Good day, everyone, welcome to the Realty Income Third Quarter 2014 Operating Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jana Galan, Associate Vice President. Please go ahead, ma'am.
Thank you, Operator, thank you all for joining us today for Realty Income's Third Quarter 2014 Operating Results Conference Call. Discussing our results will be John Case, Chief Executive Officer, Paul Meurer, Chief Financial Officer and Treasurer, and Sumit Roy, Chief Operating Officer and Chief Investment Officer. During this conference call, we will make certain statements that may be considered to be forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in any forward-looking statements. We will disclose in greater detail the factors that may cause such differences in the company's Form 10-Q. I will now turn the call over to our CEO, John Case.
Thanks, Jana. Good afternoon, everyone, welcome to our call. We're pleased with our third quarter results with AFFO per share increasing by 6.7% to $0.64. As announced in yesterday's press release, we are reiterating our 2014 AFFO guidance per share of $2.55-$2.57, we anticipate another solid year of earnings growth. Paul will provide you with an overview of the earnings numbers. Paul?
Thanks, John. As usual, I will briefly comment on our financial statements and provide some highlights of our financial results for the quarter. I'll start by highlighting a few line items in our income statement. Total revenue increased 16.6% for the quarter. This increase reflects our growth primarily from new acquisitions over the past year, as well as same-store rent growth. Our annualized rental revenue at September 30th was approximately $912 million. On the expense side, interest expense increased in the quarter to $52.8 million. This increase was primarily due to our two recent bond offerings, the $350 million 10-year notes issued in June, the $250 million 12-year notes issued in September. Interest expense was also impacted this quarter by the reclassification of approximately one month of preferred dividends as interest expense.
Because we issued the redemption notice for our outstanding preferred E stock before quarter end, we needed to reclassify the preferred E stock as a liability at quarter end and about one month of preferred dividends as interest expense. This increased interest expense during the quarter by $1.2 million. On a related note, our coverage ratios both remain strong, with interest coverage at 3.7 times and fixed charge coverage at 3.3 times. General and administrative expenses in the quarter were approximately $11 million, a $5.6 million decrease from a year ago. G&A expenses year to date were $35.5 million, a $4.9 million decrease from the first nine months of last year. This decrease in G&A comes from lower acquisition transaction costs, $589,000 year to date versus $1.7 million of transaction costs for acquisitions in 2013, as well as lower stock compensation costs.
We had a one-time unusual $3.7 million expense during the third quarter of 2013 due to accelerated vesting of our long-term stock compensation. Our projection for G&A for 2014 remains approximately $50 million. Our G&A year to date as a percentage of total rental and other revenues remains low at only 5.3% of revenues. Our current projection for G&A expenses in 2015 is approximately $53.5 million. Property expenses were $12.8 million in the quarter. However, this amount includes $8.3 million of property expenses reimbursed by tenants. The property expenses that we are responsible for were approximately $4.5 million for the quarter. Our projection for 2014 of property expenses that we will be responsible for has increased slightly to approximately $17 million from a prior projection of $16.5 million. Our current projection for property expenses that we will be responsible for in 2015 is approximately $19 million.
Provisions for impairment includes $495,000 of impairments we recorded on one sold property and three properties held for sale at September 30th. Gain on sales were approximately $11 million in the quarter. Just a reminder, we do not include property sales gains in our FFO or in our AFFO. Excess of redemption value over carrying value of preferred shares redeemed refers to the $6 million non-cash redemption charge for the unamortized original issuance costs, which were paid when issuing the preferred E shares back in 2006. Funds from operations, or FFO per share, was $0.64 for the quarter. This would have been $0.67 per share, but it was reduced by $0.03 due to the redemption charge on the Class E preferred shares.
Adjusted funds from operations, or AFFO, or the actual cash we have available for distribution as dividends, was also $0.64 per share for the quarter. We again increased our cash monthly dividend this quarter. Our monthly dividend now equates to a current annualized amount of approximately $2.197 per share. Briefly turning to the balance sheet, we've continued to maintain our conservative and safe capital structure. As you know, in mid-September, we issued $250 million of 12-year bonds priced at a yield of 4.178%. Obviously, we are pleased with our continued access to low-cost, long-term capital in the bond market. The primary purpose of this offering was to redeem our $220 million of preferred E stock, which had a coupon of 6.75%. This transaction resulted in annual cash expense savings of almost $5.7 million.
