STORE Capital (STOR) Q4 2021 Earnings Call Transcript

STORE Capital (STOR)
Q4 2021 Earnings Call
Feb 24, 2022, 12:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello. Good day, and welcome to the STORE Capital's fourth quarter and full year 2021 earnings conference call. [Operator instructions] Please note this event is being recorded. I'd now like to turn the conference over to Mrs.

Megan McGrath, investor relations for STORE Capital. Please go ahead, ma'am. Thank you.

Megan McGrath -- Investor Relations

Thank you, operator, and thank you all for joining us today to discuss STORE Capital's fourth quarter and full year 2021 financial results. We issued our earnings release and quarterly investor presentation after the market closed yesterday, which include supplemental information for today's call. These documents are available in the investor relations section of our website at ir.storecapital.com under news and results, quarterly results. I'm here today with Mary Fedewa, president and chief executive officer of STORE; Sherry Rexroad, chief financial officer; Craig Barnett, EVP of underwriting and portfolio management; and Tyler Maertz, EVP of acquisitions.

On today's call, management will provide prepared remarks, and then we will open up the call for your questions. [Operator instructions] Before we begin, I would like to remind you that today's comments will include forward-looking statements under 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 per share guidance for 2022 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 Form 10-Q. With that, I would like to now turn the call over to Mary Fedewa, STORE's chief executive officer. Mary, please go ahead.

Mary Fedewa -- President and Chief Executive Officer

Thank you, Megan. Good morning, everyone. Welcome, and thank you for joining us today. I'll begin the call with an overview of our fourth quarter and 2021 year-end performance.

Craig will provide an update on the additions we made to the portfolio and our portfolio management activities, and then Sherry will review our financial results and our guidance for 2022. Following our prepared remarks, we will open the call up to questions. As you read in our press release, momentum continued to build through 2021. We capped off the year with a very strong fourth quarter, delivering quarterly AFFO of $0.56 per share, the highest in our history.

For the full year, AFFO was $554 million or $2.05 per share, a 12% increase from 2020, which exceeded the high end of our guidance by $0.05. Over the course of 2021, many business owners returned to growth mode and look to STORE for our customized financing solutions to fund organic growth and their M&A opportunities. This growing demand resulted in a strong fourth quarter acquisition volume of $486 million at an initial cap rate of 7.2% and weighted average annual lease escalations of 1.9%. Our investment spread for the quarter also remained healthy at well over 4%.

For the full year, we invested $1.5 billion in profit center real estate at an average cap rate of 7.5%. We mentioned on our second quarter earnings call that we expected tailwinds in the back half of 2021 related to both COVID deferral paybacks and lower property costs. Both of these tailwinds materialized in the fourth quarter, and at the same time, we continue to improve the efficiency of our overall cost structure, and our portfolio continues to perform exceptionally well. Sherry and Craig will share more about these positive trends in their remarks, and Craig will also provide more color on our portfolio in a moment.

Our fundaments are effective and remained strong in 2021, and we carry that strength into 2022. I now want to touch on the macro environment. As we all know, inflation is the highest it has been since 1982, and as a result, we are anticipating a rising interest rate environment, while cap rates are compressing. Let's start with a couple of thoughts on inflation in our business.

Triple net lease REITs do not generally incur property-related operating expenses. Our contractual rent escalations are meant to provide a natural hedge, allowing us to manage well in the current inflationary period. In addition, inflation has the potential to drive up the value of our real estate portfolio. As it relates to an anticipated rising interest rate environment, STORE has significant financial flexibility, which includes access to the unsecured bond market, where we have completed four public issuances and currently have a BBB rating with a positive outlook from S&P and our master funding program, which has access to both AAA and single-A paper; the flexibility to prepay tranches two and three years before maturity without penalty.

And in 2022, we have over $300 million in master funding notes that are available to prepay that have existing interest rates between about 4% and 5%. Refinancing these tranches at current rates would result in an interest savings of over $3 million annually. Therefore, we have an embedded reduction in our interest cost that we can realize in 2022 even in the anticipated rising rate environment. And finally, we have long-term fixed-rate debt with a weighted average maturity of seven years.

Now turning to cap rates. In the fourth quarter, we experienced further compression in our initial cap rates. However, we believe our business model enables us to source opportunities directly with tenants that are relationship-based and not subject to broadly marketed auctions, where we are seeing increased levels of bidding wars. Our approach gives us flexibility to price each new investment individually with the potential to raise leased raise, which can mitigate a rising interest rate environment.

