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ESSENTIAL PROPERTIES REALTY (EPRT -0.04%)
Q3 2019 Earnings Call
Nov 8, 2019, 3:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, ladies and gentlemen, and welcome to the Essential Properties Realty Trust Third Quarter 2019 Financial Results Call. After the presentation, there will be a question-and-answer session. [Operator Instructions]
At this time, it's my pleasure to turn the floor over to Mr. Dan Donlan, Senior Vice President, Capital Markets. Sir, the floor is yours.
Dan Donlan -- Senior Vice President and Head of Capital Markets
Thank you, operator, and good morning, everyone. We appreciate you joining us today for Essential Properties' third quarter 2019 conference call. Here with me today to discuss our third quarter results are Pete Mavoides, our President and CEO; Gregg Seibert, our COO; and Hillary Hai, our CFO. During this conference call, we will make certain statements that may be considered forward-looking statements under our federal securities law. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we may not release revisions to those forward-looking statements to reflect changes after the statements were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in yesterday's earnings press release.
Before I turn the call over to Pete, I would note that our 10-Q and third quarter supplemental are available on the Investor Relations section of our website. Pete, please go ahead.
Pete Mavoides -- President and Chief Executive Officer
Thanks, Dan. And thank you to everyone who has joined us today for your interest in Essential Properties. We are pleased to report the strong result of our third quarter, which was the first quarter that we could report comparable per share results. Consistent with our recent quarters, the third quarter saw solid portfolio performance with same-store rental growth of 1.7%, a creative investment activity with $174 million invested at an initial cap rate of 7.5% and active capital markets activity with Eldridge fully exiting their position, and the creation of our ATM program. With all that in mind, we reported third quarter AFFO per share of $0.29, which represents a 16% increase over last year. This impressive growth was achieved on a near leverage neutral basis as our net debt-to-annualized adjusted EBITDAre was 4.8 times at quarter end versus 4.7 times a year ago. We anticipate our freshly underwritten and newly vintage portfolio to remain healthy. Our focused and discipline investment pipeline to continue to generate accretive and attractive investment opportunities and the capital markets to offer multiple sources of a world price capital.
Based on these assumptions, we are providing 2020 AFFO per share guidance of $1.27 to $1.30, which implies a 13% increase at the midpoint compared to updated 2019 guidance. We believe this growth coupled with our well covered dividend yield of 3.6% and our commitment to prudently managing our balance sheet and portfolio risks offer a compelling total return opportunity.
Turning to the third quarter and starting with a portfolio. As of September 30, we had investments in 917 properties that were 100% leased to 199 tenants operating in 16 distinct industries. Our weighted average lease term was 14.4 years. More importantly, though, only 3.1% of our ABR expires prior to 2024.
Our same-store portfolio which represents 60% of our ABR at quarter end experienced contractual cash rent growth of 1.7% and contractual cash NOI growth of 1.6% quarter-over-quarter. As we have mentioned in the past, when coupling our contractual rent growth with expiring leases and potential credit losses, we expect our same-store portfolio to grow at approximately 1.5% per annum. So we were pleased to exceed that threshold again this quarter. From a tenant health perspective, our portfolio has a weighted average rent coverage ratio of 2.9 times with 73.4% of our ABR having rent coverage ratio of two times or better. Looking out over the next eight years, less than 1% of our leases that expire have unit level rent coverage below 1.5 times, which we believe indicates a high likelihood of lease renewal at expiration.
Additionally, only 2.1% of our tenants have both an implied credit rating lower than single B per Moody's RiskCalc and unit level coverage ratio below 1.5 times, which represents a very manageable number of tenants and properties with elevated risk characteristics. Our third quarter investment activity was robust. We invested $174 million at a weighted average initial cap rate of 7.5%, which was up 20 basis points sequentially, representing a very attractive spread to our cost of capital. Approximately, 88% of our third quarter investments came from directly originated sale leaseback or mortgage loans and 100% are required to provide us with corporate and unit level financial reporting on a regular basis. As we have mentioned in the past, we believe directly originated sale-leaseback investments afford an opportunity to generate attractive risk adjusted returns by delivering capital to a tenant need and structuring investments on our lease form with our preferred terms.
On the disposition front, in an effort to proactively mitigate risks and exposures, we sold 10 properties during the quarter, including one vacant for $19.5 million in total net proceeds.
As we look out to the balance of the year, we remain focused on growing our portfolio through the origination of sale-leaseback transactions with middle market tenants in our targeted industries. And we anticipate our level of investment activity to be consistent with our historical averages with cap rates in the low to mid 7% range.
