Good day, and welcome to the Realty Income First Quarter 2016 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Janine Bedard. Please go ahead.
Thank you all for joining us today for Realty Income's 1st Quarter 20 16 Operating Results Conference Call. Discussing our results will be John Case, Chief Executive Officer Paul Muir, Chief Financial Officer and Treasurer and Sumit Roy, President and Chief Operating Officer. During this conference call, we will make certain statements that may be considered to be forward looking statements under federal securities laws. 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 Q.
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. I will now turn the call over to our CEO, John Case.
Thanks, Janine, and welcome to our call today. We're pleased to begin the year with an active quarter for acquisitions and healthy AFFO per share growth of 4.5 percent to 0 point 7 16 acquisitions guidance from $750,000,000 to approximately $900,000,000 and reiterating our AFFO per share guidance for 2016 of $2.85 to $2.90 as we anticipate another solid year of earnings and dividend growth. Let me hand it over to Paul to provide additional detail on our financial results.
Paul? Thanks, John. I'm going to provide highlights for a few items in our financial results for the quarter starting with the income statement. Interest expense increased in the quarter by $2,200,000 to $60,700,000 This increase was due to the recognition of a non cash loss of approximately $5,800,000 on interest rate swaps during the quarter. As a reminder, these mark to market adjustments on our floating, the fixed rate interest rate swaps will tend to cause volatility in our reported interest expense and FFO on a quarterly basis, particularly when there is significant movement in short term forward curve rates as we saw in the Q1.
Naturally, this valuation will fluctuate based on the outlook for interest rates. Last quarter resulted in a $4,100,000 noncash gain. We do adjust for these noncash gains or losses when computing our cash AFFO earnings. The increase in interest expense was partially offset by less overall debt in our balance sheet. We repaid $150,000,000 of bonds and over $300,000,000 in mortgages over the last 12 months.
On a related note, our coverage ratios both remain strong and continue to tick higher with interest coverage at 4.6x and fixed charge coverage at 4.1x. Our fixed charge coverage is the highest it has been in well over 10 years. Our G and A as a percentage of total rental and other revenues was less than 4.8%, which continues to be the lowest percentage in the net lease sector. Our non reimbursable property expenses as a percentage of total rental and other revenues was 2.3%. As a percentage of revenue, these expenses came in slightly higher than normal due to temporarily higher carry costs on some vacant properties and some timing issues on tenant reimbursement, which will be received in the Q2.
We continue to estimate our run rate for property expenses in 2016 to be approximately 1.5 percent of revenues. Briefly turning to the balance sheet. We've continued to maintain our conservative capital structure. Last year, we established an ATM or at the market equity distribution program. In the Q1, we utilized this program to issue 500,000 shares, generating net proceeds of approximately $31,000,000 Our $2,000,000,000 credit facility has a balance of approximately $650,000,000 Other than our credit facility, the only variable rate debt exposure we have is on just $22,800,000 of mortgage debt.
And our overall debt maturity schedule remains in very good shape with only $22,000,000 of mortgages and $275,000,000 of bonds coming due in 2016, and our maturity schedule was well laddered thereafter. And finally, our debt to EBITDA ratio stands at approximately 5.3x and is only 5.8x inclusive of preferred equity. Now let me turn the call back over to John to give you more background on these results.
Thanks, Paul. I'll begin with an overview of the portfolio, which continues to perform well. Occupancy based on the number of properties was 97.8%. Occupancy declined a bit due to a number of leases expiring during the quarter, including leases rejected through the Buffet's Chapter 11 bankruptcy filing in March. We are working through this additional vacancy with our re leasing and sales efforts and continue to expect to end the year at approximately 98% occupancy.
Economic occupancy was 98.8%. On the 38 properties we released during the quarter, we recaptured 112% of the expiring rent, which represents our strongest quarterly recapture rate since we began reporting this metric in 2014. As is typical for us, we achieved this without any spending on tenant improvement. Our releasing results reflect the high quality of our real estate portfolio, a testament to our disciplined investment underwriting and proactive portfolio management efforts. Since our listing in 1994, we have re leased or sold more than 2,100 properties with leases expiring, recapturing approximately 98% of rent on those properties that were re leased.