In addition to our direct origination approach, since our inception, we have been consistently doing a large volume of granular transactions in vital industries with an average deal size of around $10 million. This is a niche or a lane that requires a solid infrastructure to efficiently process each transaction. STORE has built this infrastructure over the past 11 years creating a leg up on any new capital coming into our sector. To conclude on cap rates, our direct approach and our granular investment strategy give us an advantage in an anticipated rising interest rate environment and from the increasing competition in the market as well.

As a result, we are confident STORE and continue to generate strong returns in almost any environment. In fact, periods of uncertainty and complexity in the capital markets can create opportunities for STORE as our customers need our unique financing solutions and partnership more than ever. And now, I'll turn the call over to Craig.

Craig Barnett -- Executive Vice President of Underwriting and Portfolio Management

Thank you, Mary. I'll take a few minutes to cover what we added to our portfolio and our portfolio management activities for the fourth quarter. In the fourth quarter, our acquisitions continue to be diverse and granular spanning a wide range of industries, including restaurants, early child education, auto service, health clubs, and several manufacturing businesses that serve a variety of vital end markets. These investments had a weighted average lease term of 17 years and an average deal size of under $10 million.

New business from our existing customers was about 45%, which is above our historical average of about one-third of our investments. The strong relationships we have established over the past decade provide a solid foundation in an increasingly competitive marketplace. Now turning to the portfolio. We've intentionally built a diverse portfolio that is designed to deliver consistent and attractive risk-adjusted returns to our shareholders.

At the end of 2021, our overall portfolio mix was 65% in the service sector, 20% in manufacturing, and 15% in service-oriented retail. Our portfolio consists of 556 national and regional customers in more than 2,800 properties operating in 120 industries. More than 85% of the portfolio was comprised of businesses that individually represent less than 1% of our annual base rent and interest. There is no change in our top 10 customers, with our largest customer representing approximately 3% of base rent and interest, and our top 10 customers account for only 18% of base rent and interest.

During the quarter, we sold 21 properties, 12 of which were sold strategically for $58 million in proceeds or a 22% gain over our original investment at a 6.6% cap rate. The remaining nine properties were sold as part of our ongoing property management activities, garnering proceeds of $27 million. Our occupancy remains high at 99.5%. Overall, our customers' financial performance continues to remain strong, and our portfolio continues to perform well.

Our customers are experiencing robust top-line growth and improved profitability. This is demonstrated by the improvement in our weighted average four-wall unit SEC for the portfolio from 3.9 times pre-COVID to 4.6 times for the most recent financials received. And this improvement is being felt across all of our sectors, with our service sector experiencing a 41-basis-point increase to 3.7 times. Our manufacturing sector had an 83-basis-point increase to 6.5 times and service-oriented retail had a 14-basis-point increase to 5.9 times.

This demonstrates the strength of our portfolio through a global pandemic and its ability to thrive beyond it. Our confidence in our customers stems from our deep relationships with them. We communicate with them on a regular basis regarding their financials and the performance of their businesses. Most recently, we have been monitoring and discussing the macro environment, including inflation, labor, and supply chain disruptions.

Our customers have adapted in various and creative ways to respond to the specific impacts on their industry. Some customers have augmented staff with technology to make them more productive. Some have invested in automation to reduce physical labor, and others have instituted hedging strategies to change pricing terms to mitigate supply chain risk. As the customers in our portfolio are a diverse group of regional and national businesses, their experiences mirrored what has been seen by U.S.

corporations in 2021. Though faced with higher costs, corporations were able to raise prices and saw operating profits near record highs in 2021. The strong performance of our portfolio on validating is no accident. We directly attributed to the attention and effort we place on validating and underwriting the creditworthiness of our tenants on an ongoing basis.

I would now like to turn the call over to Sherry.

Sherry Rexroad -- Chief Financial Officer

Thank you, Craig. First, I would like to say how grateful I am for the warm welcome I have received over the past few months, not only here at STORE, but from our investors and analysts as well. I am thrilled to be here and look forward to working with all of you. Now turning to the business at hand, I'll begin by discussing our financial results for the fourth quarter and full year 2021, including an update on our capital markets activity, balance sheet, and our 2022 guidance.

Please note, all comparisons are year over year, unless otherwise noted. Beginning with our income statement, our fourth quarter revenues increased 21% from the year-ago quarter to $209 million, primarily reflecting the growth in our real estate portfolio. Revenue from net acquisition activity increased approximately $23 million, representing a full quarter's revenue from third quarter acquisition activity, plus a partial contribution from our large volume of fourth quarter acquisitions. More than half of the $486 million in acquisitions in the fourth quarter closed in the last half of December, so this external growth is providing nice momentum into the first quarter of 2022.

