Ladies and gentlemen, thank you for standing by, and welcome to the Realty Income 4th Quarter and Year End 2019 Operating Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker today, Andrew Crum, Associate Director Realty Income. Please go ahead.
Thank you all for joining us today for Realty Income's 4th quarter year end 2019 operating results conference call. Discussing our results will be Sumit Roy, President and Chief Executive Officer. During this conference, we will make certain statements that may be considered forward looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in any forward looking statements. We will disclose in greater detail the factors that may cause such differences in the company's Form 10 ks.
We will be observing a 2 question limit during the Q and A portion of the call in order to give everyone the opportunity to participate. If you would like to ask additional questions, you may reenter the queue. I will now turn the call over to our CEO, Soumit Roy.
Thanks, Andrew. Welcome, everyone. We completed another year of strong operating performance, delivering favorable risk adjusted returns for our shareholders. We are pleased to have provided our shareholders with more than 21.2% total shareholder return in 2019. During the year, we invested over $3,700,000,000 in real estate properties and increased AFFO per share by 4.1% to $3.32 per share.
2019 was a record year for property level acquisitions and included approximately $798,000,000 in international investments, including our first ever international sale leaseback of 12 properties located in the United Kingdom leased to Sainsbury's, a leading grocer. In 2019, we celebrated the 50th anniversary of our company's founding and the 25th year since our public listing, and we were proud to be added to the S and P 500 Dividend Aristocrats Index earlier this month for being an S and P 500 constituent
that has
raised its dividend every year for the last 25 consecutive years. We entered 2020 very well positioned across all areas of the business and are introducing 2020 AFFO per share guidance of $3.50 to $3.56 which represents annual growth rate of approximately 5.4% to 7.2%. Earlier this month, we announced that Paul Muir, Chief Financial Officer and Treasurer, is leaving the company. To ensure a smooth transition, Paul will serve as Senior Advisor to the company through the end of the Q1, and the company has begun a search for a new Chief Financial Officer. I want to thank Paul for his valued partnership and tremendous contributions to the company over the many years.
Our portfolio continues to be diversified by tenant, industry, geography and to a certain extent property type, which contributes to the stability of our cash flow. At quarter end, our properties were leased to 301 commercial tenants in 50 different industries located in 49 states, Puerto Rico and the UK. 83% of our rental revenue is from our traditional retail properties. The largest component outside of retail is industrial properties at nearly 12% of rental revenue. Walgreens remains our largest tenant at 6.1 percent of rental revenue.
Convenience stores remains our largest industry at 11.6 percent of rental revenue. Within our overall retail portfolio, approximately 96% of our rent comes from tenants with a service, non discretionary and or low price point component to their business. We believe these characteristics allow our tenants to compete more effectively with e commerce and operate in a variety of economic environments. These factors have been particularly relevant in today's retail climate, where the vast majority of the recent U. S.
Retailer bankruptcies have been in industries that do not possess these characteristics. We continue to feel good about the credit quality in the portfolio with approximately half of our annualized rental revenue generated from investment grade rated tenants. The weighted average rent coverage ratio for our retail properties is 2.8 times on a 4 wall basis, while the median is 2.6 times. Our watch list at 1.9 percent of rent is relatively consistent with our levels over the last few years. Occupancy based on the number of properties was 98.6%, an increase of 30 basis points versus the prior quarter.
We expect occupancy to be approximately 98% in 2020. During the quarter, we re leased 28 properties, recapturing 106 percent of the expiring rent. During 2019, we released 2 14 properties, we released 2 14 properties, recapturing 103 percent of the expiring rent. Since our listing in 1994, we have released or sold over 3,100 properties with leases expiring, recapturing over 100 percent of rent on those properties that were re leased. Our same store rental revenue increased 2% during the quarter and 1.6% during 2019, which is above our full year projection of approximately 1%, primarily due to the recognition of percentage rent.
We expect same store rent growth to normalize in 2020 and our projected run rate for 2020 is approximately 1%. Approximately 86% of our leases have contractual rent increases. Moving on, I will provide additional detail on our financial results for the quarter year, starting with the income statement. Our G and A expense as a percentage of revenue was 4.3% for the quarter and 4.7% for the year, which was consistent with our full year projection of below 5%. We continue to have the lowest G and A ratio in the net expect our G and A margin to be approximately 5% in 2020.
Our non reimbursable property expenses as a percentage of revenue was 1.4% for both the quarter and for the year, which was lower than our full year expectation in the 1.5% to 1.75% range. Briefly turning to the balance sheet. We have continued to maintain our conservative capital structure and remain one of only a handful of REITs with at least 2 A ratings. During the Q4, we raised $582,000,000 of common equity, primarily through our ATM program at approximately $75.52 per share. For the full year, we raised $2,200,000,000 of equity at approximately $72.40 per share, finishing the year with a net debt to EBITDA ratio of 5.5x.
