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STORE Capital Corp (NYSE:STOR)
Q4 2019 Earnings Call
Feb 20, 2020, 12:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, and welcome to the STORE Capital Fourth Quarter 2019 Earnings Webcast. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions.[Operator Instructions]
I'd now like to turn the conference over to Ms. Moira Conlon. Please go ahead.
Moira Conlon -- Founder and President
Thank you, and thank you all for joining us today to discuss STORE Capital's Fourth Quarter 2019 Financial Results. This morning, we issued our earnings release and quarterly investor presentation, which includes supplemental information for today's call. These documents are available in the Investor Relations section of our website at ir.storecapital.com under News and Results, Quarterly Results. I am here today with Chris Volk, President and Chief Executive Officer of STORE; Mary Fedewa, Chief Operating Officer; and Cathy Long, Chief Financial Officer. On today's call, management will provide prepared remarks, and then we will open the call up for your questions. In order to maximize participation while keeping our call to an hour, we will be observing a 2-question limit during the Q&A portion of the call.
Participants can then reenter the queue if you have follow-up questions. Before we begin, I would like to remind you that today's comments will include forward-looking statements under the federal securities laws. Forward-looking statements are identified by words such as: will be, intend, believe, expect, anticipate or other comparable words and phrases. Statements that are not historical facts, such as statements about our expected acquisitions, dispositions or our AFFO and AFFO per share guidance for 2020 are also forward-looking statements. Our actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings, including our reports on Form 10-K and 10-Q.
With that, I would now like to turn the call over to Chris Volk. Chris, please go ahead.
Christopher H. Volk -- President, Chief Executive Officer And Director
Thank you, and good morning, everyone, and welcome to STORE Capital's Fourth Quarter 2019 Earnings Call. With me today are Mary Fedewa, our Chief Operating Officer; and Cathy Long, our Chief Financial Officer. For the fourth quarter of 2019, we achieved record investment volumes with investment activity of nearly $540 million, while adhering to the granularity and diversity that we're known for. Mary will run through the numbers with you, but I will say that the fourth quarter capped a very successful year for us and evidences the ongoing success we have made over the past several years to penetrate the large market that we address. During 2019, we invested nearly $1.7 billion in acquisitions and accretively sold close to $430 million in real estate investments. At the same time, our portfolio remained extremely healthy, with an occupancy rate of 99.5%, and with continued stability in the percentage of net lease contracts rated investment-grade in quality based upon our STORE Score methodology. Mary will give you more information about our property investments and sales activity as well as our portfolio health. We raised our dividend by 6.1% in the third quarter, which, as a reminder, was our fifth consecutive year of raising our dividends in a meaningful way.
Even so, our dividend payout ratio for the fourth quarter was right at 70% of our adjusted funds from operations on a per share basis, serving to continue to provide our shareholders with a highly protected dividend. Our AFFO per share growth was a strong 8.2% for the year, which benefited from activity timing that Cathy will discuss. As always, our reported growth benefited from strong underlying internal growth with contributions from contractual lease escalations averaging 1.8% annually and reinvested cash flow after dividends, enabled by our conservative 70% AFFO payout ratio. The accretive recycling of asset sales proceeds was also a modest contributor. We combined our internal growth with external growth that was accretively funded through new share issuances, which for the past few years have been successfully funded through our efficient at-the-market program. Such equity issuances have enabled us also to maintain a consistently conservative leverage profile. For the fourth quarter, our funded debt-to-EBITDA on a run rate basis was 5.5 times, which we have maintained at the lower end of our guidance range for more than a year. At the end of 2019, our pool of unencumbered assets stood at over $5.3 billion, or slightly over 60% of our investments, providing us with unprecedented flexibility in our financing options.
By the end of 2020, we anticipate that this percentage will rise to roughly 66%, which has been our stated target. Now as I do each quarter, here are some statistics relevant to our fourth quarter investment activity. Our weighted average lease rate during the quarter was approximately 7.7%, which is slightly lower than our trends in early 2019. For the year, our weighted average lease rate approximated 7.8%. The average annual contractual lease escalation for investments made during the quarter approximated 1.8%, providing us with a gross rate of return, which you get by adding the lease escalations to the initial lease rate of about 9.5%. Add in corporate leverage in the area of 40%, and our leverage investor return will approximate 13% with net returns after operating costs in the 12% range. Our outperforming investor returns from STORE and from predecessor public companies have been mostly driven by having favorable property level rates of return, which is why we take the time to disclose investment yields, contractual annual lease escalations, investment spreads to our cost of long-term borrowings and our operating cost as a percentage of assets, which are the four essential variables that enable you to compute expected investment rates of return. The weighted average primary lease term of our quarterly new investments continues to be long at approximately 17 years. The median post overhead unit level fixed charge coverage ratio for assets purchased during the quarter was 2.2:1.
The median new tenant Moody's risk credit rating profile was Ba3. Incorporate the potent contract level fixed charge coverages and the median new investment contract rating or STORE Score for investments is far more favorable at Baa1. Our average new investment was made at approximately 75% of replacement costs. 100% of the multiunit net lease investments that we made during the quarter were subject to master leases. And all 103 of the new assets we acquired during the quarter are required to deliver us unit-level financial statements, giving us unit-level financial reporting from folding 98% of the properties within our portfolio. This impressive fact is critical to our ability to evaluate contract seniority and real estate quality as well as to our access to capital, including our recent second issuance of AAA-rated master funding notes in November of last year, which also included our inaugural issuance of 15-year notes.
And with that, I will turn the call over to Mary.