A portion of the increase in revenues during the quarter resulted from the increased level of cash payments collected on our rent receivables, which allowed us to release reserves we had previously posted, and this is a positive trend for our revenue projections going forward. Turning now to expenses. Interest expense increased by $2.2 million from the year-ago quarter, reflecting borrowings we made to support growth in our real estate portfolio, partially offset by a lower overall cost of debt. As a result of our capital markets activities in 2021, the weighted average interest rate on our long-term debt was 3.9% as of December 31st, a marked decrease from 4.2% a year ago.

Property costs, which totaled $4.1 million for the fourth quarter, were down significantly from $7.4 million a year ago. This decrease was largely due to the reversal of property tax accruals made during the pandemic, demonstrating our customers' strengthening performance. For the year, property costs were $18.2 million, as compared to $22 million in 2020. Excluding amounts reimbursed by our tenants, property costs for 2021 represented about 13 basis points of our average portfolio assets, down from 19 basis points in 2020.

We expect that property costs will return to pre-pandemic levels as we move into 2022. Fourth quarter G&A expenses increased $11.6 million. Of that amount, $7.8 million was related to management severance and transition costs and $3.2 million related to accelerated amortization of stock-based compensation awards associated with executive severance and retirement. As noted on Page 10 of our press release, these one-time costs are added back in our AFFO calculation.

For the year, there was an increase in G&A of $34.4 million, of which $11 million was due to the fourth quarter management transition items and $17 million was due to the impact of the accounting for certain long-term incentive compensation awards granted in 2018 and 2019. To refresh everyone's memory, the LTIP has both an AFFO and a relative performance component. Per cap rule, the AFFO portion must be evaluated each quarter as to how much expense should be recognized. In March of 2020, as COVID shutdowns are being implemented, it was determined we would not achieve our AFFO target.

Therefore, we reversed the then $6.7 million of expense we had recognized for these awards. We reinstated the expense in the first quarter of 2021, which by then amounted to $10.1 million. Excluding non-cash stock-based compensation expense and one-time severance and transition costs from both periods, G&A expenses for the full year of 2021 were 44 basis points of average portfolio assets, down from 47 basis points for the full year of 2020. This trend illustrates the increased efficiencies we gained from our scalable platform as the portfolio continues to grow.

During the fourth quarter, we recognized an aggregate $7.6 million impairment provision, which includes $1 million recognized on our portfolio of loans and financing receivables and an aggregate $6.5 million real estate impairment provisions associated with six properties. Fourth quarter AFFO increased to $153 million from $115 million. On a per-share basis, AFFO increased 27% to $0.56 per diluted share from $0.44 a year ago. The increase in AFFO primarily reflects higher revenue from our growing real estate portfolio and lower property costs.

As Mary mentioned, full year 2021 AFFO increased to $554 million or $2.05 per basic and diluted share. I'd like to provide more color on the AFFO for the year over our 2021 guidance. Compared with the high end of our guidance of $2 per share, the primary drivers were: about $0.02 from higher-than-expected portfolio revenues as a result of improved cash collections on our receivables, approximately $0.02 from lower-than-expected general, and administrative expenses and about $0.01 from lower interest and property costs. We are very pleased with the strong momentum in AFFO growth generated by the performance of our portfolio.

As many of you know, we declared a fourth quarter 2021 dividend of $0.385 per share, which we paid on January 18th to shareholders of record on December 31st. Now turning to the balance sheet and our capital markets activity. We are fortunate to have multiple and flexible options available to fund our growth. For the full year, we closed $1.5 billion of acquisitions with about 32% of the acquisition activity closing in the fourth quarter.

We funded the strong acquisition activity with a variety of sources, including cash proceeds from our Master Funding issuance in the second quarter and proceeds from the public debt offering in November, the sale of equity through our ATM program, and borrowings on our revolving credit facility. During the quarter, we issued approximately 1.7 million shares of common stock under our ATM program at an average price of $33.91 per share, raising net equity proceeds of $55 million. We are mindful of where our cost of equity is today given the macro headwinds. Our business model allows us to continue to make accretive acquisitions at the current stock price.

We look forward to improving investor sentiment as the Fed begins at anticipated interest rate hikes, turning speculation into certainty, and allowing the market to stabilize. In November, we took advantage of an attractive debt market by issuing $375 million of senior unsecured 10-year investment-grade rated notes at a coupon of 2.7%. We used a portion of the proceeds from this issuance to prepay without penalty $86 million in STORE Master Funding debt that had a coupon of 5.21%, providing us an opportunity to further lower our cost of capital. At December 31st, we had approximately $4 billion of long-term fixed-rate debt outstanding with a weighted average maturity of about seven years and, as noted earlier, a weighted average interest rate of 3.9%.