Our bonds, which are all unsecured and fixed rate and continue to be rated Baa1 BBB+, have a weighted average maturity of 7.5 years. However, the $1.5 billion acquisition credit facility had only a $45 million balance at September 30th. The $220 million Preferred E redemption closed earlier this month, so the facility has an effective balance of $265 million. We did assume approximately $7 million of additional in-place mortgages during the third quarter, but we also repaid $56 million of mortgage principal during the quarter. Our outstanding net mortgage debt at quarter-end decreased to approximately $844 million. Not including our credit facility, the only variable rate debt exposure to rising interest rates that we have is on just $39 million of mortgage debt.
Our overall debt maturity schedule remains in very good shape, with only $8 million of mortgage principal payments due in the fourth quarter of 2014 and $120 million in 2015. Our next bond maturity is only $150 million due in November of 2015, and our maturity schedule is well-laddered thereafter. Currently, our debt to total market capitalization is approximately 32%, and our preferred stock outstanding is less than 3% of our capital structure. Our debt to EBITDA at quarter-end was only 5.9 times. Now, let me turn the call back over to John, who will give you more background on these results.
Thanks, Paul. I'll begin with an overview of the portfolio, which is performing well and continues to generate dependable cash flow for our shareholders. Occupancy remains consistent with the previous quarter at 98.3%, based on the number of properties, with 74 properties available for lease out of 4,284 properties. Occupancy has held steady for three consecutive quarters now and is up 20 basis points from one year ago. Occupancy based on square footage and economic occupancy are both 99.1%. Based on what we're seeing today in our scheduled rollover, we expect our occupancy to remain fairly stable for the remainder of the year. The third quarter was our most active quarter this year for lease rollover activity in the portfolio, with leases expiring on 81 properties.
Of these assets, we re-leased 70 to existing tenants, seven to new tenants, and sold four properties, recapturing 100% of expiring rents on the properties we re-leased. Our property portfolio management activities speak to the unique and extensive experience we have seeing our business full cycle, where leases signed more than 20 years ago are rolling. Over our 45-year operating history, we have successfully executed more than 1,700 lease rollovers. We have a team of 36 professionals, many of whom have been with the company for over a decade, working in our property portfolio management department. We believe our expertise in this area is a significant asset to our company. Our portfolio continues to be diversified by tenant, industry, geography, and to a certain extent, property type.
At the end of the third quarter, our properties were leased to 231 commercial tenants in 47 different industries located in 49 states and Puerto Rico. 78% of rental revenue is from our traditional retail properties, while 22% is from non-retail, the largest component being industrial and distribution. This diversification continues to enhance the predictability of our cash flow. At the end of the third quarter, our top 10 and top 20 tenants represented 37.5% and 53.5% of rental revenue, respectively. The tenants in our top 20 continue to capture nearly every tenant representing more than 1% of our rental revenue. There have been no material changes to the composition of tenants in our top 20 since last quarter. Nine of the top 20 tenants have investment-grade credit ratings. The rental revenue from these nine investment-grade-rated tenants represents over half of the rent from our top 20 tenants.
Within our portfolio, no single tenant accounts for more than 5.4% of rental revenue, the diversification by tenant remains quite favorable. Walgreens continues to be our largest tenant at 5.4% of rental revenue, which is up slightly from last quarter. FedEx remains our second-largest tenant at 5.1% of rental revenue, which is also up slightly from last quarter. Our 20th-largest tenant represents only 1.2% of rental revenue, and our 30th-largest tenant accounts for just over one-half of 1% of rental revenue. We also added four new tenants to our portfolio this quarter, further diversifying our tenant base. Far as industries, convenience stores remain our largest industry at 10% of rental revenue and have continued to decline as a percentage of rental revenue for 14 quarters in a row. Our second-largest industry is dollar stores at 9.6%, down from 9.8% last quarter.
Many of you know, there's been a lot in the news regarding the top three players in the dollar store industry, with Dollar Tree and Dollar General competing to buy Family Dollar. The process remains fluid and one we continue to monitor. Family Dollar shareholders will determine the ultimate outcome here. We would expect the FTC's ruling on the antitrust concerns associated with the merger to impact the outcome. We remain quite comfortable with our dollar store portfolio. We continue to like the deep discount orientation of the dollar store industry as lower and middle-income consumers remain focused on value shopping. Family Dollar and Dollar General remain the dominant players in the industry. Our Family Dollar and Dollar General portfolios have an average lease term of 13 years, with a unit-level cash flow coverage well above the overall average cash flow coverage in our retail portfolio of 2.6 times.