Mary Fedewa -- Chief Operating Officer And Director
Thank you, Chris, and good morning, everyone. 2019 was another strong year for us. In the fourth quarter, we made $537 million in real estate acquisitions at a weighted average cap rate of 7.7%. This brought our 2019 acquisitions total to about $1.7 billion, with a weighted average cap rate of 7.8%. We profitably divested approximately $430 million in real estate investments and our net investment activity for the year was nearly $1.3 billion, which exceeded our net investment guidance of $1.1 billion by more than 14%. Our investments for the quarter were spread across 43 separate transactions at an average transaction size of about $12.5 million. We added 21 new customer relationships and closed the quarter with more than 475 customers, further diversifying our granular portfolio of net lease assets. In 2019, we sold 95 properties for an aggregate gain over cost of about $23 million or approximately 5% over cost. This gain included about $4 million of lease termination fees we collected in connection with a few of our sales. Of the 95 properties, 22 were opportunistic sales, resulting in a 19% net gain over original cost, 58 sales were strategic and resulted in a 7% gain over cost, and the remaining 15 locations were sold as part of our ongoing property management activities and resulted in a 72% recovery compared to original cost. The higher level of dispositions this year reflects the size and maturity of our portfolio, as portfolio management becomes a larger part of our business. Now turning to our portfolio highlights.
At year-end 2019, our portfolio mix remained steady, with 65% of properties in the service sector, 19% in experiential retail and the remaining 16% in manufacturing. The customers within our top 10 remain unchanged, with our largest customer, Fleet Farm Group, representing just 2.8% of annualized base rent and interest. Our top 10 customers accounted for just 17.9% of base rent and interest. In terms of portfolio performance, 2019 was consistent with our long-term performance averages, resulting in no movement in our average internal growth components, which we disclose once a year. Chris will discuss this in more detail later in this call. But I would like to share some information on Art Van Furniture, which is one of our top 10 customers. We own 23 Art Van stores, which represent only about 2.5% of our annualized base rent. We receive quarterly financials for all of our Art Van stores, and these properties have been profitable. We are in active discussions with the company, and we will continue to monitor this situation. Working through tenant issues has always been a part of what we do, and we have done this successfully for over 30 years in the business. Since our IPO in November of 2014, we have successfully resolved two bankruptcies within our top 10, and still provided strong returns to our shareholders. In that time, we have grown our dividends 40%, and our AFFO per share approximately 43%, with most of the growth derived from internal growth. We have also built a very diverse portfolio. Therefore, any single credit event cannot meaningfully impact our AFFO. I think this is also a good opportunity to highlight our special servicing team. Vacancies remained very low in the fourth quarter due to our strong tenant partnerships and our active portfolio management. At year-end, only 12 of our more than 2,500 property locations were vacant.
We have already identified solutions for four of these assets. Since our first quarter as a public company, we have maintained our list of vacant properties not subject to a lease at an average of well under 10 properties for each of these 20 quarters. At the same time, during 2019, we lowered our list of vacant and pain properties from 30 to 24. While this statistic is not often reported, we believe it is important and is reflective of our quality staff and deserving of attention. We have made substantial investments in our special servicing group to achieve this consistency. As we enter 2020, our pipeline remains robust and diverse, and we will continue to be highly selective in the investments we make. Our direct origination team continues to identify attractive new opportunities across a variety of industries that will bolster our already diversified portfolio. Our business thrives on strong customer relationships. We have continued to reinforce these relationships over the past four years by investing in and giving back to our customers with our annual conference, the Inside Track Forum, which we recently held here in Scottsdale. A leading economist, a futurist, capital markets experts and even a celebrity business and motivational keynote speaker, John Taffer of Bar Rescue, were all on hand to provide exclusive insight and actionable ideas to our customer attendees. This year's event was our biggest and best ever, and we're looking forward to providing our customers with another informative experience next year.
With that, I'll turn the call over to Cathy to discuss our financial results.
Catherine Long -- Chief Financial Officer, Executive Vice President and Treasurer
Thank you, Mary. I'll begin by discussing our financial performance for the fourth quarter and full year 2019, followed by an update on our capital markets activity and balance sheet. Then I'll review our guidance for 2020. Beginning with the income statement. Fourth quarter revenues increased 18% from the year-ago quarter to $173 million. The annualized base rent and interest generated by our portfolio in place at December 31, increased 16% to $714 million. Total expenses for the fourth quarter were $125 million as compared to $105 million in the fourth quarter of 2018. Just over 1/3 of the increase was due to higher depreciation and amortization expense related to our larger real estate portfolio. Interest expense increased by $5.6 million to $41.6 million, primarily due to additional long-term debt issued to fund investment activity. G&A expenses for the fourth quarter were $14.5 million, up from $12.5 million a year ago, reflecting the continued growth of our portfolio and associated staff additions. As a percentage of our average portfolio assets, G&A expenses, excluding the impact of noncash equity compensation, decreased to 50 basis points of average portfolio assets during the quarter from 53 basis points a year ago. Property costs for the fourth quarter increased by $1.6 million year-over-year.
Approximately 75% of that increase was related to the new lease accounting standards that now require us to present items such as impounded property taxes and the ground lease payments our tenants make on our behalf on a gross basis as both rental revenue and property costs. On an annualized basis, excluding the lease accounting gross up, property costs totaled about eight basis points of average portfolio assets, unchanged from the year-ago quarter. During the quarter, we recognized an $8.8 million impairment provision related to our real estate portfolio. The majority of the impairment provision relates to properties we're likely to sell. We delivered another quarter of strong growth in AFFO and AFFO per share, with AFFO increasing 16% to $120 million from $103 million a year ago. On a per share basis, AFFO was $0.50 per diluted share, a 4.2% increase from $0.48 per diluted share a year ago. Full year 2019 AFFO increased 21% to $458 million or $1.99 per basic and diluted share. This represents year-over-year growth of 8.2% on a diluted per share basis. Our 2019 AFFO results were strengthened by higher revenues due in part to earlier-than-expected timing of real estate acquisition activity during the year.
Most recently, our fourth quarter acquisition activity, which has traditionally been heavily back-end weighted, showed strong and early October and November volume in addition to our normally heavy December activity, enabling us to capture more revenue in 2019. Higher revenues were coupled with lower-than-anticipated interest costs due to the overall low interest rate environment during the year and to the low rates we were able to achieve on our fourth quarter master funding debt transaction. Now turning to our capital markets activity and our balance sheet. We funded our acquisition volume during the quarter, with a combination of cash flow from operations, proceeds from property sales, temporary borrowings on our revolving credit facility, proceeds from our ATM equity program and our mid-quarter master funding debt issuance. We continue to take a strategic approach to accessing the debt markets. In November, we completed the issuance of $508 million of notes under our STORE master funding program, including $326 million of AAA-rated notes and our first ever issuance of 15-year notes. The weighted average interest rates on the new notes are 3% on the 7-year notes and 3.95% on the 15-year notes, for a blended rate of 3.71%.