Leverage is at the low end of our target range at 5.6 times net debt to EBITDA on a run-rate basis or about 40% on a net debt-to-portfolio cost basis. Our debt maturities are intentionally well-laddered. As Mary mentioned, with the flexible prepayment windows under our Master Funding program, we will have the opportunity during 2022 to prepay three additional series, which has coupons ranging from about 4% to 5% and therefore allow us to further lower our debt cost from the current 3.9%. We closed the year with a strong balance sheet.

We have ample access to capital with $64 million in cash, approximately $540 million available under our ATM program, and $470 million of immediate borrowing capacity under our revolving credit facility. Now turning to guidance. We are encouraged by the solid performance of our portfolio and as a result anticipate that we will continue to realize benefits from increased cash payments on our rent receivables and reductions in property costs as well. Coupled with our strong acquisition activity and pipeline and the efficiencies we are seeing in our cost structure, we are raising our 2022 AFFO per share guidance to be in the range of $2.18 to $2.22, which represents a range of 6.3% to 8.3% growth over 2021.

Guidance continues to be based on an expected acquisition volume net of anticipated sales for 2022 of $1.1 billion to $1.3 billion. Today, we would also like to provide cap rate guidance of 7% to 7.2% for the year. AFFO per share in any period is sensitive not only to the amount, but also to the timing of acquisitions, property dispositions, and capital markets activities. As we move through the year, we'll continue to assess our outlook and updated guidance as needed.

With that, I'll turn the call back to Mary.

Mary Fedewa -- President and Chief Executive Officer

Thank you, Sherry. 2021 was a very productive year for STORE, and our future is incredibly bright. Co-founding the company nearly 11 years ago, I am so fortunate to have been part of making sure we have always had the right strategy, the right team, and the right resources to support our future growth. As you read in our recent press releases, we are excited to announce that we have promoted Alex McElyea to EVP of data analytics and business strategy and Lori Markson to EVP of portfolio operations.

Alex brings a wealth of knowledge and experience in building and deploying advanced analytic capabilities, and Lori has been overseeing our portfolio operations for nearly six years from funding transactions to ensuring our customers' experience is superior. Both Alex and Lori further strengthened our bench of diverse leadership talent. And we also added two new independent board members: David Edwards, a PhD with a specialty in econometrics; and Jawad Ahsan, the CFO of a publicly traded company. Both bring exceptional backgrounds and skills that complement our existing Board and can assist management in guiding our growth strategy.

I would also like to add that we are proud to be included in the Bloomberg Gender-Equality Index for the second consecutive year. While we've made significant headway toward gender equality, we are actively focused on nurturing a culture that is rooted in diversity, equity, and inclusion at all levels of our organization. In summary, we address a very large and inefficient market and fill an important need for real estate capital financing. Our acquisition activity is in full swing.

The lane we play in and our direct approach are mitigants to both an anticipated rising rate environment and the increased level of competition we are seeing in the sector, allowing us to continue to generate healthy spreads. Our pipeline is robust, diverse, and growing at $13 billion. We are continuing to focus on improving our cost structure, both operationally as well as our financing costs. Our portfolio continues to perform exceptionally well, and all of this positions us for strong AFFO growth while maintaining our disciplined investment approach in 2022 and beyond.

And we look forward to keeping you updated on our progress. With that, I'll turn the call over to the operator for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question today comes in from John Kim of BMO Capital Markets. John, your line is now open. Please go ahead with your question.

John Kim -- BMO Capital Markets -- Analyst

Can you help us understand the mechanics of your CPI-based leases work? I know that in your last 10-K, 85% of your leases are CPI-based. We now have inflation above 7.5%. So I'm wondering if there's a catch-up to that or a lot of those leases are capped essentially.

Mary Fedewa -- President and Chief Executive Officer

Yeah. Hey, John, it's Mary. So, the majority of our rent escalations are the lesser of 1.25 times CPI or its fixed lag, which in the fourth quarter was 1.9%. So with inflation as high as it is today, we are definitely getting our fixed leg at 1.9%.

John Kim -- BMO Capital Markets -- Analyst

OK. And is there a catch-up mechanism to that?