A Family Dollar merger with either suitor should not have a material impact on our operations. Moving on to property type, retail continues to represent our primary source of rental revenue, currently at 78%, with industrial and distribution at 10%, office at 7%, and the remainder evenly divided between light manufacturing and agriculture. We continue to focus on retail properties leased to tenants with a service, non-discretionary, and/or low price point component to their business. Today, more than 90% of our retail revenue come from businesses with these characteristics, which better positions them to successfully operate in all economic environments and to compete with e-commerce. Our weighted average remaining lease term continues to be approximately 10 and a half years. Our same-store rents increased 1.4% during the quarter and 1.5% year-to-date, consistent with our expectations for the foreseeable future.
The industries contributing most to our quarterly same-store rent growth were convenience stores, health and fitness, and quick-service restaurants. We continue to have excellent credit quality in the portfolio, with 46% of our rental revenue generated from investment-grade tenants. Again, we define an investment-grade rated company as having an investment-grade rating by one or more of the three major rating agencies. This revenue percentage is up from 40% one year ago. We've continued to generate solid rental growth from these investment-grade tenants. Nearly 70% of our investment-grade leases, as a percentage of rental revenues, have rental rate increases in them, which average approximately 1.4% annually, consistent with our historical portfolio rental growth rate. Overall, investment-grade rental growth is about 1%. In addition to tenant credit, the store-level performance of our retail tenants remains positive.
On average, our rent coverage ratio on our retail properties is 2.6 times on a four-wall basis. Moving on to acquisitions. We continue to see a very high volume of sourced acquisition opportunities. During the quarter, we sourced over $7 billion in acquisitions opportunities and year-to-date, nearly $21 billion, making this already our second-most active year ever for sourced transactions. We are seeing some very aggressive pricing and transaction structures in the market today. We continue to remain selective and disciplined in our investment strategy, investing at attractive risk-adjusted returns and spreads for our shareholders. During the quarter, we completed $182 million in property-level acquisitions at a cash cap rate of 7.4%, bringing us to $1.24 billion in acquisitions for the year at an initial cash cap rate of 7.1%.
We are pleased with the yields, returns, and spreads we are achieving. Given our low cost of capital, we continue to be able to invest at accretive levels. Our investment spreads relative to our weighted average cost of capital continue to be well above our historical averages, we are investing at spreads that are nearly 100 basis points wider than our long-term average. We anticipate closing approximately $1.4 billion in acquisitions this year, making 2014 our second-most acquisitive year ever in our company's history. Given the current environment, we are establishing initial acquisitions guidance for 2015 of $500 million-$800 million. As you know, it's notoriously difficult to predict future acquisitions activity. Volumes can be lumpy and can change significantly from quarter to quarter. However, we continue to see a robust pipeline of acquisition opportunities.
Given the backdrop of this acquisitions environment, we are increasing our asset sales this year from $75 million to approximately $100 million to take advantage of a more aggressive market for buying. This is twice our initial expectation of $50 million at the beginning of the year. During the quarter, we sold 11 properties for $33.5 million, which brings us to 28 properties sold to date for $53 million. These are our non-strategic assets being sold at attractive pricing. Let me hand it over to Sumit to discuss in more detail our acquisitions and dispositions. Sumit?
Thank you, John. During the third quarter of 2014, we invested $182 million in 49 properties located in 26 states at an average initial cash cap rate of 7.4%, and with a weighted average lease term of 11.2 years. As a reminder, our initial cap rates are cash, not GAAP, which tend to be higher due to straight lining of rent. We define cash cap rates as contractual cash net operating income for the first 12 months of each lease following the acquisition date, divided by the total cost of the property, including all expenses borne by Realty Income. On a revenue basis, 53% of total acquisitions are from investment-grade tenants. 96% of the revenues are generated from retail, and 4% are from industrial and distribution. These assets are leased to 21 different tenants in 15 industries. Some of the most significant industries represented are home improvement and drugstores.