We used a portion of the proceeds to prepay without penalty $186 million of master funding notes with a weighted average interest rate of 4.22% that were scheduled to mature in 2020 and 2021. The remaining proceeds were used to pay down borrowings on our revolving credit facility and to fund the acquisitions. As a result of these financing activities, at December 31, our long-term debt was just over $3.6 billion, its weighted average maturity had increased from six years to about seven years, and our weighted average interest rate decreased slightly to 4.3%. Substantially, all our long-term borrowings are fixed rate and our debt maturities are intentionally well-laddered, with a median annual debt maturity of about $275 million. Beyond our extendable $100 million term loan originally issued in March 2017, we have no significant debt maturities due in 2020. We expect that our free cash flow, which represents cash from operations after dividends, plus proceeds from property sales will more than cover debt maturities coming due in any one year for at least the next several years. At December 31, our leverage ratio was at the low end of our target range at 5.5 times net debt-to-EBITDA on a run rate basis, or around 40% on a net debt-to-cost basis. Our ATM program continues to be a very effective way for us to raise capital, given the granular size of our acquisitions. During the fourth quarter, we launched our fourth ATM program in the amount of $900 million. We used this program to issue five million shares of common stock during the quarter at an average price of $39.79 per share, raising net proceeds of approximately $198 million.
Over the course of 2019, we issued over 18 million shares of common stock under our ATM program, at an average price of $35.72 per share, raising net proceeds of approximately $650 million. All told, we're well positioned for the year ahead with substantial financing flexibility, conservative leverage and access to a variety of attractive options to fund our large pipeline of investment opportunities. Going into 2020, we have about $700 million available under our ATM program and the full $600 million of capacity under our credit facility, which also has an $800 million accordion feature. At December 31, approximately 60% of our gross real estate portfolio was unencumbered, which is consistent with 2018. In 2020, we intend to issue primarily unsecured debt and expect our level of unencumbered assets to trend higher during the year. Now turning to our guidance for 2020. We are affirming our 2020 guidance first announced in October, and currently expect 2020 AFFO per share to be in the range of $2.05 to $2.09, based on projected net acquisition volume of approximately $1.2 billion. Our AFFO guidance is based on a weighted average cap rate on new acquisitions of 7.7% and a target leverage ratio in the range of 5.5 to six times run rate net debt to EBITDA. Our AFFO per share guidance for 2020 equates to anticipated net income, excluding gains or losses on property sales of $0.98 to $1.01 per share, plus $0.99 to $1 per share of expected real estate depreciation and amortization, plus approximately $0.08 per share related to items such as straight line rents, equity compensation and deferred financing cost amortization. It's still early in the year, and as always, we'll reassess guidance as we progress through the year.
And now I'll turn the call back to Chris.
Christopher H. Volk -- President, Chief Executive Officer And Director
And thank you so much, Cathy. As is usual, and before turning the call over to the operator for your questions, I'd like to make a few comments. First, this is our annual results conference call, which means that certain annual slides in our quarterly investor presentation have been updated. Chief among them are the revenue internal growth walk in the appendix on page 44, which starts off with our average gross expected revenue growth for tenant lease escalations and reinvested cash after dividends, and then walks through the components of what I intend to call rent growth drag, which is illustrated on a historic average basis. We elect to use averages because lease contract performance can exhibit year-to-year volatility that can mask the overall long-run corporate business model. That said, keen observers of this page will want to look at the degree to which variables have altered, which can provide insight to whether 2019 was a better or worse year from a drag perspective in our prior 2018 historic disclosure. It was on about par with the long-run average, which is why the numbers were little changed. Drag starts with the accretion from asset sales, which averages 10 basis points of average assets annually. Then move us to the net losses from resolved contract credit events. On average, resolved credit events amounted to 1% of average assets annually, of which recoveries averaged 73.7% before associated costs, which is high by comparison with other credit-based contractual instruments.
Our historic recovery after associated expenditures amounts to about 71%, which is also high, adds to the roughly 30 basis point drag from these resolved credit event losses, another 20 basis points on average for unresolved credit events, which we tend to refer to as work in process, and you arrive at about an approximate 50 basis point average historic credit loss drag. To track that from our average 1.8% annual lease escalator, and you arrive at effective long run, same-store rent moves, on average, approximately 1.3% annually. The 10 basis point accretion from property sales gains tends to lessen the impact of this growth dilution. As a percent of revenues, losses from credit events would be a bigger number. We tend to illustrate everything as a percentage of assets, which makes this business model evaluation and demonstration simpler. Altogether, the internal revenue growth tends to average around 3.4% before leverage of approximately 40%. After leverage, the growth is around 5% or so, less an impact for stock-based compensation to STORE staff, which we estimated to amount to about 20 basis points in 2019. Another chart that we update annually is on page 43, just before the internal growth walk, and delves into our comparable asset sales activity and accretion for 2017, 2018 and 2019.
That accretion and our property sale cap rates are illustrated net of associated closing costs and sales commissions, which is key to making an accretion analysis. Given the sporadic timing of this asset sales activity, we elect to illustrate its AFFO impact only once a year. STORE has been a leader among our peer public companies in asset sales and accretive asset sales. We have worked to make our quarterly presentation not something that simply delivers a lot of data. STORE has a distinctive business model, and our quarterly presentation is intended to walk you through the contributors and detractors to our performance. We want to do the best that we can to connect the dots for you. Then annually, I write a letter to delve into our performance and observations a bit deeper. This year's letter will be posted on our website tomorrow, concurrent with our 10-K filing.
And with these comments, I'd like to turn the call over to the operator for any questions.
Questions and Answers:
Operator
[Operator Instructions] First question comes from Nate Crossett, Berenberg. Please go ahead.
Nate Crossett -- Berenberg -- Analyst
Hey guys, thanks for taking my question. I appreciate the comments on Art Van. Can you give us any color on current rent coverage for those? Is it over 2? Or where do you stand on those assets in terms of rent coverage?