This compares favorably to our net lease peers who also report this metric. Our same store rent increased 1.3% during the quarter and we expect annual same store rent growth to be approximately 1.3% for 2016. 90% of our leases have contractual rent increases, so we remain pleased with the growth we are able to achieve from our properties. Approximately 75% of our investment grade leases have rental rate growth that averages about 1.3%. Additionally, we had never had a year with negative same store rent growth.
Our portfolio continues to be diversified by tenant, industry geography and to a certain extent property type, all of which contributes to the stability of our cash flow.
At the end of
the quarter, our properties were leased to 243 commercial tenants and 47 different industries located in 49 states in Puerto Rico. 79% of our rental revenue is from our traditional retail properties. The largest component outside of retail is industrial properties at about 13% of rental revenues. There was not much movement in the composition of our top tenants and industries during the Q1. Walgreens remains our largest tenant accounting for 6.8 percent of rental revenues and drugstores remain our largest industry at 11 percent of rental revenues.
We continue to have excellent credit quality in the portfolio with 44% of our annualized rental revenue generated from investment grade rated tenants. This percentage will continue to fluctuate and should be positively impacted in the second half of this year by Walgreens pending acquisition of Rite Aid, which represents about 2% of our annualized rental revenue. The store level performance of our retail tenants also remain sound. Our weighted average rent coverage ratio for our retail properties increased to 2.7 times on a 4 wall basis and the median remained at 2.6 times for the Q1. Moving on to acquisitions.
During the quarter, we completed $353,000,000 in acquisitions at record spreads to our weighted average cost of capital, and we continue to see a strong flow of opportunities that meet our investment parameters. During the quarter, we sourced $6,200,000,000 in acquisition opportunities, putting us on pace for another active year in acquisition. We remain disciplined in our investment strategy acquiring just 6% of the amount we source, which is consistent with our average since 2010. As a reminder, our revised acquisitions guidance of approximately $900,000,000 principally reflects our typical flow business and does not account for any unidentified large scale transaction. I'll hand it over to Sumit to discuss our acquisitions and distribution.
Thank you, John. During the Q1 of 2016, we invested $353,000,000 in 103 properties located in 31 states at an average initial cash cap rate of 6.6 percent and with a weighted average lease term of 15.8 years. On a revenue basis, 23% of total acquisitions are from investment grade tenants. 86% of the revenues are generated from retail and 14% are from industrial. These assets are leased to 26 different tenants in 18 industries.
Some of the most significant industries represented are restaurants and motor vehicle dealerships. We closed 19 independent transactions in the 1st quarter and the average investment per property was approximately $3,400,000 Transaction flow continues to remain healthy. We sourced more than $6,000,000,000 in the 1st quarter. Of these opportunities, 48% of the volume sourced were portfolios and 52% or more than $3,000,000,000 were one off assets. Investing grade opportunities represented 30% for the Q1.
Of the $353,000,000 in acquisitions closed in the Q1, 37% were one off transactions. We continue to capitalize on our extensive industry relationships developed over our 47 year operating history. As to pricing, cap rates remained flat in the Q1 with investment grade properties trading from around 5% to high 6% cap rate range and non investment grade properties trading from high 5% to low 8% cap rate range. Our disposition program remained active. During the quarter, we sold 11 properties with net proceeds of $11,000,000 at a cash cap rate of 6.9% and realized an unlevered IRR of 6.6%.
Our investment spreads relative to our weighted average cost of capital were healthy, averaging 255 basis points in the Q1, which were well above our historical average spreads. We defined investment spreads as initial cash yield less our nominal 1st year WACC. In conclusion, as John mentioned, we are raising our acquisition guidance for 2016 to approximately $900,000,000 We remain confident in reaching our 2016 disposition target of between $15,000,000 $75,000,000 With that, I'd like to hand
it back to John. Thanks, Sumit. Following the very active year we had in the Capital Markets in 2015, we raised $35,000,000 in common equity during the Q1. Approximately $31,000,000 of the equity raised during the quarter was through our ATM program. Our leverage continues to be at historical lows with debt to market cap of approximately 24%, debt to EBITDA of 5.3 times and a debt service coverage ratio of 4 point 6 times.
