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Spirit Realty Capital, Inc. (NYSE:SRC)

Q3 2012 Earnings Conference Call

November 07, 2012, 17:00 p.m. ET

Executives

Michael Bender - SVP and CFO

Tom Nolan Jr. - Chairman and CEO

Pete Mavoides - President and COO

Analysts

RJ Milligan - Raymond James

Joshua Barber - Stifel Nicolaus

Alexander Goldfarb - Sandler O’Neil

Rich Moore - RBC Capital Markets

Ross Nussbaum - UBS

Operator

Good afternoon ladies and gentlemen and welcome to Spirit Realty Capital Third Quarter 2012 Earnings Conference Call. At this time all lines have been placed on listen-only mode. (Operator Instructions) This conference call is being recorded and a replay of the call will be available beginning at 6 PM Eastern Time for one week. The dial-in details for the replay can be found in today’s press release. Additionally there will be an audio webcast available on Spirit Realty Capital’s website at www.SpiritRealty.com, an archive of which will be available for 30 days.

It is now my pleasure to turn the call over to Michael Bender, Senior Vice President and Chief Financial Officer of Spirit Realty Capital. Mr. Bender, please proceed.

Michael Bender

Thank you, Colby, and good afternoon everyone. Thank you for joining us today for Spirit Realty Capital’s first earnings conference call as a public company. Here with me to discuss our third quarter 2012 financial performance are Tom Nolan, Chairman and Chief Executive Officer; and Pete Mavoides, President and Chief Operating Officer.

Tom will review our third quarter performance and provide you with an overview of our strategic priorities in the current environment and over the near-term. I will then provide you with more specific financials and Pete will walk you through our portfolio acquisition program. Tom will wrap up or prepared remarks to the summary of our progress executing our strategy and our view of the market and the current market condition and after that we will be happy to take your question.

Before I turn the floor over to Tom, I’d like to say that during this conference call, we will make certain statements that may be considered to be forward-looking statements under 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 provision to those forward-looking statements to reflect changes after the statements were made.

I’d now like to turn the call over to Tom Nolan, Spirit Realty Capital’s Chairman and Chief Executive Officer. Please go ahead Tom.

Tom Nolan Jr.

Thank you very much Mike and thank you everyone who has joined us today for your interest in Spirit Realty Capital. This is our first earnings call, it's really my first opportunity to thank everyone for the support we received on the road show and we look forward to having a productive and informative dialogue with all of you moving forward.

Clearly, the IPO was the main headline of the quarter and I will let Mike summarize that in greater detail shortly as well as provide more detail on our financial results. But first, let me make a couple of general comments. As a public company we are confident that the Spirit is well positioned to execute on our operating and investment strategy, which we believe will deliver long-term shareholder value. A strategy is focused on both generating attractive, predictable cash flow and growing our portfolio through a disciplined acquisition program, but the ultimate goal of course to increase our cash available for distribution so that we can continue to provide an attractive and sustainable dividend for our shareholders.

Since this is our first quarterly call, I thought it will be useful to provide a quick recap of our business model. At Spirit Realty Capital we invest in single tenant operationally essential real estate throughout the United States. That is our tenants conduct activities on these site that are essential to the generation of their sales and process. We primarily in invest in properties leased in well run middle and small market companies so the attractive credit characteristics and stable operating histories.

Our tenants are primarily engaged in the retail service and distribution industries. These tenants lease the properties in a long-term triple net basis and just to remind everyone under a triple net lease the tenant is typically responsible for all improvements that contractually obligated to pay our property expenses such as taxes, insurance and repairs and maintenance.

Our business model is to deliver value to our shareholders with an emphasis on generating stable and predictable cash flows from our current roster of high quality tenants under long-term leases. We also see significant market opportunities to further expand and diversify our portfolio through a disciplined investment strategy that targets accretive investments.

We have an extensive network of tenant and broker relationships and a proven track record of underwriting acquisitions to meet those investment criteria. The scale of our portfolio also allows us to make acquisition without introducing additional concentration risk.