Christopher H. Volk -- President, Chief Executive Officer And Director
Nate, this is Chris, and I'll our median portfolio coverage is around two. I'd say the Art Vans are kind of in that area.
Nate Crossett -- Berenberg -- Analyst
Okay. Maybe just current thoughts on furniture in general, is this an Art Van-specific issue? Or is this a furniture business issue? I mean, it looks like you bought one furniture store in the quarter? And how is like Ashley's doing, I guess?
Mary Fedewa -- Chief Operating Officer And Director
Yes. So hey, Nate, this is Mary. We would say this is definitely an Art Van issue and not a systemic issue across the furniture space. We like the furniture space, all the furniture customers are doing just fine. And the we did we actually relet an empty box into a furniture to a furniture operator. So that was the one you saw there. But we are still we still like the furniture space.
Nate Crossett -- Berenberg -- Analyst
Okay. And are there any other kind of issues out there that we should be aware of? I know you have some Pizza Huts, there was an article about NPC out the other day. Is there anything else out there we should be tracking for you guys?
Mary Fedewa -- Chief Operating Officer And Director
Yes. Hey Nate, this is Mary again. So we do not have any NPCs, we have a very small exposure to a few Pizza Hut franchisees, so less than 40 basis points there. And we, too, are aware of the handful of restaurant news that's out there. I would say that what we have a little bit of exposure on a couple of those, again, collectively, less than 60 basis points, strong master leases. We don't expect to see any issues from them. All operator specific, oh, by the way, as well. So no systemic issue in the restaurant space we see as well.
Nate Crossett -- Berenberg -- Analyst
Okay, thank.
Mary Fedewa -- Chief Operating Officer And Director
You that.
Operator
Next question comes from Shivani Sood, Deutsche Bank. Please go ahead.
Shivani Sood -- Deutsche Bank -- Analyst
Hey. Hi. Thanks for taking the question. I appreciate that STORE is somewhat limited in terms of what you can say on Art Van, but there was some commentary several quarters ago about tethered versus untethered leases. And I think it came up at the Art Van locations are tethered. So I guess, how does that change if you guys wanted to proactively retenant or sell some of these properties during the potential filing process?
Christopher H. Volk -- President, Chief Executive Officer And Director
Yes. So the concept well, thanks for the question. This is Chris. The concept of tethered versus untethered, is one where you're asking, can the stores stand alone independently, and with some retail changes, especially that they really can't because they're tied to distribution centers, they're tied to each other in a way that they have a central buying group, that kind of stuff. Whereas Burger King, to get a Burger King franchisee or in the case of NPC, which we don't have exposure to, but you can have a Pizza Hut franchisee, they could go bankrupt and they could close down 90% of the stores hypothetically, and the other 10% can live. So that's an untethered situation. So in the case of a tethered situation, you're a little bit the variables are a little bit greater. So you're looking to see, to reorganize an entire company. So I would tell you that if you look at our Gander Mountain stores, the Gander Mountain stores were profitable that we had. I'm sure there were a ton of profitable Toys "R" Us stores, and these are chains that cease to exist. We, right today are cautiously optimistic that, that will not happen to Art Van. I mean, this is a chain that is one of the largest employers in Michigan. It has amazing brand equity, and it has prospered for 60 years, including not even having a blip through the great recession. So and so they've had issues that are kind of distinctly their own, and hopefully, we'll be able to work through those. But time will tell. And the fact that it's tethered a little bit elevates some of the risk and elevates some of the outcome possibilities.
Shivani Sood -- Deutsche Bank -- Analyst
That's great color. And I think, Mary, you had mentioned that portfolio management would become a greater part of the business as the portfolio continues to scale. So as we think about G&A over the next year, I guess, how much growth should we expect to see in this line item?
Mary Fedewa -- Chief Operating Officer And Director
Cathy will talk about the G&A.
Catherine Long -- Chief Financial Officer, Executive Vice President and Treasurer
Yes, this is Cathy. So G&A has been trending about 50 basis points of average assets. And we anticipate that as a pure number, it will go up as we add staff in some affairs, but as a percentage of the portfolio, it'll continue to trend down slowly.
Christopher H. Volk -- President, Chief Executive Officer And Director
And you'll see in my letter that will come out tomorrow, what we tend to do is look at the G&A and the property costs, and we're evaluating our business model, we're not just looking at G&A. We're looking at property costs. And when we're doing it, we're backing out reimbursable property costs that basically are getting to the things that are unreimbursable. And then you're looking at G&A, you're backing out things like noncash stock-based compensation, because that's basically creating 20 basis points of AFFO drag. But that's but the number itself in AFFO is sort of an algorithmic number. So if you back all that stuff out, and you compare the aggregate of those two costs from year-to-year, the delta between 2019 and 2018 is something like 40 basis points or something like that or is no, excuse me, it's four basis points. So it's not that much, right? So it's I think the G&A was like 50 basis points and the property management cost is like seven basis points or something, and the year before that, it was a few basis points less. So it's not like we're it's not like there's a lot of scale here. I mean and besides, the net lease space has the highest profit margins, like that exist. I mean, period, the end, I mean, if you're comparing it to almost any other business in the world, any other real estate-type related business. So the juice here for you as investors is not for us to figure out a way to lower our G&A expenses by four basis points. It's basically to do more business and to do business at cap rates that are really truly accretive to you.
Shivani Sood -- Deutsche Bank -- Analyst
Thank You.
Operator
Next question is from Frank Lee of BMO. Please go ahead.
Frank Lee -- BMO -- Analyst
If we look at your investment pipeline activity this quarter. It looks like the number of deals passed and closed increased by $1 billion from 3Q. I know part of this is due to the strong deal volume to close on during the quarter. But curious to know if you also decided to pass on more deals in 4Q, if any reasons for that, if any?
Mary Fedewa -- Chief Operating Officer And Director
Yes. Hey Frank, it's Mary. You're exactly right that I would attribute that more to good activity in the fourth quarter as opposed to maybe more less new opportunities added or more have passed on. So and again, it's a quarter, so these things will bump around quarter-to-quarter as you can expect.