We currently have more than $1,300,000,000 of capacity on our $2,000,000,000 revolving line of credit, providing us with excellent liquidity as we grow our company. Our sector leading cost of capital and balance sheet flexibility allows us to drive earnings per share and dividend growth, while remaining disciplined with our investment and underwriting strategy. Last month, we announced our 85th dividend increase, representing a 5% increase from this time last year. We have increased our dividend every year since the company's listing in 1994, growing the dividend at a compound average annual rate of just under 5%. Our current AFFO payout ratio at the midpoint of our 2016 AFFO per share guidance is 83%, a level we are quite comfortable with.
To wrap it up, we had a solid quarter and remain optimistic for 2016, As demonstrated by our sector leading EBITDA margins of approximately 94%, we continue to realize the efficiencies associated with our size and the economies of scale in our net lease business. Our portfolio is performing well and we continue to see a healthy volume of acquisition opportunities. The net lease acquisitions environment remains a very efficient marketplace and we believe we are best positioned to capitalize on the highest quality opportunities given our strong balance sheet, ample liquidity and distinct cost of capital advantage. At this time, I would now like to open it up for questions. Operator?
Thank
And we'll go first to Juan Sanabria with Bank of America.
Hi, good morning on the West Coast. Just hoping you could speak a little bit to the watch list you may have and in particular any potential vacancies if some of the tenants like a sports authority or Friendly's if all their stores went dark, what would be the delta in occupancy under that sort of bear case scenario?
Sure. I can address the watch list and touch on vacancies. The watch list is now at 0.8%. Lon, as you remember, we have a credit watch list that's 5.8%. And then we have an overall watch list.
And that overall watch list incorporates everything, including the quality of the real estate location, industry trends, concentrations we may have, not just credit. So those are the signs of the 2 watch list at this point. With regard to when we look at the material exposures that we have, we feel like we're in very good shape. With regard to sports authority, which we typically do not talk about tenants outside of our top 20. They've been in our top 20 before and obviously they're in the news.
So we did want to address that today. Sports Authority, we have normal exposure to well under 1% of rent. The stores that we have are receiving significant interest from a number of national retailers, some sporting goods stores, but also retailers outside of that sector. Our cash flows on those stores, our cash flow coverages are quite strong. And I think this morning, as you probably saw, they announced that they were going to pursue a liquidation.
Our guidance has incorporated our expectations with regard Sports Authority and any other credit issues into it. So that's why we're sticking with on the AFFO per share $2.85 to $2.90
So
we think we're going to end up the year at occupancy of approximately 98%. We're at 97.8% today. Obviously, we started the year off at 98.4%. The biggest hit was in the first quarter, late in the Q1, when we received the Ovation Brands or Buffet's properties back. And that was the sole reason or principally the sole reason for the downtick in occupancy.
And they came in late in the quarter, so we didn't have a lot of opportunity to work those properties in terms of re leasing and sales. Great.
And just one follow-up question, separate topic. Could you give us a sense of what percentage of restaurants where you kind of call them out in terms of the Q1 deal volume? And you guys had previously been a little bit bearish in your discourse about casual dining. What in particular around the brands you may have acquired was appealing to you? And if you could maybe talk to some of the valuation numbers around that?
Yes. I mean, I'll address casual dining. We invested in QSR restaurants as well as casual dining restaurants in the Q1. We are consistent with what we've said regarding casual dining. We've not made many investments in casual dining restaurants here over the last 5 years, just a few, and none that have been material.
But when we do look at casual dining restaurants, we have a very high underwriting hurdle rate. So we want coverages coverages well north of 3 times, 4 times if we can get it. We want footprints that are smaller, 6,000 square feet in that area, that are fungible. And we want rents that approximate market, and we want to be invested at replacement cost or near replacement cost. And we want to be invested in a concept that's stable or improving.