Year-to-date 2014, we invested $1.24 billion in 439 properties located in 42 states at an average initial cash cap rate of 7.1%, and with a weighted average lease term of 12.6 years. Of the total amount, approximately $329 million was invested in non-investment grade retail properties. On a revenue basis, 70% of total acquisitions are from investment-grade tenants. 86% of the revenues are generated from retail, 7% are from industrial distribution and manufacturing, and 7% are from office. These assets are leased to 51 different tenants in 27 industries. Some of the most significant industries represented are dollar stores, home improvements, and drugstores. Transaction flow continues to remain healthy. We sourced more than $7 billion in the third quarter.
Year-to-date, we have sourced approximately $21 billion in potential transaction opportunities, which as we mentioned last quarter, would put us on pace to make 2014 the year with the second-largest volume sourced in our company's history. Of these opportunities, 75% of the volume sourced were portfolios, and 25%, or $5 billion, were one-off assets. Investment-grade opportunities represented 48% for the third quarter. Of the $182 million in acquisitions closed in the third quarter, approximately 48% were one-off transactions. 69% of the transactions closed in the third quarter were relationship-driven. We remained selective and disciplined in our investment approach, closing on less than six percent of deals sourced, and continue to capitalize on our extensive industry relationships developed over our 45-year operating history.
As to pricing, cap rates remained tight in the third quarter, with investment-grade properties trading from mid-5% to high 6% cap rate range, and non-investment grade properties trading from low to mid-6% to low 8% cap rate range. As John highlighted, we had a very active quarter for dispositions and have increased our dispositions guidance to approximately $100 million to take advantage of the propitious cap rate environment. During the quarter, we sold 11 properties for $33.5 million at an unlevered IRR of just over 12%. This brings us to 28 properties sold year-to-date for $53.3 million at an unlevered IRR of approximately 11%, and a net cap rate of 8.1% on the leased properties sold.
Our investment spreads relative to our weighted average cost of capital were very healthy, averaging 224 basis points in the third quarter and 190 basis points year-to-date, which was significantly above our historical average spreads. We define investment spreads as initial cash yield less our nominal first-year weighted average cost of capital. We're continuing to make investments above our historic spreads whilst improving our real estate portfolio, tenant quality, credit quality, and overall diversification. In conclusion, the third quarter investments remained healthy at $182 million. Year-to-date, we have invested $1.24 billion while sourcing approximately $21 billion in transactions. Our spreads remained comfortably above historical level as a tight cap rate environment in the third quarter was more than offset by our improving cost of capital. We continue to be very selective in pursuing opportunities that are in line with our long-term strategic objectives and within our acquisition parameters.
We also took advantage of an aggressive pricing environment to accelerate disposition of assets that are no longer a strategic fit. We remain confident of reaching our updated investment and disposition goals of approximately $1.4 billion and approximately $100 million respectively for 2014. With that, I would like to hand it back to John.
Thanks, Sumit. Regarding our capital-raising activities, as Paul mentioned, we have been quite active in the capital markets year-to-date. We have raised over $1.2 billion in permanent and long-term capital to finance our business, the majority being equity, with the remainder being 10 and 12-year unsecured bonds. Our balance sheet continues to be in excellent shape with two-thirds equity and one-third debt, and that debt being predominantly long-term fixed rate. We currently have more than $1.2 billion available on the line to support future acquisitions activity. We continue to have excellent liquidity. Regarding earnings and guidance, we continue to generate healthy per share earnings growth while maintaining a conservative capital structure. Our third quarter FFO and AFFO per share of $0.64 represented increases of 8.5% and 6.7%, respectively, from the period one year ago.
As mentioned earlier, we are reiterating our 2014 AFFO guidance per share of $2.55 to $2.57, representing earnings growth of about 6%-7%. We are anticipating another solid year for earnings growth next year. We are initiating 2015 guidance with AFFO per share from $2.66 to $2.71, implying year-over-year growth of approximately 4%-6% over the midpoint of our 2014 range. FFO per share of $2.67 to $2.72, which at the midpoint of the range represents an increase of approximately 4% over the midpoint of our 2014 range. Our focus continues to be the payment of reliable monthly dividends that grow over time. During the third quarter, we declared the 77th dividend increase since the company's listing in 1994. Over this 20-year time period as a publicly traded company, we've grown the dividend by a compounded average annual growth rate of 4.6%.