And with that, I'd like to turn it over to Hillary, our CFO who will take you through the financials for the third quarter.
Hillary P. Hai -- Chief Financial Officer
Thank you, Pete. And good morning, everyone. Starting with the balance sheet, we ended the quarter with $1.9 billion in total undepreciated assets, and $666 million of total debt, including $311 million of master funding notes, a $200 million of unsecured term loan and $155 million outstanding on our $400 million unsecured revolving credit facility. We have no major debt maturities coming due until 2024 and our net debt to annualized adjusted EBITDAre was 4.8 times at quarter end, which gives us capacity to continue to execute on our external growth strategy, while managing within our targeted leverage range.
Lastly, earlier this week, we received a BBB minus credit ratings from Fitch Ratings Services, which should further broaden our access to capital as an investment grade rated company.
Moving on to our capital markets activities. During August, we established $200 million ATM program. In the last six weeks of the quarter we used the ATM program to sell over 3.3 million shares of common stock at an average price of $22.42 per share, raising gross proceeds of $75 million. To date, in the fourth quarter, we have sold over 1.3 million shares under the ATM at an average price of $24.05, raising gross proceeds of $32.7 million.
Given the granularity of our quarterly investment activity, we view the ATM as a highly efficient tool to raise equity and proactively manage our balance sheet. Turning to the income statement, our third quarter NAREIT-defined funds from operations, or FFO, was $21.1 million, or $0.27 per diluted share. Core funds from operations or core FFO was $23.9 million or $0.31 per diluted shared and adjusted funds from operation or AFFO was $22.8 million or $0.29 per diluted share.
Of note, in the quarter, we incurred $2.7 million of non-recurring costs and charges in connection with both the Eldridge, secondary offering in July and the potential settlement of an ongoing litigation. When excluding these one-time items from G&A this quarter, our G&A as a percentage of total revenues was 13.2%, which is down 60 basis points versus our average over the prior four quarters. Going forward, we continue to expect our G&A to scale as our asset base grows.
Turning to guidance, we are raising our 2019 AFFO per share guidance by $0.02 at the low end to a new range of $1.13 to $1.15. Looking ahead to next year, we're introducing our 2020 AFFO per share guidance range of $1.27 to $1.30, which implies approximately 13% growth at the midpoint of both ranges. We believe AFFO as the most relevant earnings metric, as it closely approximates our recurring cash flow per share. As we have stated in the past, our historical net investment activity which we provide in our supplement on a trailing eight quarter basis is a good goalpost for our future investment potential.
With that, I'll turn the call over to our COO, Greg Seibert.
Gregg Seibert -- Executive Vice President and Chief Operating Officer
Thanks, Hillary. During the quarter, we invested $174 million in the 28 transactions, and 139 properties at a weighted average cash cap rate of 7.5%. These investments were made within 10 of our 16 targeted industries with quick service restaurants, or QSRs, representing nearly 30% of our investment activity in the third quarter. The weighted average lease term of these properties was 16.6 years. The weighted average annual rent escalation was 1.5%. The weighted average unit level coverage was 3.2 times and our average investment per property is $1.2 million.
Consistent with our investment strategy, approximately 88% of our third quarter investments were originated through direct sale lease packs and mortgage loans, which are subject to our lease form with ongoing financial reporting requirements, and master lease provisions in most cases.
In addition, due to the ongoing efforts of our origination team to expand our relationships with new operators and counterparties, 57% of our third quarter investment activity was relationship based, which we define as transactions completed with operators, sponsors, advisors, or brokers that senior management has done business with in the past.
From an industry perspective, QSR has remained our largest industry at 14.4% of ABR, followed by early childhood education and C stores at 11.5% respectively, car washes at 10.2%, and medical dental at 9%. Conversely, our home furnishings concentration is now just 4.2% of ABR, which is down 40 basis points quarter-over-quarter. And we expect this trend to persist as we see better risk-adjusted returns in other industries.
In addition, we continue to proactively manage our casual dining concentration, which declined 90 basis points in the quarter through selective dispositions of underperforming locations in order to create capacity to invest in higher performing brands and properties, while managing our concentrations.
From a tenant concentration perspective, no tenant represented more than 4% of our ABR. Our top 10 tenancy represented 25.5% of our ABR at quarter end, which was down 250 basis points quarter-over-quarter. We expect our top 10 concentration to decline further in the coming quarters as we continue to grow our exposures with existing tenants outside of our top 10 and capitalize on newly developed tenant relationships.