And most of what we've seen over the last 5 years has not met that hurdle, But when it does meet those hurdles, we're comfortable buying casual dining restaurants.
And we'll go next to Rob Stevenson with Janney.
Good afternoon, guys. Can you talk a little bit about, in terms of the acquisitions you made during the quarter, was it a certain asset, certain group of assets, certain type of tenant or whatever that sort of pushed the cap rate down into the 6% range?
Yes. No, it wasn't really anything other than having to do with the quality of the assets. As you know, last year, our average cap rate was 6.6% for the quarter. It was 6.6% here for the Q1 2016. And the cap rate is reflective of the quality of the assets.
And it's just as simple as that. It wasn't one type of asset that really drove it.
Okay. And then, in terms of the way we should be thinking about the sort of 100 or so leases expiring throughout the year? I mean, what's your expectations at this point for our conversion ratio in terms of renewing those leases versus ones that
are likely to go vacant, at least temporarily?
Yes. I mean, we again, we think we're going to the easiest way to answer this question is we think we're going to end up at approximately 98% occupancy. So this is relatively for us a light year from here on out with regard to lease rollover. So we would expect to our historical rate has been to re add about 70% to the same tenant, 20% to new tenants and sell about 10%. Whether we match that or not this year, I'm not sure.
But again, we feel good about the prospects on those properties that we have that expire during the remaining 3 quarters of the year.
And we'll go next to Vikram Malhotra with Morgan Stanley.
Thank you. Just on the acquisitions trajectory, you guys had a very nice quarter, the Q1. But just looking at the guidance, most of the raise is just a flow through from sort of what you've done in the Q1. And you typically don't see a sort of slowdown in the trajectory. Generally, 2nd or third quarter seems to be you seem to have a decent quarter in the past.
So I'm just kind of wondering what is there something different? Is there something lumped something got pushed back? And is this more kind of a maybe the Q1 strong and then the Q4 strong as well?
Well, our quarterly acquisitions have in recent years have been anywhere from $125,000,000 to $750,000,000 So they're very difficult to predict and you've heard us use this word, Vikram, a 1000 times, but they're lumpy. And you can't take 1 quarter and extrapolate from that quarter what acquisitions are going to be for the year. So we were really pleased with the Q1. We think we're going to have a good year. Hence, we raised our acquisitions guidance for the year to 900,000,000 dollars But there's no smoothness to being able to project it by quarter upfront.
Okay, fair enough. And then can you just update us on how you're viewing the office, your office and industrial holdings? There's been some more mixed commentary on both sectors. I'm just kind of wondering how you view them as a part of the portfolio. And if you can just update us, I believe there's a change in personnel on the industrial side.
If you could update us
as to who's managing that now?
So let me start with office and then we'll get into the personnel side of it. First of all, we do not actively seek office on a standalone basis. Office represents 6 percent of our rental revenue. Offices come into the company really in 1 of 2 ways, either through portfolio acquisitions where 85%, 90% or more of the assets were assets that net our investment strategy or through relationships with major tenants where we've had, for instance, a major retail tenant come to us and ask us to do a sale leaseback on their office headquarters. So if we're comfortable with the structure and the investment, we would do that for relationship purposes.
So we don't intend to grow the office exposure. Industrial right now is about 13% and we have a high again hurdle rate for industrial. We're looking for Fortune 1,000 tenants, fungible buildings and significant or mission critical building markets leased to investment grade tenants. So on the industrial front, this change happened quite a while ago, but Ben Fox and Greg Libbey now are the 2 people who head up our industrial effort, and they've been doing that now for probably close to a year now.
And we'll go next to Nick Joseph with Citigroup.
Thanks. I'm wondering if you can talk about the strength of the 1031 market and what you're seeing there? And then just pricing overall of larger portfolios versus individual assets?
Sure. The 1031 market has come back and is strong. So we're seeing good bids in that market or aggressive pricing. I think if you took, for instance, a QSR property and put it in a $200,000,000 portfolio, it probably trades at a cap rate that's maybe 50 to 75 basis points higher than where it would if it were trading on its own. So there's an arb between where one off assets trade and where larger portfolios trade.