Speaking of concentration, we recognized that the concentration in our portfolio of the Shopko Pamida properties will attract investor interest to some times to come. And justifiably so, that as we noted in the road show it's important to emphasize that Shopko has a long history of solid stable financial performance. Additionally, the recent combination of Shopko and Pamida is a good development for our portfolio and that it creates a stronger tenant but ultimately better sales and margins.

Make no mistake as we stated on the road show, it remains our long-term goal to reduce the Shopko concentration, but in the meantime we are pleased with the solid and consistent performance of that company. In addition, because we include Shopko’s financial reports in our 10-Q and Ks, we believe this transparency will benefit Spirit as it will allow our investors to gain the comfort we do as we monitor its financial performance going forward.

Again because it's the first call, I’ve asked Mike to review the protocol that we will use to incorporate Shopko’s financial results in our SEC filings.

As we look in the future, we are on track to achieve our fourth quarter estimates and 2013 guidance as we release today. We remain convinced that the net leased real estate market offers an attractive and outside return opportunity on a risk adjusted basis. We certainly realized that we are not the only company that operates in this space, but the market is large and diverse and able to accommodate increased investment activity given the estimated over 1 trillion of U.S. real estate still held by corporate owner occupies. We are well positioned to capitalize on those opportunities and grow over the long-term.

(inaudible) that if investors put their faith in us I commit that this management team would be aligned, enthusiastic, and motivated to perform. As I sit here and cross sale today I can report that speaking for all of us, the excitement is very high and we were anxious to execute our plan on behalf of our shareholders.

Now I’d like to turn the call over to Mike Bender, our Chief Financial Officer who will take you through the detailed financials. Mike?

Michael Bender

Thank you, Tom. Before I get to this quarters financials I’d like to do two things briefly. First, I’d like to summarize the initial public offering we completed at the end of September and generated total net proceeds of $455 million including $51 million from the exercise for the underwriters over allotment option.

Note that the overallotment closed after the end of the quarter so the related cash proceeds are not reflected on our September 30 balance sheet. We used $399 million of the IPO proceeds to repay a loan of under a term note that resulted from the company’s private transaction 2007, the remaining $330 million outstanding under that term note was converted into 24.2 million shares of common stock.

Second I’d like to talk about Shopko financials. As Tom mentioned because Shopko stores is a material tenant for the company, we will be providing the financial statements of their parent and guarantor under the lease Specialty Retail Shop Holding Corporation, every quarter in our periodic SEC filings.

Since we have a January year-end those reports will be on a one quarter lag. So, for example, we would typically provide you with financial statements for their second quarter which ended July 28 in our third quarter 10Q. In this particular case we have already provided their second quarter information in the S-11 but we expect to show it again as an exhibit in our 10-Q when filed. Our next filing will be our year-end 10-K, at that time we plan to provide specialty retail third quarter financials.

Now let’s turn to our results for the quarter. In the third quarter ended September 30, 2012 we generated total revenues of $70.7 million an increase of 2.5% compared to 69 million in the third quarter of 2011. Total revenues for the nine months ended September 30, 2012 increased 2.9% to 211.1 million as compared to $205.1 million for the same period in 2011. This increase was attributed to acquisitions we have made in the last year and the built-in contractual rent increases in our existing leases.

Our G&A cost totaled $17.4 million in the quarter and included a significant amount of expenses related to the IPO and the retirement of the term loan. Specifically, we recorded $8.3 million attributable to the debt extinguishment and IPO related expenses and another 4.9 million related to IPO incentive awards, the vast majority of which were non-cash stock [grant]. Similarly, in the third quarter of last year we incurred approximately $6 million in fees directly related to obtaining those conversion rights under $330 million of the term loan. Excluding these items G&A for the third quarter of 2012 would have been $4.2 million which represents 5.9% of total revenue. Before the unique items in both periods G&A for the third quarter of 2012 was up slightly over a year ago, as we built the executive management team in preparation for becoming a public company again.

