result in pronounced thoughtfully from quarter to quarter because that's the business that we're in, but if you -- .

On the other hand, if you're sitting back in your chair and you're looking and saying, well, I'm gonna just take STORE Capital, I'm going to take their NOI, try to back out the non-cash stuff, and then divided into the gross fixed asset number and see what my yield is. It's going to be in the ballpark of where you think it should be.

Spenser Allaway -- Green Street Advisors -- Analyst

All right. You know I sort of understand obviously the components you just laid out. Construction deferrals, rent deferrals. It's volatile and it varies quarter-to-quarter. But I think there is something to be said obviously for being an industry leader on the disclosure best practice front. And I just think that there is a lot of good, I think that just comes from the enhanced transparency on the business quarter-to-quarter, it's across...

Chris Volk -- President

[Speech overlap] Yeah, thank you. We'll take it under advise.

Operator

Thank you. And the next question comes from Collin Mings with -- And the last question, also is Collin Mings with Raymond James.

Collin Mings -- Raymond James -- Analyst

Thank you. Good morning out their everyone.

Cathy Long -- Chief Financial Officer

Hi, Colin. How are you ?

Collin Mings -- Raymond James -- Analyst

Good. I just wanted to quickly follow up on the disposition discussion. I know we've covered a lot of ground there already, but specific I just want to drill into your rebalancing comments on the manufacturing front, Mary.

It looks like there was a notable decrease quarter-over-quarter in the plastic and rubber products bucket but then further growth and metal fabrication just tying that together with the pipeline. I just want to get a better sense for how you think about that, whether it's the most opportunity in that broader category and potential for further refinements?

Mary Fedewa -- Chief Operating Officer

yeah. Okay, great, great question. We just really -- we really don't look at it like that, we just looked overall at our manufacturing and starting the caller portfolio, are we going to get into sort of industry types. As you know we're looking for profit center manufacturing assets that make a product. And so metal fab happened to come up a little bit in this quarter.

Again, we've spoke a lot about the quarter not being a trend, but our manufacturing goes anywhere from supplying a good or to a finished good from metal roofing. to chain link fences. to making pet beds, to steel for high rises. So it's a that goes across a lot of different industries as you can tell, and I would say the disposition was not industry specific like that .

Collin Mings -- Raymond James -- Analyst

Okay. Thank you.

Mary Fedewa -- Chief Operating Officer

Welcome

Operator

Thank you. At this time, I would like to return the floor to Christopher Volk for any closing comments.

Chris Volk -- President

Well, thank you very much operator. And just to say Happy Halloween to everybody up here. And we're going to be a Nareit in Los Angeles on November 12 and November 13. If you have not already set up an appointment to see us, we look forward to seeing you then. And with that, goodbye.

Operator

[Operator Closing Remarks]

Duration: 66 minutes

Call participants:

Lisa Mueller

Chris Volk -- President

Mary Fedewa -- Chief Operating Officer

Cathy Long -- Chief Financial Officer

Nate Crossett -- Berenberg -- Analyst

Caitlin Burrows -- Goldman Sacchs -- Analyst

Craig Mailman -- KeyBanc -- Analyst

Vikram Malhotra -- Morgan Stanley -- Analyst

Giovanni Sood -- Deutsche Bank. -- Analyst

Haendel St Juste -- Mizuho -- Analyst

Rob Stevenson -- Janney -- Analyst

Ki Bin Kim -- SunTrust -- Analyst

John Massocca -- Ladenburg Thalmann -- Analyst

Spenser Allaway -- Green Street Advisors -- Analyst

Collin Mings -- Raymond James -- Analyst

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