Subsequent to quarter end, Perkins, which today represents 1.4% of ABR was purchased out of bankruptcy. As part of the bankruptcy process, we negotiated a new 20 year master lease in exchange for slightly lower rents. We are pleased to report our properties are now subject to a long term master lease with an experienced and well capitalized restaurant operator.
Looking at the portfolio more broadly, approximately 93.5% of our ABR is derived from tenants that operate service oriented and experienced based businesses, which has been a deliberate focus for essential since we started investing over three years ago. We believe tenants in these industries and more importantly, real estate occupied by these tenants are more recession resistant and heavily insulated against e-commerce pressures.
Moving on to asset management. Our portfolio remains healthy with a weighted average rent coverage ratio of 2.9 times and approximately 73.4% of our ABR having a rent coverage ratio of two times or better. In addition, with approximately 98% of our tenants required to report unit-level financials to us, we have near real-time transparency into the health of our tenancy, which is an important component to managing risk in our portfolio.
Similarly, with an average unit investment per property of $2 million, our portfolio remains highly liquid from a sales perspective and readily fungible from a leasing standpoint. Turning to dispositions this quarter, we sold 10 properties from five different industries for $19.5 million in net proceeds. Despite these dispositions being derisking sales, the nine leased properties were sold for a blended cash cap rate of 6.7%.
With that, I will turn it back to Pete for his concluding remarks.
Pete Mavoides -- President and Chief Executive Officer
Thanks, Gregg. Our portfolio remains in excellent shape with no vacancy, healthy coverage coupled with strong transparency, excellent property level liquidity, and de minimis near-term lease expiration. Our investment pipeline is full. Our balance sheet is well positioned to fund our growth objectives. And we look forward to continuing to execute on our business plan.
With that, operator, let's open the call up for questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions] And we'll take our first question from Christy McElroy with Citi.
Park DeCreni -- Citi -- Analyst
Hi, guys, this is Park DeCreni [Phonetic] on for Christy. Just wanted to sort of understand, you know, with your team's access to capital being relatively easier than it's ever been. And overall, you know a very strong pipeline in terms of opportunities in the deal pipeline itself. How are you guys thinking about the likely pace of acquisitions moving into 2020? And should we expect buy-ins to be similar to as we've seen over the past few quarters, particularly in Q2 and Q3?
Pete Mavoides -- President and Chief Executive Officer
Sure. As I've said in the past, the way we invest is very granular, it takes a lot of work, a lot of investment in single assets and direct negotiation of transactions. And as a result, you know, really the constraint on investment activity really becomes staffing and infrastructure and we staffed and organized this organization to transact at our current level. You know, for the past three years, we've invested approximately $500 million and we would anticipate, given our staffing and our organization to be able to do that going forward. These last two quarters were somewhat elevated as we found some larger transactions to transact on, but I wouldn't anticipate that to be indicative of a higher run rate.
Park DeCreni -- Citi -- Analyst
Thanks. And then just another question real quick. We had noticed a sequential pickup in terms of notes receivable. Can you guys just talked about sort of what drove that increase?
Pete Mavoides -- President and Chief Executive Officer
Sure, during the quarter we did, we did a couple of loans with some of our existing tenants. You know, in general, you know, we'll do loans from time-to-time as an accommodation to our tenants. Typically, we structure those loans to have similar characteristics to our sale leaseback transactions. It's not going to be a big part of our business, but you know, it will be a small part.
Park DeCreni -- Citi -- Analyst
Okay. And just a quick follow-up, and I'm just curious, you know, what sort of industry verticals did you guys, you know, particularly during the quarter sort of, you know, write those loans with?
Pete Mavoides -- President and Chief Executive Officer
We did a loan in this past quarter in the quick serve restaurant industry as well as the child care industry.
Park DeCreni -- Citi -- Analyst
Okay. Thank you.
Pete Mavoides -- President and Chief Executive Officer
Thank you.
Operator
We'll take our next question from Ki Bin Kim with SunTrust.
Alexei Siniakov -- SunTrust -- Analyst
Good morning. This is Alexei Siniakov filling in for Ki Bin. A couple of questions related to tenant credit profiles. Well, first of all, you mentioned that Perkins today stands at 1.4% of your total ABR. I just want to clarify is that the same 12 stores that you had last quarter? Or has that store count changed? And maybe, if you can disclose a number around the differential between the old rent and the new rent, like is it 10% lower, 20% lower. Thanks.