We remain committed to the durability and consistent growth of the dividend. Our payout ratio year to date has been 85.5% of our AFFO, which is a level we continue to be comfortable with. As I'm sure many of you saw in our separate press release yesterday, we're pleased to announce Steve Sterrett, CFO of Simon Property Group, as the eighth member of our board of directors and seventh independent board member. We welcome Steve to Realty Income and look forward to working with him as a member of our board. Steve has spent 26 years at Simon Property Group, the largest real estate company in the world, and has spent the last 14 years as their CFO, building a reputation of excellence in the industry. His depth of experience and relevance in our industry will enable him to be a valuable contributor to our board.
Finally, to wrap it up, we continue to be pleased with our performance for the year. We're seeing healthy volumes of acquisition opportunities. We are on track to have our second-most active year for acquisitions in our company's history. We will remain selective and disciplined with regards to our investment strategy and will continue to acquire high-quality properties quite accretively with our cost of capital advantage and at attractive risk-adjusted returns for our shareholders. At this time, I would now like to open it up for questions. Operator?
Thank you. If you would like to ask a question on the phone lines today, please signal by pressing *1 on your telephone keypad. If you're using a speakerphone, please make sure your mute option is turned off to allow your signal to reach our equipment. Again, everyone, that is *1 to ask a question. We'll pause for a moment to allow everyone a chance to signal. Our first question comes from Juan Sanabria with Bank of America.
Hi, good afternoon, guys. I was just hoping you could give us a little color on the 2015 acquisition guidance, how you came to that number. Then background on any spreads or cap rates we should be thinking about with regards to that number. Just optically, I know you've kind of stated and stressed that you want to be selective, but just how we should be thinking about that versus the number you put out there for 2014 for the year.
Okay, Juan, let me just spend a moment on acquisitions. We continue to see an active pipeline of sourced acquisition opportunities. There's good transaction flow and, as we said, our investment spreads are well above our historical average. There's also a lot of capital pursuing these opportunities, so it's been competitive. We remain disciplined and selective with our investment strategy. We're seeing some very aggressive pricing out there among some of our peers and structures. Looking at replacement costs, we're seeing assets trade sometimes at 50% above their replacement costs. We're seeing properties that have rents that are well above market rents trading at aggressive pricing. We're seeing some pretty aggressive structures as well. We're seeing, for instance, in some of the casual dining transactions that have crossed our desk, we're seeing them get done at very tight coverage ratios we're not comfortable with.
We've been in this business a long time, and I think we have a pretty good idea of what's going to work and what's not going to work long term. Clearly, given our cost of capital, we could do these transactions, and initially, they'd be quite accretive. But when you look at them over the long term, if they're not structured and priced properly, you're going to have some low IRR and pay the price on the residual, and they could actually be value-destructive to our shareholders long term. Our range for acquisitions for 2015 reflects the environment we're in today. As you know, that environment can change significantly from quarter to quarter, even month to month. If an aggressive buyer is out there that all of a sudden slows down or exits the market, that could have a material impact on our volume and potentially pricing.
At this point, predicting acquisitions guidance a year in advance is always difficult. We've always wanted to be accurate, but not overpromise. Historically, we've exceeded our initial guidance. If you look at last year, we had a $1 billion acquisitions guidance number in October of 2013 for 2014, and we're going to exceed that by about 40%. As usual, we'll just have to see how the year shapes up next year. One thing we're not going to do is abandon our investment discipline simply to generate volume. Let me speak to your second point, and that's spreads and cap rates. Sumit addressed that on the call. Investment-grade cap rates, we've seen them get a little tighter. Investment grade is running from the mid 5s to the high 6s, and non-investment grade, the low 6s all the way up to 8%.
As far as spreads go, for the year, we've invested in spreads of 190 basis points above our weighted average cost of capital. In the third quarter, that was 220 basis points. Given our cost of capital today, we're looking at 240 basis points, which are near our all-time record spreads. They remain quite attractive, but again, we've got to look at this business beyond just what it's going to do over the next quarter or next year. We're looking at 10-, 11-year average, 13-, 14-year average lease terms. Hopefully, that answers your question.
Definitely very thorough. Thanks, John. Just a quick follow-up, if you don't mind. Given how aggressive pricing is, what's the view on dispositions for 2015, and is anything baked into the numbers?