Property cost were $1 million flat in the third quarter and decreased 23.6% as a result of our higher occupancy rates compared to a year ago. Because the term loan was outstanding for almost the entire quarter, interest expense was $42.1 million and is higher than we projected would be going forward. Still interest expense was down $1.4 million from a year ago because the debt amortization we paid over the course of the year reduced our debt level. This reduction was partially offset by new loans entered into in connection with acquisition that we made.

Non-cash depreciation expenses comparable to year ago and reflects our consistent portfolio size. We had only $150,000 of non-cash impairment expense during the third quarter compared with $2 million a year ago. Under accounting rules our impairments tend to be episodic and are triggered primarily when we make a decision to sale a vacant property. Obviously, these non-cash accounting charges do not impact the cash flow generated by the portfolio.

The last detailed items to note in our results is the $32.5 million loss that we recognized on the extinguishment of the term loan. This loss was primarily attributable to the premium related to converting the $330 million of the loan. As a result of all of this, the net loss attributable to common shareholders for the third quarter was $49.9 million or $1.70 per share compared to the third quarter of 2011 a $21.2 million or $0.82 per share.

Please note that per share amounts were historic periods are based predominantly on the lower number of shares outstanding prior to the IPO, since the IPO related shares were only outstanding for the last six days of the quarter. Absence the items associated with the IPO and term note extinguishment discussed earlier the net loss attributable to common shareholders for the third quarter would have been $3.5 million or $0.12 a share.

Again driven by the items discussed earlier funds from operations or FFO for the third quarter were negative 21.8 million or $0.74 per diluted share compared to a positive 13.9 million or $0.54 per share for the third quarter of 2011.

Adjusted funds from operations or AFFO for the third quarter of 2012 totaled $28.5 million or $0.60 per share compared to $20.8 million or $0.80 per share for the third quarter of 2011. Ongoing adjustments to convert FFO to AFFO primarily consist of non-cash revenue; non-cash interest expense and non-cash equity compensation.

This quarter we invested $32.4 million in real estate properties compared to the 6.3 million in the prior quarter. Pete will extend on all of our recent acquisitions and occupancy rates later on in the call.

Contrary with the IPO we entered into a $100 million secured revolving credit facility with initial term of 3 years. Amounts available for borrowing are subject to the maintenance of a minimum ratio of the total value of our unencumbered properties as well as complying with other customary financial covenants. There were no amounts borrowed under the line at September 30, 2012.

Now I’d like to discuss guidance. Due to the cost and change in shares associated with the IPO and term loan extinguishment, we believe that estimates of FFO and AFFO per share for the full-year 2012 are less meaningful. Instead we are providing guidance for the fourth quarter alone. For FFO per share, we expect the range to be between $0.32 and $0.34. We expect AFFO to be between $0.38 and $0.40 per share. For 2013, we estimate FFO per share should range from $1.35 to a $1.40 and AFFO should range from a $1.50 to $1.65 per share. This guidance excludes impairment charges and other onetime gains or losses related to capital or other transactions and is based on current plans, assumptions and estimates and are subject to the risk and uncertainties more fully described in the press release and the company’s reports filed with the Securities and Exchange Commission.

With that I will now turn the cal back over to Pete Mavoides, our President and Chief Operating Officer. Pete?

Pete Mavoides

Thanks Mike. At September 30, 2012 Spirit Realty had a total of approximately 3.6 billion invested in real estate and mortgage and equipment loans. The portfolio primarily consisted of 1,190 owned or financed properties that are net leased on a long-term basis to 165 tenants operating in 47 states and diversified across 18 different industries. Only one state Wisconsin accounted for more than 10% of the total value of the portfolio.

As of September 30, the weighted average non-cancelable remaining term of our leases based upon annual rent was 11.2 years. At the end of the third quarter the portfolio was 98.4% occupied based upon the total number of properties owned.