Frank Lee -- BMO -- Analyst
Okay. And then you also collected $4 million of lease term fees last year. I know you exclude them from AFFO, but just curious to know what generally has been the run rate for term fees? And if you have any in your 2020 models?
Catherine Long -- Chief Financial Officer, Executive Vice President and Treasurer
Yes, it's Cathy. We don't really project to have them. They're kind of sporadic, which is part of why we don't include them in AFFO, so you'll notice we back them out. So I don't project that there are going to be any material fees in 2020.
Christopher H. Volk -- President, Chief Executive Officer And Director
Yes. I think, Frank, this is Chris, is that the lease termination fees tend to be associated with people wanting to walk away from a property. So they have a property, it's subject to a lease, they'd like to go dark on it. And so we cut a deal with them. And so part of the lease termination fee tends to be associated with the sale of that asset, and because it's associated with the sale of the asset, what you'll see in the disclosure on property sales activity and gains is they were taking lease termination fees and including it in that number as opposed to putting into AFFO. So we're treating it sort of like a gain on sale of property, which you would back out of AFFO.
Frank Lee -- BMO -- Analyst
Okay, great. Thank you.
Operator
Next question comes from Haendel St. Juste of Mizuho, please go ahead.
Haendel St. Juste -- Mizuho -- Analyst
Hi, there, everyone. So Chris, I guess, in the past, you've talked about being able to generate the 4% to 5% AFFO growth with no external growth? And so just considering the guide, again, for this year, about 4% AFFO growth, that includes $1.2 billion of net acquisitions. I guess, I'm curious, how do I reconcile that? Should we be reading that as maybe an expectation of maybe more credit losses? Or just pure conservatism given where we are in the year? I think well, first of all, we've never and I'm going to answer this with Cathy, so we'll do this together. But we have never historically raised our guidance in the first quarter of the year with the exception of 2015. So it's just too early to do it. I mean, there's a lot of things that happened during the year from a timing perspective. The second thing is that we obviously do have the Art Van situation. So there are a variety of outcomes to Art Van, so. And it's just too early to even speculate on what could happen. So that would be sort of a big move as well. The third is, is that I would say that the eight the north of 8% growth that we achieved last year was partly due to stealing away some of the growth that would have happened this year, because we had some deals that closed a little bit early, right, in the fourth quarter of last year.
And it also, by the way, took away some growth from 2018, because we had a very strong first quarter of last year. So when you're looking at companies like ours, where you do have timing issues that can affect matters, it's sort of important to kind of look at the long-run growth of the company and not just focus on that stuff. And if you look at like, I mean, hypothetically, if you look at STORE Capital's proxy statement or whatever from last year, our a lot of our long-term compensation is based upon, or stock-based compensation is based upon achieving growth that gets to 6.5% or better, right? So that's the that's, by the way, like the max compensation we can get, we can get to that number, and I think that 6.5% is a good number. And so you take 6.5% and add that to close to 4% dividend yield, you're getting to north of 10% total rate of return, which is, you can do double-digit rates of return, which we've now done for five consecutive years. I think that's a very attractive thing to do.
Christopher H. Volk -- President, Chief Executive Officer And Director
Great. And just going back to the level of dispositions again. Last year, I think you sold $450 million-ish, which was highest level ever for you as a public company. So just curious how we should be thinking about that? Is it more that your portfolio is maturing after reaching the five-year mark post-IPO? Is it just a reflection of being bigger? Or are you trying to get in front of some credit issues? And how should we think about dispositions this year as part of that, the guidance?
Mary Fedewa -- Chief Operating Officer And Director
Hey Haendel, it's Mary, and I'll give you some comments on that. I think we've been talking about selling about 5%, a little over of our beginning balance of on our portfolio. So that's I think you'll find that to be consistent. And then just briefly, I'll remind you that dispositions are done for three kind of category three different reasons: opportunistic, strategic and property management. And so I would say this past year, we actually, as you may recall, last quarter, we moved our manufacturing exposure down a whole point. And so the strategic piece for the year was a little higher at about 55% of what we did, and it generally runs about 40-40-20 for opportunistic, strategic and property management. So probably a little higher on the strategic when we did that this year. But again, it's across those three categories, and we'll be consistent with that as we move forward.
Christopher H. Volk -- President, Chief Executive Officer And Director
And as if property sales were around 5% of our beginning portfolio...
Mary Fedewa -- Chief Operating Officer And Director
Correct.
Christopher H. Volk -- President, Chief Executive Officer And Director
So as a percentage of the portfolio, it's kind of in line where like last year, it was slightly less, the year before that, it was around 5%. So it's not inconsistent with that. And I think you would expect us to be able to do that. And of course, last year, if you look at the accretion from the sales that adds roughly 30 basis points to growth, which is higher than the 10 basis point growth average accretion. So we're pretty focused on being able to try to add to internal growth and also detract away from risk associated with credit.
Mary Fedewa -- Chief Operating Officer And Director
And rebalancing from between tenants and industries is what we're trying to do, of course.
Haendel St. Juste -- Mizuho -- Analyst
Okay, thanks.
Mary Fedewa -- Chief Operating Officer And Director
Thank you.
Operator
Next question is from Ki Bin Kim of SunTrust. Please go ahead.
Ki Bin Kim -- SunTrust -- Analyst
Thanks. I'm just to follow-up on Haendel's question. Did you guys put any type of outsize reserve in your 2020 FFO guidance, AFFO guidance? For like Art Van and other tenants?
Catherine Long -- Chief Financial Officer, Executive Vice President and Treasurer
Hi Ki Bin, it's Cathy. We always bake in I mean, this is part of our business. If you have occasional tenant issues, this is part of the net lease business. And I always bake something in for guidance every year.
Ki Bin Kim -- SunTrust -- Analyst
About what how much was it this year? For 2020?
Catherine Long -- Chief Financial Officer, Executive Vice President and Treasurer
We don't specifically give guidance on that.