We've assumed for 2015, $50 million for now, we're going to watch that pretty closely. We started out this year assuming $50 million, we're going to end up selling $100 million approximately. If the environment continues to be heated, we're going to go ahead and move some additional assets off our watch list and take advantage of the strong bid in the market. I think pricing will improve here in the next few months, is my prediction in terms of disposition. In the model, we have $50 million, we're going to watch that pretty closely. If the environment continues to look like it does today, we could see increasing that up to $100 million.
Great. Thank you very much for the time.
Okay. Thanks, Juan.
Our next question comes from Todd Stender with Wells Fargo.
Hi. Thanks, guys. Sumit, you gave cap rate ranges for investment-grade and non-investment-grade tenanted properties. Were those for the properties you acquired in Q3? Just want to get the range of cap rates you acquired, because the blended 7.4 yield I thought was pretty high, even though you were able to land over 50% investment-grade.
Yeah. Todd, those were the ranges of assets that we saw transact in the market. We, I don't believe, bought anything in the low or mid 5% cap rate range. The main reason for the yield that we were able to achieve in the third quarter of a 7.4 was being driven by 18% of the volume was coming from our build-to-suit development funding, as well as some of our forward commitments, which typically has been a much smaller portion of the total acquisition volume. It's been right around 3%, but in the third quarter, that represented closer to 18%. Clearly, the mix of investment-grade and non-investment-grade also played a part in why we were able to achieve the higher yield.
That's helpful. Then just kind of switching gears, can you share how some of the re-leasing discussions went with tenants? Looks like while you renewed 77 leases, just looking back at the Q2 results, only 50 leases were coming due in the second half of the year. Just want to see the tenants' comfort level in renewing leases ahead of time. Looks like a fair amount of those were maturities not coming due just yet.
That's exactly right. We're always looking forward, Todd, managing our rollover, and if we can enter into discussions that are advantageous for us and our tenants to re-lease early, we will do that. That's why you see that 77 number versus what was scheduled to roll in the quarter. We're pleased with that, and we'll continue to do that. We're just trying to stay in front of these maturities and our leases and stay in front of them a couple of quarters or longer if we can, even.
Is there a comfort level with tenants? Any trends are developing that tenants are able to renew or their willingness to renew a little early? Anything there?
Well, I think in general, our tenants are in better shape than they were certainly five years ago. Their operations and balance sheets are much stronger. They're more likely to renew. We're leasing, of the lease rollovers we're executing, 90% are going to the same tenant, 10% to a new tenant. If you look at the history of the company, that's been more 70% to the same tenant and 20% to a new tenant, and then 10% sold. Those statistics show you that the tenants are more comfortable renewing their leases on the properties and staying in those properties. It's a function of a better economic environment, but we also like to think it's also a function of better underwriting, better tenant selection, site selection on our part, having learned from 45 years history in this business.
Thanks, John. Just, was there a cost or what was the cost associated with retaining and attracting new tenants? Have you guys put out a TI number?
Yeah, we are. That'll be in our supplemental. We spent $125,000 in tenant improvements in the third quarter, to release $16.3 million in rental revenues. That number is de minimis. It usually is de minimis. It runs from less than 1% of revenues up to maybe 2%. It's never a material number, but we're actually including that in our supplement going forward.
Great. Thank you.
Thank you, Todd.
Our next question comes from Vikram Malhotra with Morgan Stanley.
Thank you. Sumit, could you just give us, I apologize if I missed this, but for the acquisitions that you've baked in for next year, what are the cap rates you're assuming or the range of cap rates?
We're assuming 7% for next year.
Okay.
Year-to-date, we're at 7.1%. The 7.4% we were very pleased with, but that's a little higher than what we're expecting, given the current market conditions.
Just given the numbers you quoted on market cap rates between investment grade and non-investment grade, would you expect next year to be a little different in terms of just the composition between the two, for deals that you do?
No. I think, listen, a lot of it is going to be a function of what's going to be available out there. I think we've stated this in previous calls as well. We don't target a particular composition with regards to investment-grade versus non-investment grade when we're looking at acquisitions. This particular quarter, it just turned out where investment-grade represented only 53%, whereas year-to-date, it's closer to 70%. We're going to look at opportunities that present themselves. There's a lot of discussion around certain retail asset classes that tend to be more non-investment grade in nature. It's very difficult to predict as to what the composition of that $500 million-$800 million that John's mentioned, is going to turn out to be at the end.