Term rate we have 18 properties that are available for either leased or sale. This represents a 60 basis points increase in occupancy rate as compared to the same period a year ago. We view 98% occupancy as essentially full and we continue to work hard to release or sell these vacant properties. During the quarter we sold 7 properties for gross sales proceeds of 5.5 million. This resulted in a gain of approximately $1 million. As part of our regulatory portfolio management we identified properties that no longer fit our long-term investment objectives and we sell these properties in an effort to manage risk in the portfolio and redeploy capital more productively.

During the quarter we invested 32.4 million in 8 properties with one new tenant. This compares to 6.3 million in the third quarter of 2011. New investments for the 9 months ended September 30, 2012 totaled 86.2 million representing investments in 58 new properties leased on triple net basis to 5 tenants. These investments had a weighted average primary lease term of approximately 17 years. The weighted average initial cap rate on these investments was 8.58%. New investments for the first nine months of 2011 total 6.8 million.

An important indicator of risk in the portfolio is the unit level rent coverage which is a measure of the operational essentiality of a property or leased for our tenants. As of September 30, 2012, the average unit level rent coverage on the trailing 12 month basis (inaudible) for our top 10 and the portfolio as a whole was 2.67 and 2.63 times respectively. This compared to 2.44 and 2.49 times for the same period last year.

With that I will turn it back to Tom for some concluding remarks and Q&A.

Tom Nolan Jr.

Thank you, Pete. We believe that Spirit Realty Capital the public company is off to a good start. Portfolio is performing well and we are pleased with the acquisitions we have closed this year and are confident our future acquisitions will support our strategy of growing our predictable sustainable cash flow. As we look ahead to 2013 and beyond, we believe we are equally well positioned, we are focused on executing our business plan including reducing our leverage overtime, growing FFO and increasing our dividend coverage.

Speaking of dividends let me review our expected timing and payment. We intend to use the end of any given quarter as the record date. So, for this upcoming quarter you should expect to see a dividend declaration in the middle of December, a record date would be at the end of the month and then the payment date would be in the middle of January. We would then proceed on that basis in subsequent quarters.

It is expected that our first dividend will be $31.25 which is consistent with the amount disclosed in the S-11. We recognized we were public for short period of time in the third quarter and as such we will issue a small sub-dividend for that period. We intend to declare that at the same time as the fourth quarter dividend payment. That dividend is expected to be $0.02.

Before I open the call up to questions, I’d like to thank the team here at Spirit Realty Capital for their dedication and contributions towards the success of our IPO, and look forward to working with this talented team to grow our business and create a value for our shareholders.

At this point, we would be happy to take your questions. Operator, we will take the first question.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of RJ Milligan with Raymond James. Please proceed.

RJ Milligan - Raymond James

I was curious can you disclose one tenant was for the property required score.

Tom Nolan Jr.

It's [sportsmen’s warehouse].

RJ Milligan - Raymond James

And then I don't know if you could just provide a little bit commentary in terms of what you are seeing out there in the acquisition to market where you think the opportunity is in the next 6 to 12 months?

Tom Nolan Jr.

Sure, I don't think our view has changed, substantially since we rode on the road show. I think we believe that that was continues to be a robust market. We have certainly seen some price compression over the last 12 months, but that price compression is generally been greater the close you were at institutional or investment grade and slightly less at areas that weak typically target which is what we refer to as kind of that BB just below investment grade in a well run company. There has been some price compression there but not as much as elsewhere. And the opportunities that we are looking at I’d describe continue to be robust. I think our view is that we have more opportunities to look at then we will likely proceed with.

RJ Milligan - Raymond James

Question for Mike, in the 2013 guidance what are you assuming for acquisitions for the year?

Michael Bender

We are not targeting or not disclosing really what we anticipate to do for acquisitions, I mean obviously you can tell from the funds available what the range might be, but I think it's our position that we are going to do acquisitions when they make sense and we are really going to do the level that make sense.

Tom Nolan Jr.