Ki Bin Kim -- SunTrust -- Analyst
Okay. And just following up on Art Van. Obviously, it's early and there's a lot of different outcomes that can come out. But if you but what are the, in your point of view, the more kind of likely outcomes in a set of menu options you have for the Art Van exposure and maybe some of the restaurants? And maybe you can frame that answer with the quality of real estate or quality of a location for those stores?
Christopher H. Volk -- President, Chief Executive Officer And Director
Well, I mean, Ki Bin, it's Chris. I'll help, I'll start and maybe Mary will also have some comments. But I would say we've taken a look at every single asset we have, and we feel good about the investments that we have in the assets. So we feel very strong about their ability to have an attractive recovery in virtually any type of outcome. Beyond that, we're not handicapping today what's going to happen with Art Van. We're hopeful that the Art Van name continues to survive and prosper, because we think that there's a viable business there. And but time will tell. And the unfortunate thing for this call is that the Art Van issue is so recent. And candidly, like the catalyst, their fiscal year ended September. So if you were looking at their September numbers, which we have, I mean, you wouldn't have said that this is a company that's going to you wouldn't have expected that the company would would've been insolvent by the end of January. So I don't think I think most rational people would've looked at it and said that, that was going to happen. So there's obviously catalysts. I'm not sure exactly precisely what those are today, but we feel good about where we are at this point. And as we know something, and we'll obviously, you'll get more information as we get more information.
Ki Bin Kim -- SunTrust -- Analyst
All right. And just to clarify one thing you mentioned earlier, you said I think you said 60 basis points exposure to the named restaurants that were in the headlines. Is that their total exposure to the tenant the restaurant tenants that are perhaps in a little bit of trouble? Or is that just for...
Christopher H. Volk -- President, Chief Executive Officer And Director
That's total. And I think and I would say that of that 60 basis points, we're not expecting any rent interruptions from the substantial majority of not all of it, so.
Ki Bin Kim -- SunTrust -- Analyst
Alright.
Operator
[Operator Instructions] Our next question will be from Vikram Malhotra, Morgan Stanley, please go ahead.
Vikram Malhotra -- Morgan Stanley -- Analyst
Thanks for taking the questions not not to beat a dead horse, but I just want to understand on Art Van. I remember when Gander happened, Chris, and we were chatting, I think it was the NAREIT, you've kind of shown us a chart saying you track the STORE Score and the coverage, and kind of, if you look back, lesson learned, you would have probably acted in terms of selling assets sooner or trying to fix things sooner. With Art Van, it's a different situation, I get it. But just when you originally did the deal, I believe you had mentioned coverages were in the high 3s. Now coverage is right around 2. As that sort of happened over time, I'm just trying to understand, how did you think about the portfolio, maybe taking pieces of it, all of it, how do you sort of get comfortable with it?
Christopher H. Volk -- President, Chief Executive Officer And Director
Well, the answer is that we did sell assets. We sold a number of assets. We actually had well over 3% exposure to Art Van, and that's less probably because we're bigger, but we sold off a number of of Art Van assets, which we...
Catherine Long -- Chief Financial Officer, Executive Vice President and Treasurer
Put down to 2.4% of annual base rent and interest, about 20% reduction, Vikram. So we did do that here. And I would say that we the Art Van deal happened in 2017. They bought Wolf and Levin in 2018, and this was an integration. This wasn't that big an acquisition integration story. So we were watching them. And they were pulling this together. But I think what's important is STORE is designed as very granular, very diverse, and we're designed to have to work through these sort of credit issues.
Christopher H. Volk -- President, Chief Executive Officer And Director
And I would say to you, I mean, candidly, we had some we had a handful of Art Vans under contract to sell, the day that the date which announced. So these are people who had financial statements and everything, right? So sometimes you just you get a little bit unlucky, right? So and things happen. [Technical Issues]
Operator
I think we have lost Vikram. We'll move on to Rob Stevenson from Janney. Please go ahead.
Rob Stevenson -- Janney -- Analyst
Hi, good afternoon, guys. Mary, I think the average Art Van furniture box is 60,000, 80,000 square feet. How much tenant demand is out there for boxes of that size these days, if you were to get any of them back? And how easily or costly would these locations be to divide into smaller spaces in multi-tenant?
Mary Fedewa -- Chief Operating Officer And Director
Yes. So you're correct. Our stores are, on average, about 60,000 square feet. And I would say that we there would be interest for those. I mean, we could put there's a lot of other sort of asset classes out there, maybe it's family entertainment, go kart places, even a large fitness center, another furniture. I mean, we are still in favor of the furniture space, and there's plenty of good operators out there. And as Chris mentioned earlier, we like the real estate we have, and we like what we're in the real estate at. So I would think that we would work hard to do that. And I think we would get some of that done. In terms of breaking them up, yes, we always look at that too, Vikram I'm sorry, not Vikram, but Rob. We always look at that as well, as to whether we can what does it cost to do that and we'll put a couple of tenants in there. So that would be part of the analysis, and again, there are users for these boxes.
Christopher H. Volk -- President, Chief Executive Officer And Director
As a general rule, you don't break them up. I mean, your best bet is to just keep them intact and get another 60,000 square foot user. The good news about these is that they're not like most of your big box stuff tends to be in shopping malls, so it tends to actually not be on street corners, so it's buried, and it could be a power center or whatnot. These are freestanding 60,000 square foot boxes, meaning they have much higher levels of visibility. So the tenant profile tends to be very different. There are people that just want to have that street frontage, and they want to be closest. This is not quite the same risk. I'd rather have that kind of box than a big box in the middle of the shopping center, personally, so.
Rob Stevenson -- Janney -- Analyst
Okay. And for a non-Art Van question, Cathy, can you walk us through the November funding decision and why you did master funding versus unsecured debt? Was it cost, flexibility? And what would the pricing difference had been if you choose them to do 7- and 15-year unsecured debt instead?