And our fixed charge coverage ratio remains healthy at 5 times, which is the highest coverage ratio we have reported for any quarter in our company's history. In January, we completed the early repayment of our $250,000,000 5.75 percent 2021 bond through a full par call. Looking forward, our overall debt maturity schedule remains in excellent shape as the weighted average maturity of our bonds is 8.3 years and we have only $334,000,000 of debt coming due in 2020. And our maturity schedule is well laddered thereafter. In summary, our balance sheet is in great shape and we continue to have low leverage, strong coverage metrics, ample liquidity and excellent access to well priced capital.
In the Q4 of 2019, we invested approximately $1,700,000,000 in 5.56 properties located in 42 states and the United Kingdom at a weighted average initial cash cap rate of 6.8% and with a weighted average lease term of 11.2 years. Approximately $1,200,000,000 of this quarter's acquisitions were related to the CIM portfolio acquisition we announced in September. On a total revenue basis, approximately 47 percent of total acquisitions during the quarter were from investment grade rated tenants. 1 100% of the revenues were generated from retail tenants. These assets are leased to 78 different tenants in 26 industries.
Bless you. Some of the more significant industries represented are convenience stores, dollar stores and drug stores. We closed 12 discrete transactions in the 4th quarter and approximately 10% of 4th quarter investment volume was sale leaseback transactions. Of the $1,700,000,000 invested during the quarter, dollars 1,500,000,000 was invested domestically in 551 properties at a weighted average initial cash cap rate of 7% and with a weighted average lease term of 10.6 years. During the quarter, dollars 221,000,000 was invested internationally in 5 properties located in the UK at a weighted average initial cash cap rate of 5.2 percent and with a weighted average lease term of 17.1 years.
During 2019, we invested over $3,700,000,000 in 789 properties located in 45 states and the United Kingdom at a weighted average initial cash cap rate of 6.4% and with a weighted average lease term of 13.5 years. On a revenue basis, 36% of total acquisitions are from investment grade rated tenants, 95% of the revenues are generated from retail and 5% are from industrial. These assets are leased to 112 different tenants in 31 industries. Of the 72 independent transactions closed in 2019, 11 transactions were above 50,000,000 dollars Approximately 38 percent of 2019 investment volume was sale leaseback transactions. Of the $3,700,000,000 invested in 2019, nearly $2,900,000,000 was invested domestically in 7.71 properties at a weighted average initial cash cap rate of 6.8% and with a weighted average lease term of 13 years.
During 2019, approximately $798,000,000 were invested internationally in 18 properties located in the UK at a weighted average initial cash cap rate of 5.2 percent and with a weighted average lease term of 15.6 years. Transaction flow remains healthy as we source approximately $11,700,000,000 in the 4th quarter. Of the $11,700,000,000 sourced during the quarter, dollars 9,800,000,000 were domestic opportunities and $1,900,000,000 were international opportunities. Investment grade opportunities represented 17% of the volume sourced for the 4th quarter. Of the opportunity sourced during the 4th quarter, 58 percent were our portfolios and 42 percent or approximately $5,000,000,000 were one off assets.
In 2019, we sourced approximately $57,000,000,000 in potential transaction opportunities, which marks the highest annual volume sourced in our company's history. Of this $57,000,000,000 sourced in 2019, 42% were portfolios and 58% or approximately $33,000,000,000 were one off assets. Of these opportunities, dollars 45,000,000,000 were domestic opportunities and $12,000,000,000 were international opportunities. Of the $1,700,000,000 in total acquisitions closed in the 4th quarter, 15% were one off transactions. As to pricing, U.
S. Investment grade properties are trading from around 5% to high 6% cap rate range and non investment grade properties are trading from high 5% to low 8% cap rate range. Regarding cap rates in the United Kingdom for the type of assets we are targeting, investment grade or implied investment grade properties are trading from the low 4% to high 5% cap rate range and non investment grade properties are trading from the 5% to the low 7% cap rate range. Our investment spreads relative to our weighted average cost of capital were healthy during the quarter, averaging approximately 3 25 basis points for domestic investments and 2 28 basis points for international investments, both of which were well above our historical average spreads. Our investment spreads for 2019 averaged 271 basis points for all of our investment activity, representing the widest annual spreads in our company's history.
We define investment spreads as initial cash yield less our nominal 1st year weighted average cost of capital. Our investment pipeline, both domestic and international, remains robust and we believe we are the only publicly traded net lease company that has the size, scale and cost of capital to pursue large corporate sale leaseback transactions on a negotiated basis. Based on the continued strength in our investment pipeline, as well as our excellent access to well priced capital, we are introducing 2020 acquisition guidance of $2,250,000,000 to $2,750,000,000 Our disposition program remains active. During the quarter, we sold 29 properties for net proceeds of 36,300,000 at a net cash cap rate of 6.8 percent and we realized an unlevered IRR of 10.4%. This brings us to 92 properties sold in 2019 for $108,000,000 at a net cash cap rate of 8.1% and we realized an unlevered IRR of 8.3%.