I think that’s something I know it comes up from time to time and still whether companies provide guidance on acquisitions and it's not something that we intend to provide guidance. Obviously when you build the business model you put in some parameters on what you expect you are going to do, but I have just kind of felt it's something that I think you do them when the opportunity presents themselves and when there are good risk adjusted opportunity and you don't (inaudible) somehow we have been comfortable having a target out there that you feel you have to achieve as appose to transaction that you want to do and are appropriate to do.

Operator

Your next question comes from the line of Joshua Barber with Stifel Nicolaus. Please proceed.

Joshua Barber - Stifel Nicolaus

If I could just follow-up a bit on the sportsmen warehouse deal, can you talk about I guess some of the parameters that you are looking out for that and for other deals specifically namely cap rate on those deals and what your EBITDA coverage would have been?

Tom Nolan Jr.

We are always reluctant to talk about individual transactions and I think that’s why when you heard Pete’s description at the beginning of few sections on acquisitions. We are happy to give aggregate data for year-to-date data what our average cap rate is. But if you can imagine these are individual negotiations that occur with these tenants and we are very reluctant to have individual data on any given single transaction out there. I will say that in terms of the as we were out on the road show and folks asked us where we saw our pricing parameters today, I think they are reasonable consistent with what Pete described as the average for what we have done year-to-date again they may have tightened a little bit since then, but these transactions, all of the transactions we have done were within that zone.

Pete Mavoides

And as we disclosed in our S-11 we generally target to maintain a portfolio average of around BB flat credit profile, we generally target minimum unit level coverage of two times and we are generally targeting a range of 18.5 on acquisitions. So, those general parameters are guidelines not setting stones but that it can give you a sense.

Joshua Barber - Stifel Nicolaus

I guess when we are looking at it post IPO; I guess our estimate was you guys had around 105, $110 million of cash. You bought about 35 million of assets in the quarter and you have 45 million of cash at the end of the quarter. Was our post IPO number a bit too higher, were there other uses of cash during the quarter. Can you help me reconcile those numbers and where your current cash balance is?

Michael Bender

There is 45 in the quarter again is the (inaudible) so entering October if you will you are about $105 million. But you are talking about third quarter?

Joshua Barber - Stifel Nicolaus

What is your cash balance today?

Michael Bender

45, 930 plus another 60 as 105 roughly and then sportsmen’s transaction was 45 million. So you are backing about 60 million.

Tom Nolan Jr.

And the sportsmen transaction closed after the quarter as (inaudible). So we made reference to that transaction but it closed right after the quarter.

Joshua Barber - Stifel Nicolaus

What is the amortization other uses of cash or can you help us reconcile the AFFO number to a fatter recurring cash flow number and I guess principle repayments probably shouldn’t defer that much from the red but can you give us some idea of where that is.

Tom Nolan Jr.

You see in the maturity schedule is always the best way I think to look at that; it's in the financial statement footnote. And you see the (inaudible) tends to be pretty consistently around $40 million for 2013 and $43 million. One thing to note as you look at cad and go from AFFO to cad, from my perspective I add back in just as I take out debt amortization I add back in principle payments that I receive and I actually get about $5 million a quarter of principle payments on my loan portfolio.

Joshua Barber - Stifel Nicolaus

So, it's $5 to $6 million every quarter?

Tom Nolan Jr.

Yes.

Operator

Your next question comes from the line of Alexander Goldfarb with Sandler O’Neil. Please proceed.

Alexander Goldfarb - Sandler O’Neil

So, let’s go to the dividend first. On the quick number that we used the 162 midpoint, and the 43 million of amort that’s about rough number somewhere in 8 to 10 million shortfalls, but you were saying is you are getting 5 million a quarter in principle amortization. So, really you are going to have net 10 million of cash left over for 2013, is that correct?

Michael Bender

Yes, roughly.

Alexander Goldfarb - Sandler O’Neil

The share count we should be using for the fourth quarter and for next year is that 85 million diluted shares correct?