The pricing on the portfolios has remained consistent as Sumit really laid out in his opening
remarks. And how many larger portfolios, I guess, relative to historical averages are out there today to be acquired?
We're seeing there's really been no drop off in our transaction opportunity flow. We had a very good quarter at $6,200,000,000 and we were optimistic about the pipeline and continue to work a number of opportunities on our larger portfolios. Some are one off assets. But, no change from our previous trends.
And we'll go next to R. J. Milligan with Baird.
Hey, guys. John, just on your comments on the casual dining sector, curious if you looked at the Bloomin' portfolio. I think given your comments, maybe you looked at it, but didn't spend much time looking at it.
Yes. We don't comment on specific transactions. I've laid out the conditions under which we would invest in a casual dining portfolio. So I think I've answered that.
Okay. And Sumit, you mentioned that you were seeing some non investment grades going at the high fives. I was curious what kind of properties or industries those assets were trading at pretty low cap rates?
Yes. If you look at the QSR sector, if you look at even small franchisees, they're trading in that zip code and they are certainly non investment grade. The other group that we see quite often are C Stores. They are very aggressively priced, some even in the mid-five zip code.
And we'll go next to Zaneet Khanna with Capital One Securities.
Yes. Hi, guys. Thanks for taking my questions.
Can you provide some color
on the makeup of the $353,000,000 of first quarter activity? Specifically, were there any single large deals in there?
So Matt, no, if you look at our average per property, we bought about 109 properties. It's about 3,400,000. Dollars It wasn't dictated by any one very large asset transaction. We had 19 independent transactions. There were certainly some portfolios we did.
52% of what we did was sale leasebacks. And I think in my opening remarks, I'd mentioned that 67% of what we did were portfolio deals. So that's really what's driving the volume.
Okay, sure. And then just looking at the broader sporting goods retailer sector, can you talk about your general sporting goods retailer exposure and then specifically your Gander Mountain exposure and just the health of that tenant?
So we look at the sporting goods industry, if you will, as the story of 2 worlds really. You've got the very good operators in Academy and Dick's and to some extent, Model's. And then you have the situation that we are seeing playing out in the public press with the sports authority. With regards to and those are the ones that we believe to be very good operators. They continue to do reasonably well despite the fact they happen to be in a discretionary industry and are competing.
But they do have the omni channel strategy. So they do have their brick and mortars. They do have their Internet strategy as well, and they continue to produce very solid results. With regards to Ganda Mountain and what is our exposure there, it is if I remember correctly, it isn't very high and it certainly doesn't even come close to being in our top 20. So we do have a couple, but it's insignificant.
And we'll go next to Tyler Grant with Green Street Advisors.
Guys, how are you doing? Good.
How are you doing, Tyler?
Good. Just want to pick your brain today regarding the definition of AFFO. So they started off most REITs in the net lease space. When they define AFFO, they add back non cash compensation. I understand the rationale given that AFFO itself is supposed to be a non cash measure.
However, given that the equity compensation represents a significant portion of management's compensation. Do you think that it makes sense to add this back into the AFFO metric?
Paul? Yes. I mean, Tyler, we're not going to debate how we calculate this metric kind of in this forum. What I will tell you is what we've tried to do is provide great disclosure. And specific to that would be not only that how FFO is calculated in accordance with MAREIT, but then the adjustments that we think are appropriate to arrive at what we think is kind of a cash earnings per share number AFFO wise.
And by laying out that disclosure very clearly, we allow animals to pick and choose in different manners. And certainly through the years, many analysts out there have calculated CAD or FAD or AFFO or whatever they want to call it in their own manner. And so we certainly understand if someone chooses to not include a particular category there, We've just laid out what we think is the appropriate measurement of kind of a run rate for us of a cash operating earnings FFO quarter to quarter.