We continue to improve the quality of our portfolio through the sale of non strategic assets, recycling the sale proceeds into properties that better fit our investment parameters. We are expecting between 200,000,000 dollars $225,000,000 of dispositions in 2020, a large portion of which already closed earlier this month. In January, we increased the dividend for the 105th time in our company's history. Our current annualized dividend represents an approximately 3% increase over the year ago period and equates to a payout ratio of 79% based on the midpoint of 2020 AFFO guidance. We have increased our dividend every year since the company's listing in 1994, growing the dividend at a compound average annual rate of approximately 4.6%.
And we are proud to be one of only 3 REITs in the S and P 500 Dividend Aristotra Index. To wrap it up, it was a successful and active year for us in 2019 and we look to continue the momentum in 2020. Our portfolio is performing well, our global investment pipeline is robust and our cost of capital and ample liquidity positions us to capitalize on our growth initiatives. At this time, I'd like to open it up for questions. Operator?
Our first question comes from the line of Nick Yulico with Scotiabank. Please go ahead. Your line is open.
Hey, this is Graeme McGinnis on with Nick. Digging into the acquisitions guidance a bit, we're curious if you could give us the estimated split between the U. S. And UK, whether the EU is an option for 2020 and what cap rate or investment spread is assumed in the underwriting? Thanks.
The makeup is going to The makeup is going to be approximately 20% international, 80% domestic. And the spreads are going to be, our hope is, well north of our average spreads of 150 basis points, 160 basis points.
Okay. So coming in a bit from what you guys accomplished and I'm assuming that's just more conservatism than anything else?
That's what we feel very comfortable sharing with the market. Obviously, what happened last year is something that we expect to continue, but we feel very to be in that $2,250,000,000 to 2,750,000,000 And we hope to do far better than our average spreads, which as I said, was right around $150,000,000 to $160,000,000 So a certain level of conservatism. Okay.
And then so we know the acquisition guidance does not include potential portfolio acquisitions. But could you give us maybe some sense for what you're seeing out in the market today on that front? I mean, are there portfolios currently being marketed to you? Are you looking at any right now? Are the size?
I'm just trying to get a sense of what a reasonable upside is to acquisition guidance.
Yes. So let's be a little bit pure on what we are defining as portfolios. The large portfolio transaction that we did last year was at $1,100,000,000 CIM transaction, dollars 1,200,000,000 CIM transaction. That's the kind of transaction that hasn't been sort of built into our 2.25 to 2.75 number. Clearly, we are in the market and are constantly doing portfolio sizes in the range of $100,000,000 to $200,000,000 and those are very much part and parcel of what's included in our guidance.
Look, we've shared with you what the sourcing numbers were for 2019. We haven't seen any let up in terms of what we are seeing so far and so early in the year. We are very optimistic about the pipeline and we are very optimistic of meeting the guidelines that we have shared with the market. And at this point, there is nothing that we are seeing in the horizon that would lead us to believe that this is going to be a much slower year than what we saw last year. All right.
Thanks, Sumit. Sure.
Our next question comes from the line of Christy McElroy with Citi. Your line is open.
Hey, good morning, Seema. Thank you. Just a bit of pickup in some of the Open Air retailers filing for bankruptcy and announcing closures in recent months and also reports of others hiring restructuring advisors. Can you talk about any specific tenants that you have exposure to that fall into this category or any pockets of your exposure where you're concerned about fallout as you look into the next year?
There are some tenants that we are obviously looking at very closely. The good news here is we are so well diversified, Christy, that these are tenants that have very minimal, well below 1% exposure to. For instance, Pier 1 is one of our tenants that we are looking at. It's been on our credit watch list for a while. We have 12 assets with them.
It's right around 10 basis points of rent. We did a sale leaseback with them in 1998. And it's actually been a great transaction for us. So we are almost indifferent as to what happens with them. On 9 of the 12 properties, we are already getting inbound calls from large national tenants.
That gives us very high level of confidence that we'll be able to reposition this asset. A couple of other names that we are keeping a close eye on, Crystal's is another one that we acquired through a large portfolio, again, basis points of rent. And based on the 4 wall coverage, we feel our portfolio is very well positioned. And once again, but that's a corporate level credit that is in the news and one that we are looking at very closely. But in aggregate, we have obviously taken all of this into account in forecasting out our AFFO per share guidance.
And so you can tell from the guidance that we have laid out, Christy, that fingers crossed this year will again be a very, very good year for us.
And you talked about in your opening remarks the spreads in market cap rates between investment grade and non investment grade. Do you think those spreads are wide enough just given sort of that tenant fallout environment you're seeing? And I think I heard you say that about 70% of the deals that you're sourcing are investment grade versus I think it's 50% in place. So will there be a continued effort to sort of raise investment grade exposure?
Actually, what we are seeing is something very interesting, Christine. I would argue that some of the higher yielding assets have compressed with regards to cap rates and are moving closer to where investment grade cap rates are in the market. It hasn't been a movement in the investment grade market that is as pronounced as it is in the higher yielding market. So one must take into consideration on a risk adjusted basis, where are you better off investing. And I think we've shared this with you in the past, Christy.
Credit is very much part of the analysis that we undertake, but we are not pursuing a particular credit profile. We're looking at it in totality and trying to come up with for the risk that one is assuming, are the returns appropriate? That's how we look at all of our investments. And but the point I want to make is high yielding assets that used to have a high 7, even an 8 cap rate are now trading at a 6 cap rate. And investment grade assets that were potentially in the high fives are in the low fives.