Michael Bender

The share for purpose of the dividend as you know is 84.851 million that’s the total number of shares outstanding, now the (inaudible) gets tampered a little bit in terms of the FFO per share because (inaudible) share that are granted but not yet vested to our employees actually get a little bit of pullback on that for the numbers if light of the 84.9.

Alexander Goldfarb - Sandler O’Neil

So, should we be using them?

Michael Bender

For fourth quarter roughly 84 million shares. And for 2013 it grows a little bit say 84.4.

Alexander Goldfarb - Sandler O’Neil

And then I understand that you are not giving acquisition guidance number, but in your guidance for next year, presumably there is some level of acquisition that’s contemplated in that correct?

Tom Nolan Jr.

Correct.

Alexander Goldfarb - Sandler O’Neil

On a go forward basis are you going to be providing your total square footage or sort of a same store NOI breakout?

Tom Nolan Jr.

On the square footage, that’s something that in this particular space in the triple net space I think people have found it's just it's not terribly meaningful given kind of a unique operation and essentiality of the space. So, the convention I think is it doesn’t get used. The second one we haven’t thought about. Same store break out in what sense?

Alexander Goldfarb - Sandler O’Neil

Just the same store NOI just so we have a sense for how much the same store pool is growing year in year out?

Tom Nolan Jr.

I think that something we will take a look at Alex, and we don't, our portfolio doesn’t change that much. We got over 1000 properties and you heard from Pete we are adding 8, 9 at a time and selling 4 and 5. It is not usually materially but it's something we will look at.

Alexander Goldfarb - Sandler O’Neil

Tom, you spoke about a trillion of owner occupied properties out there, just sort of curious as you look over the landscape where do you see the most opportunity as far as either geography or product type or asset size. And obviously asset size could be part of a large portfolio, but just a little more granularity of that.

Pete Mavoides

We certainly see investment opportunities across all of the industries currently represented in the portfolio and we will focus to maintain the current diversity that we have within the portfolio. We said on the road and we continue to expect to see some focus in the C store space which is area that we are underweighted we believe. In terms of property size, the average property size in the portfolio is around $3.5 million and we like that granularity and we seek to maintain that granularity going forward. And so I don't see, I think you would see us move dramatically away from that and go by large chunkier assets. We like the small bite size assets and that’s kind of where we are going to focus.

Operator

Your next question comes from the line of Rich Moore with RBC Capital Markets. Please proceed.

Rich Moore - RBC Capital Markets

N the line of credit $100 million it seems small to me. I mean I realize you haven’t given any guidance for how much you might do in terms of acquisitions but you can do whole lot of them given the size of the company. Is that global or you think it growing in or you just going to be patient for a while with it?

Tom Nolan Jr.

(Inaudible) on the other hand you don't want to pay for something a lot that you are not intending to use right away. And one of the things we felt strongly about was this company has been around for a while it had a track record, but it hasn’t been public for a while and you get some from our perspective I think you get some credit (inaudible). And so our perspective is we will be in a much better position to negotiate a more robust capital structure in terms of the line, after we’ve had some a couple of these calls under our belt and we have so called done with we said we were going to do type of view. And we did as we said in the road; we had reasonably modest acquisition targets for the year realizing that again we didn’t want to be overall aggressive and so we are very comfortable between the cash on hand and the line that we have we can easily execute what we had articulated.

Rich Moore - RBC Capital Markets

On the disposition, I certainly why you wouldn’t give acquisition guidance I mean that little more difficult I guess to [ascertain] but on the disposition front, I mean what kind of pool of properties which you say you are think about disposing over the next couple of years?

Tom Nolan Jr.

I don't think it's usually material, first of all. I think we like our portfolio and we like the industries that we are in. I think we used this for the 18 different industries I believe when we were on the road. There are a couple of assets that don't fit our investment criteria and I think we have identified those and if can find appropriate pricing for those, I’d expect that we will be looking to deploy the capital. But I’m happy to say that we do like the portfolio and so I don't think you are going to see (inaudible).

Rich Moore - RBC Capital Markets

It looks like the Shopko exposure is already down which is a great start, but I’m curious do you have the Shopko rent coverage number, can you disclose that?