Mary Fedewa -- President and Chief Executive Officer

No. There is not one. What I would say, John, is that in the environment today, with our business model and the fact that we're calling directly on customers, we are able to have conversations with customers that talk about inflation is rising, etc. And we do ask for escalations, and we ask for the frequent escalations.

So we are able to have those conversations. We do -- we are mindful of what market is. And so, I would say in this environment, market probably is -- could be a little higher than 2%, and so we're having conversations like that. But you wouldn't be at 6% or 7% or you would have your phones ringing off the hook with customers calling and talking about that sort of high increase in rent.

And this is sort of we wouldn't expect 7% inflation for the long run, and these are long-term contracts. But I would say that there would be opportunity of investments.

Operator

And our next question comes in from Ronald Camden of Morgan Stanley. Ronald, your line is now open. Please go ahead with your question.

Ronald Kamdem -- Morgan Stanley -- Analyst

Great. Just picking up on the comments on cap rate compression a little bit. Maybe can you provide a little bit more color on how that trends by maybe some of the bigger industries and so forth, whether manufacturing or some of the other industries that you look at?

Mary Fedewa -- President and Chief Executive Officer

Yes. Tyler?

Tyler Maertz -- Executive Vice President, Acquisitions

Yes. Ron, it's Tyler. Yes, so, we've definitely seen compression like everyone else. And I would say, for sure, the sector that we've seen at the most in continues to be in the manufacturing industrial side of things.

Ronald Kamdem -- Morgan Stanley -- Analyst

And any sort of -- can we quantify that? Is it 10 basis points, 15 basis points? Just trying to get a sense of just what you've seen and over what time frame.

Mary Fedewa -- President and Chief Executive Officer

Ron, this is Mary. So, cap rates are -- there's been a lot of money raised in the space, a significant amount raised in the space. And those -- that money seems to be chasing bigger transactions and favor sort of the logistics distribution sort of center industry, so what we're seeing is a substantial reduction in cap rates in those areas. And when I mean substantial, I mean it by the rates that are quite low size and certainly the fixes.

So for larger transactions, I would say over 50, certainly over $100 million. We're seeing a lot of people bidding for those transactions. So the good news about STORE is that we have an 11-year old business and platforms where we're able to process individual $9 million this quarter, deals that we can continue to price each individual deal. And so, we have a real advantage to be able to organically grow here and not be -- and not feel pressure or to play in sort of the, what I call, bidding wars that are going on out there.

So, we're really fortunate to have the solid platform to do that, and we're keeping our head down, and we're staying real patient here.

Ronald Kamdem -- Morgan Stanley -- Analyst

Great. And then my last one, if I may. If you could just remind us the percentage of tenants that are still on a cash basis, and when you talked about sort of the improved cash collection on receivables in the quarter, is that -- was that theaters? Is that what sort of -- is there sort of a theme or a trend that you could point to? Or is it just sort of all across the board that drove that?

Sherry Rexroad -- Chief Financial Officer

Hey, Ron. It's Sherry, and I'll take the first half of the question. Our cash basis tenants are at about 1.7%. That is relative to history, very similar.

And relative to the third quarter of '21, it was at 2.4%. So you see that downward trend coming back to a normalized area. But I'll let Craig cover the tenant specifics.

Craig Barnett -- Executive Vice President of Underwriting and Portfolio Management

Yeah. In regards to any kind of theme that you're seeing in the collections Ron, is there really isn't. It's across all of the highly impacted industries. They're all paying as agreed in regards to the deferrals.

The increase, some are actually paying us earlier just due to any kind of government assistance with the theaters, the shuttered venue grant program or any refinancing opportunities that the tenants are doing with their balance sheets that provide them the capital to pay our deferrals back.

Operator

Thank you. And our third question today comes from Ki Bin Kim of Truist Securities. Ki Bin, your line is now open. Please go ahead.

Ki Bin Kim -- Truist Securities -- Analyst

Thanks Good morning. Could you talk about what you're thinking about leverage and how we end up in 2022 in light of what's happening to the cost of capital with your still very robust acquisition appetite?

Sherry Rexroad -- Chief Financial Officer

Hey, Ki Bin. It's Sherry. So we're going to stick to the 60-40 debt-equity model that we've had in place, and we're fortunate enough to have both our Master Funding ABS program as well as the unsecured corporate debt market. And last year, you saw us take advantage of both of those, and so you'll continue to see us evaluate that and evaluate which is the more effective market for us to approach in funding our acquisitions.

Ki Bin Kim -- Truist Securities -- Analyst

So do you have a sense of what that would mean in terms of a debt-to-EBITDA basis?