Catherine Long -- Chief Financial Officer, Executive Vice President and Treasurer
Okay. So we have a debt strategy that kind of balances both doing master funding transactions on the secured side and doing unsecured debt. What's cool about that, having that flexibility in those options is that, on the master funding side, the leverage is higher in the ABS market. And that allows the unencumbered side or the unsecured debt to have significantly higher coverage metrics, which we believe, over time, that balance will drive down the total cost of debt. So we do like having those options. We had the opportunity to issue 15-year notes in the ABS market, so that was of importance. We also have the ability to prepay some of our master funding notes with the new series that allowed us to drop our interest rates. The notes that we prepaid without penalty, by the way, we're at a weighted average rate of 4.22%, and the blended rate of the new notes was 3.71%, which included AAA notes in the high 2%s. So that was most of the decision, you'll find that we balance secured and unsecured debt. And since we had just done that transaction in the fall, we'll likely, in 2020, do unsecured debt. And so our unencumbered asset pool will tend to trend upward. Does that make sense?
Rob Stevenson -- Janney -- Analyst
Yes. And where is pricing for you guys now on unsecured notes if you wanted to go out and do something in the seven-, 10- or 15-year range?
Catherine Long -- Chief Financial Officer, Executive Vice President and Treasurer
A 10-year would be in the high 2%s. Mid- to high 2%s.
Rob Stevenson -- Janney -- Analyst
Alright, thanks, guys. Appreciate it.
Catherine Long -- Chief Financial Officer, Executive Vice President and Treasurer
Thank you.
Operator
Next question comes from Spenser Allaway, Green Street Advisors, please go ahead.
Spenser Allaway -- Green Street Advisors -- Analyst
Thank you. Just in terms of the competition you guys are seeing in the market right now, can you provide some color on which industries within retail specifically that are seeing the most crowded bidding times?
Mary Fedewa -- Chief Operating Officer And Director
This is Mary. I would say, in terms of competition, again, most of our competition is away from the public and private leads and more into 1031 family office space. And I would say that service is still one of the best asset classes out there as opposed to the retail space, again, and also manufacturing, which we call manufacturing and industrial is still pretty hot out there as well.
Christopher H. Volk -- President, Chief Executive Officer And Director
On the service side, we think of restaurants, for example, as service, by the way, so which you might think of as retail. So if it's something you can't buy, it's not a physical good, and you can't buy it over the Internet, and you're if somebody's making something for you like a sandwich, we think of it as service. And so restaurants tend to be always sought after.
Spenser Allaway -- Green Street Advisors -- Analyst
And then just lastly, I know you guys do run a sensitivity analysis quarterly that assesses how much tenant sales need to would need to fall before you would lose rent. Are there any meaningful changes here in regards to particular tenants? Or any notable trends across industries?
Mary Fedewa -- Chief Operating Officer And Director
No. Actually this is Mary, and I think you might be referring to our tolerable fall off, which has been very consistent, and it's about 40% across the portfolio. So no change there, Spenser, that's meaningful.
Spenser Allaway -- Green Street Advisors -- Analyst
Okay, thank you.
Mary Fedewa -- Chief Operating Officer And Director
Your welcome.
Operator
Our next question is from John Massocca, Ladenburg Thalmann, please go ahead.
John Massocca -- Ladenburg Thalmann -- Analyst
Good morning.
Christopher H. Volk -- President, Chief Executive Officer And Director
Good morning, john.
John Massocca -- Ladenburg Thalmann -- Analyst
So appreciate the additional disclosure on page 43 of the presentation, where you kind of break out total gain or loss on the different buckets of dispositions. Within that, the 2019 property management, dispositions, the I guess, loss versus original cost was 28%. Is that as we think about your portfolio now that it's kind of a little bit more mature, is that kind of going to be the typical property management disposition loss going forward? Or was this just it's just tough to tell year-to-year?
Christopher H. Volk -- President, Chief Executive Officer And Director
Well, first of all, in terms of how you look at the chart, you've got to understand that it's not a 28% loss over original cost. That's not how to read this chart. These the gains and losses are all based upon the loss in essentially NOI, right? I mean so in other words, you could sell a property. If I have a property in eight cap or a nine cap, and I sell it for 100% of value and then I redeploy the money at 775% or something like that or 770%, then you've lost money, right, as an investor. And so when you're looking through revenue growth, you're trying to figure out how to recycle revenue growth. You have to translate everything into a revenue growth number, an AFFO number, right? It doesn't really matter what the percentage of cost I get back is. So the percentage of cost is probably higher than that. The loss is less than that. But from a revenue perspective, that's really what you want to look at. And so that's how we disclose this, which is very unique to people. So it's very important that you know that, which basically means that when you're looking at recoveries for us, and we're saying it's a 73% recovery, and you're comparing that to CMBS recovery or something, they're doing it as a percentage of principal not a percentage of revenues. And we're doing it as a percent of revenue, which is much, much more conservative in terms of how you do it.
John Massocca -- Ladenburg Thalmann -- Analyst
Step measure and then deploy it? I'm sorry.
Christopher H. Volk -- President, Chief Executive Officer And Director
And then the next question is, OK, now that you know that, is the fact that we had a bigger loss here on the sold properties, symptomatic of what's going to happen going forward? And then the answer is no. It's just the function of this one year? I mean, every year is its own year, it's varied. You can look over the last three years, and you could see that 2017 was worse. 2018, we actually make money on properties that we were having issues with, so which is unusual.
John Massocca -- Ladenburg Thalmann -- Analyst
Okay, so that 28% number then is just based on what you could redeploy the loss revenue at?
Christopher H. Volk -- President, Chief Executive Officer And Director
Right, right. So in other words, it's a loss of it's the comparative loss of revenue. So our rent would have gone down by 28% on those properties.
John Massocca -- Ladenburg Thalmann -- Analyst
Okay, understood. And then kind of parsing maybe, some of the commentary on acquisitions in 4Q, it sounds like it was a little bit more front-end loaded than typical. I know you still said you had a pretty robust December, but given the way those acquisitions broke out, I mean, is there any read-through to that, there may be some acquisition activity slipped into 1Q 2020? And maybe it's a little bit more elevated in kind of the first quarter of this year than is typical?