So it's a far more pronounced compression that we are seeing in the high yielding side of the equation. And it does give us pause when we look at it from a risk adjusted basis as to whether we should continue to pursue all of those transactions.
Yes, that makes sense. Thank you.
You're welcome.
Our next question comes from the line of Shivani Sood with Deutsche Bank. Please go ahead. Your line is open.
Hey, thanks for taking the question. Just following up on the earlier question about portfolios, curious if you're seeing increased competition for larger portfolio acquisitions or sale leasebacks from private players in recent months? And how has that changed how you're sourcing and approaching the process to remain ahead of this?
Yes, Shivani, for us, it's business as usual. We are not changing any of our methods of sourcing or pursuing potential transactions that have a risk profile that is not justified by the cap rates that's being ascribed or that's being asked. I mean, we have we did 89% of our transactions in 2019 were relationship driven transactions. We are continuing to pursue those. We continue to reach out to clients of ours that have credit that we feel very comfortable with.
These are assets that don't even get marketed, and we continue to build on the sale leaseback side of the equation. And absent CIM, 61% of what we did last year was sale leaseback. So I wouldn't say that in any way, we have altered the way that we are pursuing acquisitions. What we have done on the international side of the equation is obviously we continued to establish new relationships with, again, having done the homework around clients that we would like to pursue over the long term. And that has been a major push for Neil and for myself, to continue to grow our international platform.
And thankfully, we've made a fair amount of progress on that front.
Thanks for that color. Just switching topics, the recapture rate for occupied boxes was really good in the quarter. Can you share some more color on what drove that?
Yes, sure. So there were basically two things that drove that. And then as you can see, our 2020 guidance is right around 1%, which has traditionally been what we have said. Not every lease that we have has an annual rent growth. Some have rent growth every 3 years, some have rent growth every 5 years.
And it just so happened that a disproportionate number of leases had growth coming in, in 2019. For instance, if you look at the dollar stores, 46% of all the assets that we own within that bucket had an increase in 2019. And most of those were either a 3 or a 5 year rental increase. And that accounted for about 34% of the disproportionate increase in the rent, the 1.6% that we were able to achieve. On a second note, a smaller contribution to the increase was the timing of the percentage rent accruals and that too helped.
But if you were to take those 2 out of the equation, we would be right around what we have guided the market to for 2020.
Thanks so much.
Our next question comes from the line of Rob Stevenson with Janney. Your line is open.
Good afternoon. How are you feeling these days about the office segment? I mean, you've added one asset in the last year. Is that a source of dispositions going forward? Is that a source of acquisitions going forward?
I mean, what's the how do you think about that over the next 3 years?
Rob, so as far as I know, our exposure to office has continued to dwindle over the last few years. It used to be north of 6% at one stage. Today, it's in the 3% zip code. And it's a product type that we have accumulated largely through large portfolio transactions. We haven't proactively gone out and bought some single tenant net leased office assets.
Having said that, the commentary I'm sharing with you is very much a U. S.-based commentary. But I suspect that it is going to be very similar even in the international market. So our view regarding office has not changed. It's an asset type that we are very cautious about and we tend to be very, very selective when we even take a particular opportunity and do a deep dive into underwriting the opportunities.
Okay. And then I guess the other question for me winds up being, when you take a look at the balance sheet over the next couple of years, a lot of the sort of heavy lifting has been done. I mean, where is there any sort of opportunities out there for you guys to pick up anything over the next couple of years with rates bottoming yet again?
To me, that is such a tertiary mechanism or tool to utilize to help grow our earnings. And I am glad that you observed that by and large, our efficiency around our balance sheet financing is has largely been realized. There is another unsecured that has a high 4% coupon, I believe, in 2023. But that's one that we depending on where the interest rate environment is, we might take a look at taking out. But that is such a tertiary consideration when I think about what are the drivers of AFFO per share growth.
But yes, I'm very happy. Jonathan, are there any other points you'd like to make?
Yes, Rob. I think when you look out over the next few years through 2023, we obviously tick down the 2021 in January. But in 'twenty three and 'twenty four, we do have $1,700,000,000 of debt that's maturing. The 2022 is at $3,000,000,000 in a quarter. The 2023s are at 4.5.8%.
And so knock on wood, rates stay low. It's interesting that a 3.25% coupon today seems fairly high. So we're always looking at liability management ideas. We're always thinking about how the make whole math kind of translates into a breakeven rate if we were to refinance certain pieces of the capital stack. And you can expect us to continue doing that on a go forward basis.
And does preferred have any place in the capital stack going forward?
We could issue in the mid to high 4s, say, on the preferred side. It's always something that we'll look at. But when you look at the indicative cost for us of 30 year unsecured paper, that's in the low 3 range today, that gap just doesn't make a lot of sense for us.
Okay. Thanks, guys.
Our next question comes from the line of Brian Hawthorne with RBC Capital Markets. Please go ahead. Your line is open.