Tom Nolan Jr.

We haven’t disclosed it. I think we obviously disclosed the top 10 coverage and Shopko is when you do the math, Shopko is a very significant component of the top 10. But again Shopko is a private company, we have an excellent relation, we are in dialogue with them all the time, but we are also sensitive. They have obligations to provide this information that we then publicly disclose but we are very sensitive about disclosing information for what is a private company outside of what they are obligated to give us because I found often when you do that then they tend not to share subsequent information going forward. So, I think we want to be careful but we did feel that statistic that Pete referenced which is the coverage ratio. It's the model that we use, it's the statistic we cover very carefully and we felt in the effort to be transparent and to allow people to track our performance going forward that would be something that we would begin to disclose this first call and obviously we will continue to do subsequently. So, the 2.67 number that Pete disclosed again that’s our top ten tenants but again Shopko has a pretty big component of that.

Operator

(Operator Instructions) Your next question comes from the line of Ross Nussbaum with UBS. Please proceed.

Ross Nussbaum - UBS

Can you give us some intel on what you have in your immediate investment pipeline in terms of anything that’s out signed contract under letter of intent; is there anything that we should be thinking about sort of in the next couple of months?

Tom Nolan Jr.

No, I think that’s it's just as a matter of protocol. I this company will be a company that when we close on something we will announce it. I don't like to announce letters of intent or either. Again I think that’s, my experience is that (inaudible) and we have got we are looking at a lot of things, but I just don't want to be in a position where we are suggesting we are going to be closing something any given time and in the future.

Ross Nussbaum - UBS

On the 100 million line of credit is that fully available today or is it a lesser number based on the borrowing base.

Tom Nolan Jr.

Fully available.

Ross Nussbaum - UBS

And then on Shopko, Tom I think you and I have spoken since the news broke that their CEO resigned following your IPO. Can you give us any of your thoughts on how that impacts Shopko going forward? I think certainly caused me off guard particularly since it came so close on the heels of the merger that they have done earlier this year.

Tom Nolan Jr.

I’m happy to do that. First of all, I liked Paul, I thought he was a very good CEO, it also caught us by surprise and Paul has been terrific working with us and again I made this comment many times on the road show and the Shopko has been much more forthcoming and Paul has been much more open as had its staff then contractually necessarily had to be and we had a very good working relationship with them. And so I was disappointed that he left but that was more probably on a personal level necessarily then on a professional level.

Ross Nussbaum - UBS

But is there anything you can tell us about how their back to school sales went, I think one of the questions about the disclosure that I guess, we are not going to get Shopko’s financials until your 10-K, and that’s we are talking how we went March of 2013 and that’s only going to reflect. Is there anything you can give a sort of in terms of how they did during the back to school season to give us an idea of how things are trending into the holiday season?

Tom Nolan Jr.

There is nothing I can share.

Operator

Your next question is a follow-up from the line of Joshua Barber. Please proceed.

Joshua Barber - Stifel Nicolaus

Pete I think you mentioned before you were looking for about $5 million principle repayments from the loan portfolio. I thought the portfolio had more like 5 to 6 year duration, and I see it's only about 50 million bucks. Is that really just a two year duration that’s it's paying down on the next 2.5 year's getting about 20 million of repays.

Pete Mavoides

It is paying down and you can see that in our interest income line, that portfolio is diminishing and it's important which of course we like. We certainly prefer the having the lease property and the lease portfolio as appose to the loans.

Joshua Barber - Stifel Nicolaus

So the duration is 3 years.

Pete Mavoides

That’s right.

Operator

That concludes the Q&A portion of today’s call; I will turn the call back to Mr. Tom Nolan.

Tom Nolan Jr.

Alright well thank you everyone for your interest in our first call and for calling in to our call today and we look forward to speaking to everyone in the future. Thanks everybody, have a good night.

Operator

That concludes today’s call, you may now disconnect. Thank you and have a great day.

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