Sherry Rexroad -- Chief Financial Officer

We'll stick to the net debt-to-EBITDA range of 5.5 just to six. We ended 2021 at the 5.6, so there's plenty of room in there.

Ki Bin Kim -- Truist Securities -- Analyst

And the 5.6 that you've shown in the supplemental and what you just mentioned, does that annualize some of the one-time items that we got in 4Q.

Sherry Rexroad -- Chief Financial Officer

The one-time items are removed from that calculation.

Ki Bin Kim -- Truist Securities -- Analyst

OK. Thank you. And just a second question for me. This might be a blanket question.

But what are the primary alternative source of capital for, I guess, the majority of your tenants? And is that alternative source of capital starting to look more attractive or less attractive compared to what STORE can now offer?

Mary Fedewa -- President and Chief Executive Officer

So Ki Bin, as it relates to our customers, they have capital stacks, but I would say that doing a sale-leaseback and choosing to lease your real estate versus own your real estate is a choice they can make. But as it relates to a comparable choice to a long-term flexible lease that has 100% financing for their real estate and had some modest escalations is a superior choice to having bank funding where you actually have to -- you might get 60% or 70% financing today and then you've got to raise the equity. So immediately, we lower their cost of capital. So, we're a complementary source to a lot of the stuff in their capital stack, but we're not -- the long-term real estate products out there are -- they're just really aren't in.

And that's the beauty of this business, is that that's the inefficiency of the market that we talk about as we reserve a really large inefficient market. And these are companies that need their real estate to earn their profits or to do their business, and so it makes a really great big market for us where we -- where everyone's got their hand up, and we can be really selective. So, we're -- that's kind of how I think of the customers sort of evaluate their sources.

Operator

The next question on the line comes from Caitlin Burrows of Goldman Sachs. Caitlin, your line is now open. Please go ahead.

Caitlin Burrows -- Goldman Sachs -- Analyst

Maybe on the portfolio deal side, I think in 2021, Mary, you had started talking about that you could consider portfolio deals. So wondering if you have any update to that, maybe what efforts you've made and how they've been received by potential customers or partners.

Mary Fedewa -- President and Chief Executive Officer

Yes. Caitlin, you bet. So that is -- we talked about a three-pronged approach in August in our earnings calls: first being our organic growth; second being the fact that we now have a really solid and seasoned portfolio year, strong execution, good reputation in the marketplace. We have scale and the ability to integrate larger portfolio transactions into our strategy while still maintaining the granularity and the diversity.

I'd like to say brick-by-brick and then I like to say having a whole bag of bricks or showing up at doorstep. So we have looked at some. We looked at some in 2022, but I will tell you that there -- right now, we're seeing so much money in the marketplace that we're seeing a lot of larger transactions really becoming very highly competitive and sort of driving the cap rate at a point lower than we're really comfortable with. And so, we're going to continue to be patient, stick to our disciplined approach, of course.

And we're going to -- but we are definitely poised at this point in our life cycle that we think we could integrate and not dilute the story here. So, we're going to keep watching but a lot of competition there right now, Catlin.

Caitlin Burrows -- Goldman Sachs -- Analyst

Got it. So, on those potential portfolio deals that would be ones that might be more widely marketed as opposed to kind of --

Mary Fedewa -- President and Chief Executive Officer

Yes. I think we lost Catlin, but the larger transactions right now are definitely being more widely marketed.

Operator

Thank you. And our next question today comes from Todd Thomas of KeyBanc Capital Markets. Please go ahead, Todd.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Hi. Thanks. Just as it pertains to the guidance increase, I was just wondering if you could provide a little bit more detail there around the factors behind that increase. What specifically drove the improved outlook relative to when you initially provided guidance?

Sherry Rexroad -- Chief Financial Officer

Sure, Todd. This is Sherry. And if you look back to the fourth quarter beat, approximately $0.02 of the five is recurring due to interest and G&A savings from management transition. And then, of course, we have tenant picking up -- repaying their COVID deferrals.

And that is one-time, but of course, their continuing payment on their leases add to the positive momentum. So we think $0.02 of the five is recurring. You could also have additional tailwinds then from further reserve reversals and lower property costs as tenants are able to pay their taxes. So the $0.02 again is what we think is recurring, and then you could have some potential tailwinds in there.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

OK. Of the collections in the quarter that were related to previously reserved amounts, I think I heard $0.02 for the full year. What was actually realized in the fourth quarter? And then I guess -- so it sounds like that, that trend, that positive trend is factored into the guidance for '22. Can you talk about what additional reserve reversals are embedded in the guidance?