Catherine Long -- Chief Financial Officer, Executive Vice President and Treasurer
This is Cathy. It turns out that having a big December like that, yes, to start, again, October and November were heavier than normal, not only the volume for the months themselves, but that the volume was very early in the months, which is sort of unusual. A lot of times, our volume is back-end weighted in the month. But these were almost front end weighted, if you think about it that way. And December was very big and kind of middle weighted. But what that tends to do sometimes is that people who are our customers looking at their tax situation, some of them will take transactions that might have been scheduled for January and accelerate them into December because they need it in that tax year. And so some of that goes on, and in 2019, you had the benefit of some 2018 transactions bleeding into January of 2019. And then on the tail end, you had some January 2020 transactions being accelerated back into December. So you're capturing more revenue in December. And so we might anticipate that Q1 will revert more to our normal quarter, which is always our lowest quarter. So and it's still early, and things could still come in. But it wouldn't be unusual to think that it'll revert to our normal cycle of it being the lowest quarter, with Q4 being the highest, Q2 being the second highest.
Operator
I apologize. Next question, Michael Gorman, BTIG. Please go ahead.
Michael Gorman -- BTIG -- Analyst
Thanks. Good morning. I had to jump on a little bit late, so I apologize if this was already addressed. But what percentage of your total rental stream comes from private equity-backed tenants at this point?
Mary Fedewa -- Chief Operating Officer And Director
This is Mary. So I guess that we would estimate that probably around 40%, 45%.
Michael Gorman -- BTIG -- Analyst
Okay. And then just in terms of your experience with private equity backers, I mean, do you approach the acquisition process differently or the tenant monitoring process differently based on the sponsor? Or is it just like any other financed tenant?
Catherine Long -- Chief Financial Officer, Executive Vice President and Treasurer
I would say it's very consistent, Michael, as with any other customer that we look at. We're looking at the entire relationship, both with the private equity and with the tenant, and we're monitoring it very closely quarterly with we get financials and so on. So yes.
Christopher H. Volk -- President, Chief Executive Officer And Director
Right. This is Chris. I would say that, in recent press, private equity's gotten a bad name. And it's funny, I've seen people talk about private equity as if like, well, these guys buy a totally decent company and then they sell off all the real estate and rent it all back kind of thing, which by the way, private businesses all day long are doing exactly that. They're growing without ever owning their real estate. So it's kind of an interesting notion that somehow selling the real estate to people like us is not good. It's good. And if you look at private equity companies, we have found that most private equity companies that we've had, if they've had an issue, they've stepped up with added capital and really made a difference in helping companies through, which is, they were privately held. We don't think that would have happened. Then you get down in the situation of like M&A transactions, because most private equity deals come with M&A transactions. So if it's a if it's a large M&A transaction, sort of like a comparably mega M&A transaction, there tends to be always more risk than if it's a follow-on transaction. So and most of the stuff that we're doing is sort of roll up follow-on transactions, and that's sort of the mega deal type transactions. And so there tends to be sort of much more modest risk with that kind of stuff.
Michael Gorman -- BTIG -- Analyst
No, thanks for that color. That was kind of my point was just to what extent do you look through to the sponsor behind the business and try to make sure that, that's a good partner for you on the other side of it, just given some of the other issues?
Catherine Long -- Chief Financial Officer, Executive Vice President and Treasurer
100% part of it. You bet.
Michael Gorman -- BTIG -- Analyst
Okay, thank you.
Operator
We'll take our last question of the day as a follow-up from Vikram Malhotra of Morgan Stanley, please go ahead.
Vikram Malhotra -- Morgan Stanley -- Analyst
Sorry about that. I don't know what happened. I was speaking and nothing was going through. Chris, I just wanted to clarify, you had mentioned you were in the market, the day the news hit. I'm assuming sort of that's put on hold now? That process?
Christopher H. Volk -- President, Chief Executive Officer And Director
Yes. That's a 10-4. But it just goes to show you that everybody has current information, and there are a lot of people that had strong views about the health of the company and the furniture business.
Mary Fedewa -- Chief Operating Officer And Director
And the brand.
Christopher H. Volk -- President, Chief Executive Officer And Director
And sometimes, you're selling assets and sometimes they fly off-the-shelf and sometimes you they fall out and you get we're not selling treasuries here. So sometimes you get unlucky on some of the stuff. So but for a few other things, we would have had a little bit less exposure right now. But again, it's today, it's less than 2.4% of revenues, or it was 2.5% of revenue? So it's a modest exposure, and we'll be fine.
Vikram Malhotra -- Morgan Stanley -- Analyst
Okay, great. Thanks so much.
Christopher H. Volk -- President, Chief Executive Officer And Director
Thank you.
Mary Fedewa -- Chief Operating Officer And Director
Thank you.
Operator
This concludes our question-and-answer session. I'd now like to turn the conference back over to Mr. Chris Volk for any closing remarks. Please go ahead.
Christopher H. Volk -- President, Chief Executive Officer And Director
Operator, thank you very much, and thank you all for attending the call today. Mary, Cathy and I are going to be attending the upcoming Citigroup REIT Investor Conference in Hollywood, Florida, March two and 3. And I expect a number of you will be there. If you're interested in seeing us there, let us know. We're also going to be hosting an Investor Day, a STORE Investor Day at the New York Stock Exchange in April 16. And so if you'd like to attend this gathering, there is still space available, so let us know about that, too. Thank you all for listening. We're around today and tomorrow for any follow-up questions. Have a great day.
Operator
[Operator Closing Remarks]
Duration: 61 minutes
Call participants:
Moira Conlon -- Founder and President
Christopher H. Volk -- President, Chief Executive Officer And Director
Mary Fedewa -- Chief Operating Officer And Director
Catherine Long -- Chief Financial Officer, Executive Vice President and Treasurer
Nate Crossett -- Berenberg -- Analyst
Shivani Sood -- Deutsche Bank -- Analyst
Frank Lee -- BMO -- Analyst
Haendel St. Juste -- Mizuho -- Analyst
Ki Bin Kim -- SunTrust -- Analyst
Vikram Malhotra -- Morgan Stanley -- Analyst
Rob Stevenson -- Janney -- Analyst
Spenser Allaway -- Green Street Advisors -- Analyst
John Massocca -- Ladenburg Thalmann -- Analyst
Michael Gorman -- BTIG -- Analyst
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STORE Capital Corp (STOR) Q4 2019 Earnings Call Transcript - Motley Fool
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