All right. Sure. I appreciate the color. Moving on to the next question. Regarding cap rates, all else equal, what would you say is the cap rate spread between AA rated assets relative to, let's say, BBB- rated assets or tenants?
Cap rates are really driven more by the quality of the real estate and less by the credit. So it's very hard to answer that question and isolate it. But you can certainly have high quality real estate leased to non investment grade tenants that trade at cap rates that are inside of where real estate leased investment grade tenants trade. So we don't really get hung up on whether it's investment grade or not. We start with an underwriting of the real estate and does it fall within our investment parameters, which we've laid out to the market.
And we'll go next to Todd Stender with Wells Fargo.
Hi, guys. Thanks. Just to hone in on some of the specific transactions that occurred, just 3 of them. If we could look at the current cap rates and lease terms, maybe get a sense of what the FedEx was acquired for, CVSs and then it looks like you sold some of the NPC assets, which I think are Pizza Huts. Just see if you can provide some color on that stuff.
Yes. So the FedEx was a forward that we entered into. And if you look at, obviously, you've got the blended cap rate of 6.6. But I'll tell you, we are looking at FedEx 15 year deals in the market that are trading in the mid-5s. So that's one of the reasons why if you look at what our development cap rate or yield was, it was in that 6.8 zip code.
It is because a couple of our forwards came into very high quality forward transactions closed. And John has mentioned this in some of the questions that he's answered, there is a significant delta between some of these forwards we had entered into as well as portfolio deals that we had entered into and the one off market that we are seeing in today's environment. So that's the response on the FedEx. You mentioned that we did sell a couple of NBCs, and you're absolutely right, those are Pizza Hut branded assets. That is something that we are consciously been going through and cutting our assets on.
I mean, assets that we believe no longer fit our strategic objectives, we are trying to cull them. And it wasn't a very big quarter for us, but we expect to get rid of anywhere between $50,000,000 to $75,000,000 of assets through the year.
And just for pricing for CVSs, looks like you picked up a few?
Yes. On some of the CVSs, we actually got them through a small portfolio deal, where we handpicked the assets that we wanted to close on. And we got them at very good cap rates, just given the fact that it was a portfolio deal. Again, if you were to simply go out there and flip out of those, I think there is certainly a fairly healthy spread that we'd be able to achieve. And those were very well located 3 d assets.
And we'll go next to Karin Ford with MUFG.
Hi, good afternoon. Just a clarification, you raised investment guidance, but you left AFFO guidance unchanged. And the reason why was just increasing conservatism on credit issues in the portfolio?
No, it's really Karen driven by when we anticipate those additional acquisitions coming online. We think they'll be back end weighted, so they'll have more of an impact on 20 seventeen's AFFO per share than they will this year. So given the fact that they're back end weighted, the increase did not have a significant increase on what our annualized projected numbers were for this year. So it's a timing issue.
Got it. Thanks. And then second question, do you have any update on potential store closures in your portfolio in the Walgreens Rite Aid merger?
No, we don't. We really had very little overlap with regard to properties. We've got 15 properties Rite Aid properties that are within a 2 mile radius of a Walgreens store. So, we expect minimal fallout and overall are excited about this merger. The average lease term on these properties is just under 13 years.
So even if one were to be closed, obviously, Walgreens would stay on the hook for lease payments for that period of time.
And we'll go next to Collin Mings with Raymond James.
Hey, good afternoon. First question for Paul. Maybe can you just update us or remind us on how you're thinking about handling the 2016 debt maturities? Just maybe in terms of term and size and just maybe update us on the debt market pricing right now?
Sure. So you know the schedule, but basically, we have a $275,000,000 bond coming due in mid September and only about $22,000,000 of mortgages remaining this year in terms of maturities. So $300,000,000 total, call it, on the liability side. Certainly, we're positioned liquidity wise to deal with that even if we did temporarily on the credit line or something of that nature. But so it's not a big tall order, if you will, for the balance of the year.
So we're monitoring the market. We've been generally pleased with our equity pricing as well as debt pricing. And debt pricing in particular, I'd say, has improved over the past couple of weeks as that market settled in. Today, we could do a 10 year somewhere around 3.75 all in coupon. So that's very favorable 10 year debt pricing and something we would strongly be considering.