Hi. How comfortable are you with your C store exposure and how high would you be okay with it going?
We are very comfortable with the kind of tenants that we have exposure to that largely constitute our industry exposure. 711, Kushtard, under the Circle K banner, those are names that we are very comfortable with. They are the best in class convenience store operators and we monitor their business. We have a very close relationship with them and we are very comfortable there. What we are not comfortable with are the smaller format, kiosk type C stores that heavily rely on fuel sale to drive profitability.
And thankfully, those are largely out of our portfolio. We do have some, but by and large, most of that 11% exposure is being driven by 711 and Circle K. Okay. And
then have your tenants talked about rising wages impacting their coverages at all, their coverage ratios?
We went through how many. It was like north of 200 leases. And the fact that, I'm sure those conversations in every, are not there in every tenant conversations, but I'm sure in some cases, those conversations had to have alluded to higher labor costs. But by and large, we're happy to report that our tenants are doing fairly well. And the fact that we were able to recapture 103 percent net of expiring rents leads one to believe that at least the kinds of tenants that we have exposure to are not insulated, but are able to absorb the higher labor costs.
Great. Thank you.
Sure.
Our next question comes from the line of Spenser Allaway with Green Street Advisors. Please go ahead. Your line is open. Thank you. In terms of the $12,000,000,000 of deals you guys sourced international this year, can you provide a little color on what particular property types or industries you are seeing most heavily marketed abroad?
It's largely grocers, it's C Stores, it's movie theaters, it's discount retail. Those are the buckets that they would fall in as well as some industrial.
Okay. And then just going back to the previous question on the recent wave of bankruptcies and ongoing headwinds in the retail segment. Do you suspect that we could see CapEx eventually creep higher in the net lease segment just in terms of TIs or potential deferred CapEx on any vacant assets?
We saw the exact opposite. Our CapEx has largely been consistent over the last 3 years and what has actually reduced was our property expenses. If you notice, we were forecasting to the market that it would be anywhere between 1.5% to 1.75%, and we ended up being at 1.4%. And the reason there were two reasons for that. One was that the property taxes that we were forecasting on our vacant assets was far more than what we actually realized, given that we were able to sell our vacant assets at very attractive total returns.
And obviously, the top line grew well in advance of what we had forecasted. So those two factors resulted in the property expense margins coming in below 1.5%. We are not seeing our CapEx numbers changing based on the current climate. And I think it's largely due to the type of retail that we invest in. It's net lease.
If it's working for the tenant, they are happy to invest the CapEx themselves, reposition the assets to continue to remain relevant and drive profitability out of the store. And that's why the net lease industry tends to be a very, very efficient industry. But again, it is absolutely a function of the clients that one chooses to create an exposure to. And if it's the wrong set of clients, I'd say, Spencer, that could have a different effect. But on our portfolio, we're not seeing it.
Okay. That's helpful color. Thank you. Sure. Your next question comes from the line of Todd Stender with Wells Fargo.
Please go ahead. Your line is open.
Thanks. Looking at the average lease term, it's now just over 9 years. It's been edging lower and you guys have certainly acknowledged that. Can you talk about the recent re leasing activity, maybe in the term that they're renewed for? Your acquisitions have on average been higher than that average, but the portfolio average keeps drifting lower.
Maybe just talk about releasing, if you don't mind.
Yes, sure. And this is something we've talked about in the past as well, Todd. If you think about it at lease lease, the original lease tends to have a 15 year, 20 year or even 25 year sale leaseback. And then you have options built into these leases, and those options tend to be 5 year options. And this is all disclosed in our supplemental.
If you look at our history of releasing and we've done north of 3,000 leases, 80% and it's been higher more recently, 80% to 90% of the existing tenants exercise these options. And so when you reset the lease term, it's right around that 5 year time frame. It's only when we are going out and retenanting it with a new tenant or finding a new tenant even with 0 vacancies that we have the opportunity to go beyond the 5 to something like a 10. And those have averaged in the 6 to 7 year zip code. And so if we were to do no acquisitions, I think the normalized run rate for a net lease company, a very, very mature net lease company, which is doing 0 acquisitions or very little as a percentage of their overall portfolio, the normalized weighted average lease term is going to be right around 6 to 7 years.
And that's where the asset management and real estate operations team comes into play. And we have anticipated this and set the team up accordingly. And I think the results speak for themselves. On a quarterly basis, we share with you what the releasing spread is, and we share with you what the capital invested was with regards to tenant incentives, etcetera. And more often than not, they tend to be 0.
And we've been capturing north of 100% of expiring rents, 103% this year. It was a similar number last year. And this last quarter was 106%. So I believe that we have a team that, in fact, could be viewed as somebody that could create value when these leases start to roll and we are able to maintain the kind of releasing activity that we have been able to achieve over the last 3 to 4 years. That could become a growth driver for us.
But clearly, new acquisitions, one should expect, if it's a sale leaseback, it should be in that 15 to 20 year zip code. And if it's acquired leases, it's going to have double digit numbers. But as we become a bigger company and unless our acquisition numbers don't keep up on a pro rata basis, the weighted average lease term is going to continue to sort of get lower and should normalize right around 7 years.