Pete Mavoides -- President and Chief Executive Officer
Sure. And without getting too into the specifics of that lease renegotiation, the rent is -- the rent concession we ended up giving the tenant is less than 10. And that 1.4 represents 11 assets and that we sold an asset during the quarter. And then recall, you have both the numerator and the denominator moving around. But at the end of the day, it was a -- in our view a very reasonable rent concession to get a much stronger, longer duration lease with a emerging tenant that we have good confidence in.
Alexei Siniakov -- SunTrust -- Analyst
Okay. Great. Thanks for that color. And then my second question relates to Town Sports International. Maybe you can give some color around what the status of the tenant is and what percentage of ABR the tenant is? I know it was -- within the top 10 tenants last quarter, but it looks like it's no longer in the top 10 this quarter?
Pete Mavoides -- President and Chief Executive Officer
Yeah. The guys are digging up the exact percentage. Now, clearly Town Sports is a public company. So I think people can form their own view on the credit and what's going on there. As we said in the past, they have their challenges, and that those challenges are very public.
From a credit perspective, we did a deal with Latitude Fitness, which is a four-unit operator. We did a three unit sale leaseback, which was a master lease that was subsequently acquired by Town Sports. So we kind of bought into the Town Sports. And we remain confident the assets that we bought and the coverage of our master lease. And as we sit today, that Town Sports is just around 2% and just out of our top 10.
Alexei Siniakov -- SunTrust -- Analyst
I see. Are you noticing any kind of slippage in rent coverage on those former Latitude Fitness stores?
Pete Mavoides -- President and Chief Executive Officer
No. They remain stable and healthy.
Alexei Siniakov -- SunTrust -- Analyst
Okay. And just to clarify, was that part of the original GE seed portfolio or was that underwritten after that?
Pete Mavoides -- President and Chief Executive Officer
That was a sale leaseback that we originated subsequent to GE.
Alexei Siniakov -- SunTrust -- Analyst
Okay. Great. Thank you so much for that. That's it.
Pete Mavoides -- President and Chief Executive Officer
Thank you.
Operator
We'll take our next question from Brian Hawthorne with RBC Capital Markets.
Brian Hawthorne -- RBC Capital Markets
Hi. I have a question on Ladybirds. Was that a tenant that you had owned an individual property with and then added more assets into or is this a brand new relationship?
Pete Mavoides -- President and Chief Executive Officer
Greg, why don't you tackle that relationship?
Gregg Seibert -- Executive Vice President and Chief Operating Officer
Sure. We had some Ladybirds. We've had them in our portfolio for some time. So this was an incremental addition to assets we already owned. It's someone that we've known about 10 years and have done business within in the past. So again, it's a long standing relationship and this past quarter was just an incremental addition to prior assets we've done in past years.
Brian Hawthorne -- RBC Capital Markets
Okay. And then are these properties all part of a master trust or master lease?
Gregg Seibert -- Executive Vice President and Chief Operating Officer
They're master least structure? Not a master trust? Yeah, yeah. Master trust will be our securitization, right. But they're master lease assets.
Brian Hawthorne -- RBC Capital Markets
Right. Okay. Great. And then one other one on competition. Are you guys seeing any increased competition out there from the other triple net REITs? We've seen kind of all of them raise investment guidance this year throughout the year?
Pete Mavoides -- President and Chief Executive Officer
Sure. I think as you go through earning seasons, it seems like everyone has had a heightened investment activity. And that certainly results in increased competition at the margin. During the quarter, 88% of our deals were direct sale-leasebacks and 67% of our deals were deals with people that we've dealt with in the past.
And so, we believe we have a good set of relationships and well differentiated investment model that allows us to still generate attractive risk adjusted returns. But the improving cost of capital across the sector, not only public and the private, is driving some incremental competition certainly.
Brian Hawthorne -- RBC Capital Markets
Okay. Thank you.
Pete Mavoides -- President and Chief Executive Officer
Thank you.
Operator
We'll take our next question from Sam Choe with Credit Suisse.
Sam Choe -- Credit Suisse -- Analyst
Hi, guys. So, I know, you guys, like, tightening the guidance for 2019. But just wanted to get some color on what you've seen in the October investment pacing?
Pete Mavoides -- President and Chief Executive Officer
Sure. I would say, in our 10-Q that we filed last night, we reported subsequent events, which updates our investment activity through November 6, and kind of quarter-to-date we've invested $74.1 million.