Sherry Rexroad -- Chief Financial Officer

OK. So let's address your first question, which is the fourth quarter, the excess was all in the fourth quarter, and so that was the full $0.02 that we just talked about. The -- going forward into 2022, we expect that we're going to -- has -- continue to receive the payments. And we anticipate that by the end of 2022, we'll have gone from 67%, pre fees to 83% received.

And by the end of '23, practically 100%.

Operator

Our next question on the line comes from Linda Tsai of Jefferies. Please go ahead with your question, Linda.

Linda Tsai -- Jefferies -- Analyst

Just another guidance question. In terms of the reversal of property tax accruals, I think you said it was supposed to normalize in 2022. Does that mean that there is some benefit in 2022?

Sherry Rexroad -- Chief Financial Officer

Well, we've gone from 19 basis points to 13 basis points, which are normal, would just be a few basis points less than that. Is that -- do you want it in basis points? Or do you need a different qualification?

Linda Tsai -- Jefferies -- Analyst

I guess that's fine. I was just trying to get a sense of if there was more --

Sherry Rexroad -- Chief Financial Officer

That was into 2022 if that's what you're asking. We are expecting additional property tax benefits in 2022, but it's normalized in our guidance. So the normalization is to get us below 10 basis points, so the 13 to the 10.

Linda Tsai -- Jefferies -- Analyst

OK. That's helpful. Thanks. And then just in terms of the relationship-based deals that occurred in the quarter, I think you said it was around 45%.

What does the pipeline look like for 2022? Should we expect just a higher percentage of relationship-based deals going forward?

Mary Fedewa -- President and Chief Executive Officer

Linda, this is Mary. I'd say that we should -- we'll probably back toward our one-third on relationship deals. I think right now, we're just seeing a little bit of a pickup, and the tailwinds really coming still out of COVID with some pent-up demand on our existing customers that had pipelines building and now they're executing on their pipelines. Is that helpful?

Operator

The next question -- sorry. The next question in the queue comes from Spenser Allaway of Green Street. Spenser, your line is now open. Please go ahead.

Spenser Allaway -- Green Street Advisors -- Analyst

Thank you. Can you please provide some color around the decision for Chris to leave his post on the Board? And are there any changes to the longer-term strategy that should be expected with this?

Mary Fedewa -- President and Chief Executive Officer

Yes. Spenser, this is Mary. So I just spoke a little bit about the strategy, and it remains the same. Chris and I, we're co-founders in this business, so we built this together.

And we love -- we both love the foundation and the fundamentals of this business, and they're strong in profit-center real estate brick by brick, but also the size now that we could integrate a portfolio without diluting the story. And then we're going to use -- we have a lot of proprietary data that we're spending a lot of time on understanding and integrating that into the platform to make the platform even more efficient from prospecting all the way to managing our portfolio. So, that's the strategy. It's going to be -- that's what the strategy is going to be.

As it relates to Chris, once the management transition was complete and there was no longer really a need for the executive chair role, the board felt that the company would be best served by having new independent board members with new skill sets. So as you know, we appointed Tom Kelly to the non-executive chairman of the board role. And then we have two new board members, both independent, Dave Edwards and Juha Hasan. And we're excited to have them, and we're ready to take STORE into the second decade.

And we've all worked a long time with Chris, and I guess I would like to say me personally for over 20 years. And we're excited about our next chapter, and we're really excited about his. And we wish him really and we're excited for all of us.

Spenser Allaway -- Green Street Advisors -- Analyst

OK. I mean, that all makes sense on the strategy side. I guess it's just -- it seems as though if the goal was to not have an executive chairman upon the management or the C-suite transition. Why not just have Chris have a little bit -- I mean you guys obviously overlapped.

Why have him go to the exec chair position for such a short period of time if again the angle is just to kind of get rid of that post after you have taken over the helm?

Mary Fedewa -- President and Chief Executive Officer

Well, as I mentioned, the management transition, Kathy was here. She's a 30-year veteran and CFO. It was important that we fill that position, and we're confident in that position being filled, and Chris was right alongside with us on that. So I think that was important.

But once Sherry -- we found Sherry, and then that was sort of the key management transition position that we wanted to have in place, and that's pretty solid now. So the team is solid and in place. And the position -- the executive chair position, it does come with an expense. And I think that the board had -- it was a great vote of confidence for the board that team was ready.

And that for the shareholder, we could eliminate that position and terminate the contract, and move forward, saving that expense for the shareholder.

Operator

The next question on the line comes from John Massocca of Ladenberg Thalmann. Please go ahead with your question, John.