So that extension option number. Okay. That's very helpful. Thank you, Sumit. Sure.
Of course.
Our next question comes from the line of John Massocca with Ladenburg Thalmann. Your line is open.
Good afternoon. So you mentioned kind of Hi, Bill. You mentioned in your prepared remarks that a significant if I heard you correctly, that a significant portion of expected 2020 disposition activity closed earlier this month. Can you provide some color on what drove that?
Sure. We are under an NDA, so I have to be very careful. But it was one of our clients who did a strategic review of their real estate operations and approached us to buy back some of the assets that they had leased to us or vice versa that we had leased to them. And it was a very attractive return. We had 5 years left on the portfolio, And we were able to transact with them.
And that closed, I believe, early past of last week, and it was to the tune of about $116,000,000 So if you subtract out that 100 and $16,000,000 in dispositions, you're back up to right around $108,000,000 And that's around the levels of what we achieved in 2019.
Okay. That makes sense. Then as we kind of think about dispositions outside of that transaction, how much I guess is potentially being driven by the CIM portfolio and maybe kind of fine tuning that portfolio more to kind of what you guys want to hold long term?
Yes. This is a question that we've answered before when we had announced the CIM transaction. This was a $1,200,000,000 transaction. We had said that $1,000,000,000 worth of the assets that we purchased were ones that we would buy in the open market if they were available one off. There's about $200,000,000 worth of assets that we are going to asset manage more aggressively.
And by that, we had also bucketed that $200,000,000 into some of them are going to be made available for immediate marketing and that's about 25%, call it plus minus. And the rest, we would collect the rent for as long as the tenant continues to pay rent. And because of the location, because of the rent per square feet, we feel very good about being able to reposition those assets with potentially new tenants. And so that was the way that we underwrote the $200,000,000 worth that would require more attention, if you will. And that hasn't changed.
That's precisely the way we are thinking about the CIM portfolio. Okay.
But then when you think about dispositions on kind of a net basis, with that, let's say, $50,000,000 that maybe is a little more immediately ready for repositioning within the CIM portfolio, it would seem to imply then I guess maybe a little less disposition activity versus what you guys accomplished this year or is that the wrong way of thinking about it and should all be kind of blended together?
Yes, because are you guaranteeing me that you're going to be able to we'll be able to sell those $50,000,000 this year in 2020? We don't we didn't underwrite thinking that we were going to be able to sell 25 percent of that portfolio, the $200,000,000 portfolio in 2020. So it is certainly a blend, John. We would love to be able to achieve that. And if we are, we might come back and say to you later on in the year that our disposition numbers may be north of what we have gone out with.
But there is certainly a level of flexibility that we've built into those disposition numbers.
Very fair point. That's it for me. Thank you very much.
Thank you.
Our next question comes from the line of Vikram Malhotra from Morgan Stanley. Please go ahead. Your line is open.
Thanks for taking the question. Just on the going back to sort of the tenant health issues you referenced being really small, several on the restaurant side, there are several names that have cropped up, NPC, Crystal, etcetera. I'm just wondering, maybe taking a step back, restaurants remain kind of part and parcel of the NetEase business. But are you thinking about restaurants slightly differently going forward, maybe on a 3, 5 year basis between public, private, franchisee, direct, any specific segments? I think any color there would be useful just because we've seen a couple of kind of crop up.
Sure, Vikram. Thanks for your question. We have and I'm not sharing anything new here. We have been very cautious about the casual dining concept. And more importantly, even if the concept is a good one, we have been very careful about exposing ourselves to small scale franchisees.
And so those factors continue to remain front and center anytime we are looking at transactions. And largely what you see playing out in the restaurant space today is not unexpected. And so we are very well thankfully, we are very well positioned for the worst outcome in some of what you have just shared in terms of the names and others that we are monitoring. And in fact, our expected outcome on this very small exposure that we have is still going to be north of what we have underwritten in terms of our guidance, is my belief. But our thinking has always been very cautious on the casual dining side.
It has been more positive on the quick service restaurant side. And even within the quick service restaurants, there are other drivers such as franchisees need to have a certain number of units, they need to have a certain number of scale that would give us comfort even if the corporate concept is one that we find very interesting. So those hurdles have not changed.
Okay, great. And sorry if I missed this, I dialed in late. But on the international side, I heard you referenced a couple of categories you were exploring, but just curious kind of how the pipeline looks between the UK and then broadly Continental Europe?
Look, our focus is still very much the UK. That's the geography that we decided to go into first for obvious reasons. We feel very comfortable with that. But we are starting to see some very interesting concepts coming out of Western Europe as well. And we are doing our diligence.
Neil is making several trips across the pond to explore those opportunities. So I'm not going to keep those off the table. But in terms of the makeup, I think, you should expect 20% of the volume, plusminus, to come from the international market. And I'd love to be surprised and that's a challenge to Neil. But the vast bulk of our acquisitions will still be U.
S. Domiciled.
Okay, great. Thank you.
Sure.