Sam Choe -- Credit Suisse -- Analyst
Great. Okay. That's great. And then, I think, Gregg mentioned that there was some capital rotation away from the casual dining space. I'm assuming that was more location specific, but just wondering, if there was anything general that you saw?
Pete Mavoides -- President and Chief Executive Officer
Yeah, I think -- and it's just maybe a bit nuance, but Gregg's commentary was more around rotation within the casual dining space and --
Sam Choe -- Credit Suisse -- Analyst
Okay.
Pete Mavoides -- President and Chief Executive Officer
...and rotating from operators and concepts that weren't performing up to our expectations to free up capital to invest with guys that are relatively performing better. And that's always the case and that could be as it relates to brands within our portfolio or with specific operators. But one of the things we like about casual dining is that, the properties tend to be very liquid and allow us to fine-tune the portfolio to be able to move out of guys that aren't performing up to expectations and redeploy into sites where people are performing well.
Sam Choe -- Credit Suisse -- Analyst
Awesome color. Thank you.
Operator
We'll take our next question from Sheila McGrath with Evercore ISI
Sheila McGrath -- Evercore ISI -- Analyst
Yes. Good morning. Acquisitions in the quarter had the lowest average investment per unit. I guess, there were a lot of units, 139. Just wondering if there was one transaction with multiple units, bringing that average lower?
Pete Mavoides -- President and Chief Executive Officer
Yeah. There was a -- that loan we did in the quick serve restaurant space, really brought that down. I think, absent that loan, we would have been closer to our historical average of call it $2 million, Sheila.
Sheila McGrath -- Evercore ISI -- Analyst
And the loan, is it similar yield as acquisitions? Or how should we think about pricing of that?
Pete Mavoides -- President and Chief Executive Officer
Yeah, you should, consistent with my earlier comments around our long program is that we seek to create an economic profile similar to our sale-leaseback investments and do loans solely as an accommodation to certain tenants. And so, it's generally consistent with where we're deploying capital, regardless of structure.
Sheila McGrath -- Evercore ISI -- Analyst
Okay. Thanks. And then guidance on 2020, it looks pretty attractive growth, can you remind us what -- how you think about the dividend? Are you targeting an AFFO payout ratio or just remind us how we should think about dividend growth?
Pete Mavoides -- President and Chief Executive Officer
Yeah, I think what we've generally said is that the Board will evaluate it, quarterly, probably look to adjust it biannually and that we would endeavor to maintain a payout ratio in the 70% range.
Sheila McGrath -- Evercore ISI -- Analyst
Okay. Thank you.
Pete Mavoides -- President and Chief Executive Officer
Thanks, Sheila.
Operator
We'll take our next question from Alan Wai with Goldman Sachs. Alan, please check your mute button. Hello, Alan, are you still there? All right. Moving on, we'll go next to John Massocca with Ladenburg Thalmann.
John Massocca -- Ladenburg Thalmann -- Analyst
So, I guess maybe touching again on the QSR properties you acquired in 3Q 2019, could you maybe provide some color on the mix of restaurant properties in terms of franchisee versus corporate credit, and then maybe national versus kind of regional brands, just any kind of general color there would be helpful.
Pete Mavoides -- President and Chief Executive Officer
As I said, a good chunk of it was the loan that we did and but it was -- generally, I would say, largely national brands with the franchise or probably the majority of it.
John Massocca -- Ladenburg Thalmann -- Analyst
Okay, that makes sense. And then can you maybe provide some additional color on dispositions in the quarter, specifically, the 6%, 7% cap rate on the disposition of assets with 1.1 times coverage, just seems pretty attractive, but the small sample size, so were there any kind of characteristics of those properties that made that possible? And I don't think you're going to repeat those numbers exactly maybe going forward, but that made this kind of a little bit of an outlier?
Pete Mavoides -- President and Chief Executive Officer
Yeah, listen, John, and I think we provide pretty good disclosure on our quarter-over-quarter disposition activity. Looking at our disposition list, there were five casual dining restaurants, two car washes, one child care, and one auto service with a range of cap rates from 6.5% up to 7.1%.
As you think of -- as we think about it, if you get your basis right and you have an attractively priced piece of real estate from a basis perspective; investors are willing to pay for that. And so coverage is an important metric, but having the appropriate basis in a piece of real estate is equally appropriate and if you have a low basis, people are willing to buy that.
John Massocca -- Ladenburg Thalmann -- Analyst
So there’s nothing specialized in terms of like a redevelopment opportunity or a repositioning of a property that maybe someone found attractive?