But we'll continue to monitor the market, how the stock price does and how the what the bond markets look and feel like over the next handful of months.
Okay. And I think, Paul, you had indicated in previous call that maybe minimum size would be $2.50 per debt offering. I mean, just how comfortable would you get as far as magnitude as far as size of an offering?
I think we would lean towards something larger. To the extent that we could do something larger and provide more liquidity for bond investors today. We think on balance, you may get more favorable pricing in that manner. And by that, I mean probably something $500,000,000 area or more. But we'll think about the appropriate size at that time.
$250,000,000 I would say historically was more of a minimum to provide that sort of liquidity, but I think the market's asking for more these days. So we would consider something more in the $500,000,000 plus range.
And we'll go next to Rich Moore with RBC Capital Markets.
Hi, good afternoon guys or good morning out there. Paul, I want to follow-up if I could on that last question. I mean, if you think more broadly about what you guys have, you have $650,000,000 on the line of credit, the $275,000,000 bond, another $600,000,000 let's say of acquisition. So you have really more like $1,500,000,000 to $2,000,000,000 of capital needs for the rest of the year. And I wish it would stay this way, but I don't think interest rates always stay low and I don't think stock prices always stay high.
And I'm wondering if there's more of a sense of urgency, even if you have to sort of front load the balance sheet a little bit, a little bit of cash to do more transactions to clear some of this?
Hey, Rich, I'll start and then hand it over to Paul. If you look at the size of the company today, your $650,000,000 on the revolver represents about 3% of our capitalization. If you go back to the end of 2012, 3% of our capitalization was $250,000,000 on the line. So given the growth and the size of the company, our relative exposure is no different than really what we've done in the past. And the balance sheet, as you know, is in excellent shape and by many measures is in the best shape it's been in, in 10 years.
So we have substantial equity. We did nibble away at the equity through the ATM program in the Q1, but we didn't want to do anything substantive and dilute our current shareholders and over equitize the balance sheet. So we're watching the markets quite closely for permanent funding and debt funding, But we're quite comfortable here and with our obligations for the remainder of the year.
Yes. The only thing I would add is that we're very pleased to have the larger line in place and that provides great liquidity, not only the $2,000,000,000 size, but the $1,000,000,000 accordion expansion feature on it gives us great comfort relative to our acquisition efforts and needs and allowing us to be patient and pick our spots on the permanent capital front.
Okay. All right. Good. Thank you. And then the other question I have for you is, you guys had mentioned a while back that you were using obviously the this opportunity with your stock price having moved up and all to take a look at bigger transactions like a non traded REIT or maybe another public company, something like that.
And I'm wondering if that's if you guys are maybe use a partner to do something a little broader even. And is that still something you guys are considering or pondering? Or is that kind of not really on the table?
Yes. Rich, this is John. You cut out for a second, but I think we caught the gist of what you said. Our statement on these sort of questions is that we're looking at all opportunities in the marketplace, both private and public that makes sense for our shareholders. And we'll continue to do so.
So that kind of sums it up. I think that's been on the last call and don't really need to add anything to that.
And we'll go next to Juan Santabria with Bank of America.
Hi. Just one follow-up question for me. There's been some press articles about potential reforms to the 1031 law that allows the tax deferral of gains, maybe limiting that deferral amount or some outright repeals. Any thoughts on kind of what's going on in Congress, your sense of what may or may not happen there and the potential implications if there is a change to the market?
We're not anticipating any changes with regard to the 1031 taxation policies. So at this point, we're not concerned, Juan. Washington is unpredictable, but getting changed through is often pretty difficult and takes a long time.
Thank you.
Thank you.
This concludes the question and answer portion of Realty Income's conference call. I will now turn the call over to John Case for concluding remarks.
Thanks, Tracy, and we appreciate everyone for joining us today. We look forward to seeing everyone at the upcoming conferences, including NAREIT in early June. Take care.
This concludes today's conference. We thank you for your participation. You may now