Our next question comes from the line of Collin Mings from Raymond James. Please go ahead.
Thanks. Good afternoon. First one for me, again, this is something that's been discussed on a few prior calls. Obviously, a lot of competition out there for industrial assets, nothing closed during the quarter. Can you maybe just update us on what you're seeing on that front?
And are the maybe just talk a little bit about the pipeline on that front going forward?
Yes. Colin, the way you started asking the question is precise. There's a lot of competition. There are many people chasing single tenant industrial assets. And yes, we haven't been able to get any over the finish line in the last quarter.
We've been close on a few occasions, but did not chose not to continue to pursue the aggressiveness on the cap rate side. But it is something it's a product that we like. It is an exposure to a certain types of tenants that we would find as being very complementary to what we already have. It's just that we haven't been able to actively get a lot of transactions over the finish line yet.
Okay. And then I did want to follow-up, actually on a couple of questions on the deal flow on the international front. You've referenced a couple of times again targeting plus or minus 20% of your activity in 2020 will fall into the international bucket. So as you think about targeting, call it, rough numbers, dollars 500,000,000 or so of opportunities, just curious if you can maybe drill down a little bit more. You mentioned a few things in response to Spencer's question in terms of the different sectors or property types where you're seeing a lot of the deal flow.
Can you maybe just elaborate a little bit more on where you think you're going to be able to reach the closing table this year on some of those opportunities? And then just again, as you think about the relationships you've built in the region, just elaborate a little bit more on that as well.
Yes. It's very difficult to tell precisely where within those different buckets are we going to end up. Let's just look at historically what we have been able to achieve. The large part of the 2018 transactions that we 2018 properties that we acquired, 17 were in the grocery stores. And they were with the big four grocers in the UK and one happened to be theater.
And so the bulk of the transactions that we are seeing is with the big four, but there are some other transactions that we are starting to see that are very interesting. And I'm not in a position to share with you names of tenants, etcetera, with whom we're making a lot of progress. That is something as you can understand for competitive reasons. We'd like to get it over the finish line and then be in a position to talk about it more freely. But our conversation is broader than the grocery industry is what I can share with you.
Okay. Thank you.
Sure. Thanks, Colin.
Our next question comes from the line of Haendel St. Juste from Mizuho. Please go ahead.
Hey, good afternoon.
Hi, Haendel. Hey.
Henry. I don't know
if I missed it, I don't think I did. But did you mention any update on the search for a new CFO? And if you haven't, could you comment on where that search stands? And what's embedded in the 2020 guidance from both the separation cost and a potential hiring of a new CFO?
Yes. So, look, we have hired a search firm. We have created a profile and we are out in the market looking for the right individual to join the team. That's where we are with regards to the CFO search. The good news is Paul is very much here with us acting as a senior advisor and will continue to be with us through the end of March.
The fact that we have a very strong team with Jonathan Pong and Sean driving our Capital Markets and Finance departments and Sean driving our accounting. We feel very comfortable that we don't have to be in a hurry to replace that particular role. We have a very strong team. Our focus is going to be in terms of finding the right person with the right cultural fit and can help be a partner to us in helping drive the next evolution of this company. And we are not going to take an expeditious route to get there.
I mean, we want to get this right. With regards to your second question or part of your question is around severance. It's just south of $2,000,000 that is going to impact both the G and A as well as our FFO numbers. And yes, I think those were your questions.
Thank you for that. And as a follow-up of sorts, what level of international build out cost is reflected in the current G and A guide? Remind us again how many people you've committed currently already to your international platform and where you envision that by year end?
Yes. So look, we already have a small office in London. We have one person who is driving the business there. We have outsourced a fair amount of the administrative work that is required, I. E.
Accounting, tax as well as legal. It is quite possible based on the analysis that we have done that in sourcing some of these functions may make sense. If the growth in our portfolio continues or accelerates, the in sourcing is going to accelerate. So we are very comfortable with the controls that we have in place and the process that we have implemented. And it's a structure that allows us to be incredibly flexible.
What we have committed to is to hire one other person in the UK, But the number of people who eventually become part of Realty Income Limited will remain to be seen and is going to be partially driven by the size of the portfolio that we are able to create. And so having that flexibility allows us to be much more nimble when it comes to the G and A load that is associated with the platform.
Got it. Got it. Thank you for that. And then maybe one more if you entertain me for a second. Curious on, I guess, what your view is on if you
feel credit,
tenant credits being fairly valued in today's market and whether size is an advantage or maybe a disadvantage or maybe some of your smaller peers have been able to grow faster in an environment where growth seems to have been prioritized over the past year or so. Does that make you any more or less inclined to perhaps consider splitting the company maybe into a higher credit and maybe lower credit bucket or perhaps some transaction to in effect make the company a bit smaller or any other strategic change on that front?
Look, that's a whole lot of questions that you've sort of built into this one question. What I can tell you, Haendel, is we went through a very deep dive, I'd say now about 16 months ago, 15 months ago. And we feel very comfortable that our size, scale and cost of capital, 1st and foremost, is very portable and is a massive advantage to us as we have started to show. We can do very large scale sale leaseback and it does not create immediate tenant concentration issues for us. We can be the one stop shop for existing tenants and have transactions come to us without it without them feeling the need to have to go and test the market.