Pete Mavoides -- President and Chief Executive Officer
No, no outliers, as I said. It's across all our -- across those four industries with a range at a low of 6.5% and high of 7.1%. So, it was nothing kind of driving that.
John Massocca -- Ladenburg Thalmann -- Analyst
Okay. And then you mentioned the car washes you sold in the quarter, was that driven by a view on the industry or the tenant? It looks like they were both Zips or they are just property-specific?
Pete Mavoides -- President and Chief Executive Officer
We continue to like the car wash industry start there, we continue to like Zips, it's a top 10 tenant and they've done a great job of operating their business and growing their business. From time-to-time, we will sell exposure, surely to create capacity to continue to invest with our tenants that are growing. And so as an opportunity -- opportunistic sale to free up some capacity.
John Massocca -- Ladenburg Thalmann -- Analyst
All right. That's it for me. Thank you very much.
Pete Mavoides -- President and Chief Executive Officer
John, we appreciate it.
Operator
[Operator Instructions] We'll go next to Caitlin Burrows with Goldman Sachs.
Alan Wai -- Goldman Sachs -- Analyst
Hey, it's Alan Wai on for Caitlin. Sorry about that earlier, we're facing some technology issues.
So on your acquisition cap rates, 8.2% this quarter, it's down a bit from last year in the mid 8%. I was wondering why there's been a decline in cap rates and do you expect this downward trend to continue into 2020?
Pete Mavoides -- President and Chief Executive Officer
Yeah, listen, and I would say, it's our cap rates over the last eight quarters really have ranged from 7.8% down to 7.3%. And last quarter it was a 7.5%. I think you're quoting more GAAP cap rates, which incorporate the escalations and they range in a pretty tight band from 8.1% to 8.7%. Clearly, there's been multiple expansion in the space as well as the 10-year treasury has moved materially.
As we said in the past, you should expect us to transact in the low to mid 7% range on a cash cap rate basis. And, I would say that movement in any given quarter is more a reflection of the individual deals that we do during the quarter and the industries and the tenancies than the macro trend.
Alan Wai -- Goldman Sachs -- Analyst
Thanks. That's helpful. Because of your exposure to non-investment grade tenants, we've gotten some feedback from investors who are concerned with the risk in your portfolio in case of a downturn. Could you go through some of the more important aspects of your strategy that might potentially mitigate this perceived risk?
Pete Mavoides -- President and Chief Executive Officer
Yeah, and I can take about an hour doing that. We firmly believe our non-rated strategy of originating -- directly originated sale leasebacks on our lease form offers a more compelling risk return investment and mitigants of not investing with investment grade tenants are really reflected in our unit level coverage. And the disclosure we provide around that in our supplement is pretty robust and compelling in our view. It's also reflected in the fact that we get unit level profit and loss statements for 98% of our portfolio. It's reflected in the fact that, you know, nearly 70% of our portfolio is lease, subject to master lease, provisions were able to mitigate individual site risks and couple sites together.
And it's also reflected in the fact that we're buying in the mid-7.5% range, which one provides a margin for safety but two, allows us to have an entry point into the Real Estate that isn't inflated and have a better basis in our properties you know, to the extent that some of these credits have issues. But we are firm believers that investment grade tenancy does not equate to a more safe investment.
Alan Wai -- Goldman Sachs -- Analyst
Thank you very much.
Operator
And at this time, there are no further questions left in the queue. Mr. Mavoides, I'd like to turn the call back over to you for any closing comments.
Pete Mavoides -- President and Chief Executive Officer
Great. Well, we're really happy about the quarter we just reported. We're excited for 2020 as reflected in our guidance, which we believe to be compelling. And we're looking forward to meeting with investors at the upcoming NAREIT. So thank you all for your time today.
Operator
[Operator Closing Remarks]
Duration: 37 minutes
Call participants:
Dan Donlan -- Senior Vice President and Head of Capital Markets
Pete Mavoides -- President and Chief Executive Officer
Hillary P. Hai -- Chief Financial Officer
Gregg Seibert -- Executive Vice President and Chief Operating Officer
Park DeCreni -- Citi -- Analyst
Alexei Siniakov -- SunTrust -- Analyst
Brian Hawthorne -- RBC Capital Markets
Sam Choe -- Credit Suisse -- Analyst
Sheila McGrath -- Evercore ISI -- Analyst
John Massocca -- Ladenburg Thalmann -- Analyst
Alan Wai -- Goldman Sachs -- Analyst