John Massocca -- Ladenburg Thalmann -- Analyst

Good morning.

Mary Fedewa -- President and Chief Executive Officer

Hey, John.

John Massocca -- Ladenburg Thalmann -- Analyst

So, as we kind of think about the -- I guess it's maybe a little bit unfair, but the two buckets I kind of think of when I think of the investment kind of strategy for STORE, right? The direct calling bucket may be some larger, for lack of a better term, institutional customers that you might work with. I guess what is the cap rate spread between those two groups? And how have cap rates can be trended for those two groups over the last kind of 12 months?

Mary Fedewa -- President and Chief Executive Officer

Hey, John. It's Mary. So interestingly enough, regardless of the channel that the business comes into STORE, the approach is the same, and the approach is to work with the customer to ensure that we're adding value with the transaction and then asking to be paid for that value. So regardless of where the deal comes in, whether it's a bag of bricks, as I suggested, or one brick at a time or it comes in off of our indirect broker desk, even all of the approach is the same.

So, we don't a lot of variability in the cap rates here.

John Massocca -- Ladenburg Thalmann -- Analyst

OK. And then one kind of quick housekeeping question. As it relates to dispositions, we're the kind of more property management-related dispositions, all vacant assets. And if not, what was the cap rate on those dispositions?

Craig Barnett -- Executive Vice President of Underwriting and Portfolio Management

Yeah. This is Craig. The majority of the primary of the property management dispositions were the vacant properties.

Operator

Our final question on the line today comes from Sheila McGrath of Evercore. Please go ahead with your question, Sheila. Your line is now open.

Sheila McGrath -- Evercore ISI -- Analyst

Yes. Good morning, Mary. I just wondered if you could comment on net lease and historical perspective in a rising rate environment. How quickly you can move cap rates on acquisitions higher? I know Craig mentioned the four-wall coverage is much higher now, so just wondering about that.

Mary Fedewa -- President and Chief Executive Officer

Yes. You bet, Sheila. So historically, and our experience has been that cap rates do -- we will -- they will lag interest rate rises, right, interest rate increases. So they will lag.

I would say it could be as much as six months or roughly six months. But I would say that in this environment of increased competition, which is continuing to put pressure on cap rates, we could see a longer lag than that. The good news at STORE, as you know, is that we are pricing every single deal -- new deal every day and having that the environment -- the macro environment conversation with our customers and think we're in an inflationary time, interest rates are rising. And so we're having the increased cap rate discussion, and we hope to be -- continue to be effective at that.

But I would say they definitely lag in this environment with the increased money being raised, it could lag a little longer.

Sheila McGrath -- Evercore ISI -- Analyst

OK. And one other quick question. Acquisitions in '21 were $1.5 billion. Your net guidance with dispose is $1.1 billion to $1.3 billion.

What's the expected dispositions for this year? And given your pipeline, would you characterize the guidance as somewhat conservative?

Mary Fedewa -- President and Chief Executive Officer

So, I would say two things. One is we would look to about 5% in dispositions for the beginning balance for 2022 of our portfolio. I would suggest we might be on the lower end of that. And I would say that we -- from a volume perspective, we don't have any portfolio deals like baked into the volume.

And it's early, Sheila. It's really, really too early to tell, and so that's why we did not move the volume guidance because we feel pretty good about that number, and it's early.

Operator

Thank you very much. We have no further questions on the line, so I'll hand back over to Mary for closing remarks.

Mary Fedewa -- President and Chief Executive Officer

Thank you, and thank you all for participating in our call today and for your continued support and interest in STORE. We look forward to seeing some of you in person, which is pretty exciting, at our investor conferences during the next few months. And in the meantime, reach out to us. We are here to answer any questions you have and have a great day.

Operator

[Operator signoff]

Duration: 53 minutes

Call participants:

Megan McGrath -- Investor Relations

Mary Fedewa -- President and Chief Executive Officer

Craig Barnett -- Executive Vice President of Underwriting and Portfolio Management

Sherry Rexroad -- Chief Financial Officer

John Kim -- BMO Capital Markets -- Analyst

Ronald Kamdem -- Morgan Stanley -- Analyst

Tyler Maertz -- Executive Vice President, Acquisitions

Ki Bin Kim -- Truist Securities -- Analyst

Caitlin Burrows -- Goldman Sachs -- Analyst

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Linda Tsai -- Jefferies -- Analyst

Spenser Allaway -- Green Street Advisors -- Analyst

John Massocca -- Ladenburg Thalmann -- Analyst

Sheila McGrath -- Evercore ISI -- Analyst

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