And that's value to them, it's value to us. It allows us to pursue proprietary software that we are developing in house that is going to help us drive the life cycle of real estate within our business. Those are things that comes because we have size and scale. And we believe that we have created enough adjacent verticals and or are exploring enough verticals where we will be able to provide a growth rate that is very comparable to all of our net lease peers. And the fact that we have a lower cost of capital and the fact that we have scale and the fact that we have size, those are all benefits that should ultimately accrue to us.
So until that equation changes, I don't see us having to explore what was it that you said, spin offs or high yielding or lower yielding asset base. I mean, this is part of our underwriting and it's in fact a strength of our underwriting that allows us to pursue the full spectrum of credit tenants and opportunities. And it's what helps us drive growth. Thank you. Sure.
Our next question comes from the line of Christy McElroy from Citi. Please go ahead.
Hey, it's Michael Bilerman here with Christy. Sumit, forget about a spin, but just thinking about disposition volumes, right? Because on one hand, it would be highly dilutive relative to buying something with your cost of capital, being able to sell, you obviously saw an asset at a much higher cap rate than where you're effectively funding your costs. So recognizing that there's some dilutive aspect of selling assets, I would have thought just given your comments about how the market's pricing non investment grade, given your size and scale of your portfolio that you would be able to look for either additive things that shrinking the base so that the additive things that you're doing, all these verticals that you're in and having international and having your cost of capital from a debt and equity perspective provides that much more bottom line growth over time, and so that you're not going to be faced with something that comes down the road 12 to 24 months. I would just imagine out of your portfolio, there's got to be more than $50,000,000 or $75,000,000 of dispositions that you'd want to do, if you really took a hard look at the portfolio?
And we're constantly doing that, Michael. We are constantly looking at the portfolio. We're trying to figure out what is the best economic outcome. Despite the fact that the cap rates seem very aggressive, what do we feel we can sell a given asset at versus holding on that asset, collecting the lease and selling it vacant at the end. That's an analysis that we are constantly doing.
The advantage that we have is so many of our assets, and I talked about the Pier 1 example, we did the sale leaseback on those 12 assets that we own in 1998. We can sell those assets for ground and come out with higher single digit unlevered IRRs. But the fact is their rent is current. We are going to collect the rent. And when they if they decide that they want to hand over some of the assets back to us, at that point, we could do the exact same thing that we can do today, but we have a few more months of rent collected.
So it really comes down to an economic argument. And I think what differentiates us is we are constantly doing that on the assets that we have identified as not long term holds. And in some situations, we have decided that selling it today is absolutely the right economic outcome because the rent we are collecting perhaps is not enough to justify holding it till the rent stops coming in. And that's where that $100,000,000 and in this year, dollars 200,000,000 of disposition number comes in. I think if you add up everything we've done over the last 6 years, it's not of $1,000,000,000 of assets that we have sold.
And it's not to avoid the dilution. You're absolutely right. That is a 3rd level, 4th level consideration, but it's not the driver of the decision making process. It is really the economic analysis that we undertake, Michael.
But your company is 2x just over the last 5 years and you go over the last 10 years, it's 4x, right, just in terms of size of asset base. I guess and I know the benefits of size and scale in terms of your cost of capital is helping driving additional growth and allows you to do things, as you said, without getting a tenant concentration issue. For others, they may not want to take off as much of a portfolio in certain vertical because of that. I guess I'm surprised that there isn't and look, maybe all the investments you've made have been great and you don't have a lot of issues. I guess I'm just surprised that there isn't a more aggressive recycling of portfolio, especially in this environment where credit is being, I think, mispriced?
Yes. Look, we continue to keep looking at it, Michael. And who knows, maybe in a few years, we'll come out or not even a few years, maybe in 12 months, we'll come out and say we may need to do more. But right now, we feel fairly comfortable that I think we've based on the analysis that we've done, we're comfortable with the $200,000,000 of dispositions.
Have your views changed on public to public M and A within the net lease space? And sort of where is your mindset today, especially given your comments about size and scale and being bigger and being able to inherit other problems and dispose or they're not as big of a problem for you as they are of the target?
Yes. We've always been open to M and A, Michael. It's the question that we have wrestled with and the reason why we haven't been able to move forward has always been, do we have a seller out there that's willing to essentially sell themselves? And if that situation were to occur, we would absolutely engage in a conversation. The question is, you look around the net lease space today and you see all of the net lease companies are trading at very high multiples.
All of them seem to have a process identified to continue to grow their business. Within that environment, do you see someone raising their hand and saying, look, we would like to engage. If that happens, we are not going to shy away from engaging in that conversation and pursuing M and A. Okay. Thank you.
Sure.
This concludes the question and answer portion of Realty Income's conference call. I will now turn the call over to Sumit Roy for concluding remarks.
Thank you all for joining us today, and we look forward to seeing everyone at the upcoming conference. Thank you, Kenzie.
Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.