Okay, just maybe on the competition for deals. As you mentioned, it's obviously increased, maybe looking out into 2015, maybe just give us your high-level thoughts on, do you see that competition changing in any way? I know new regulations on the non-traded side don't kick in for a while, could that be a factor as you get towards year-end? Could there just be other factors that may make the environment just more competitive or less competitive from your standpoint?
Well, we continue to compete with the other public companies, and certainly the non-listed REITs. As you've said, the capital raising has slowed down a little bit there's still a lot of equity in those entities. We compete with mortgage REITs and institutional investment managers who are running money for sovereign wealth funds, pension funds, endowments looking for yield, we bump into some of them as well. I think that the last few quarters have been some of the most competitive we've seen. There's certainly some activities out there in the sector that would lead me to believe that the competition could become a little less intense next year. Again, it's impossible to accurately forecast, our sense is some of the more aggressive buyers may be stepping back a bit from the market.
If that were to be the case, we'd certainly feel better about the higher end of our acquisitions range.
Okay. Just last clarification, just on the timing of these acquisitions, is there anything different we should assume for next year versus just normal seasonality that we see during the year?
Normal. They're lumpy, and they're really driven by portfolios. Again, like last year, 2013, we did $1.52 billion in property-level acquisitions. The last quarter was $140 million. This year, the first quarter was $650 million, and this quarter was $182 million. You're going to see that lumpiness because it's associated with the amount of acquisitions that get done through portfolios. I think that'll continue. We'll have some heavy quarters and some light quarters like we always have.
Okay, thanks, guys.
Thank you.
Our next question comes from Todd Lukaszczyk with Morningstar.
Hey, good afternoon, guys. Thanks for taking my questions. Just wondering if you could comment on the weighted average remaining lease term for the portfolio overall, I guess, say five or more years ago, I kind of assumed that was going to fall in a range of 12 years or longer generally. I think now it's around 10.4 years. Just if you can comment around that, I guess the change in properties that you guys own now may influence that, but also whether or not you managed to that number and what you would expect it to be in five or 10 years or how that will likely trend.
Yeah. Well, when you've got $15 billion in assets and each year passes, the lease term actually declines by a year, and it's offset partially by acquisitions. If you're acquiring $1.5 billion at 13 years, you're not going to fully offset the decrease in lease term on the existing portfolio. On rollovers, typically, if the rollovers go to the same tenant, they're five-year lease terms. If it's a new tenant, it's closer to 10 years. It's a natural evolution for a seasoned net lease company like ourselves to see that lease term over time decline. We still focus on average lease terms of 11, 12, 13, 14 years. That's what we're seeing. That's what we're doing. You've got to remember, on the rest of the portfolio, they're getting a bit shorter. I think one of our strengths is to effectively execute lease rollovers.
We've executed over 1,700 lease rollovers in our company's history, recapturing nearly 100% of the expiring rent. We've got a team of almost 40 professionals dedicated to that effort that have been with the company, many of them 10 to 20 years. That's where, I've said this before, where the rubber meets the road in the business. That's where you really need to be able to execute and preserve value. There are not a lot of net lease companies out there that have that expertise and that extensive experience. We're very comfortable with our ability to extend the shorter lease terms and the longer lease terms that eventually need to be addressed as those leases expire. Some of the leases we handled this quarter, we looked at, and they were put in place 25 years ago. Again, we have a very long-term perspective.
Does that help, Todd?
Yeah, it does. That's great. Thanks for all that color. Just a follow-up question on the acquisitions guidance for next year. I'm curious if you are also expecting that the acquisition volume that you source is going to be lower, or whether you expect that to be relatively constant, and you guys are just going to be a little bit choosier about what you actually try to close.
It's continuing to be active in this quarter. We would expect transaction flow in terms of sourced acquisition opportunities to be strong again next year. All indicators are pointing to that it will be. 2013 was a record at $39 billion. This year, we're already at $21 billion, which is our second-best year ever, just nine months into the year. I think that we'll continue to see that momentum. Again, we'll continue to be selective and disciplined in what we buy. There are a number of discussions going on with respect to sale-leasebacks with corporate board, corporate management teams, activist investors. We don't know how any of these are going to end up playing out, but if just one or two or three hit, you could see some very big sourced volumes that could lead to higher acquisitions.
That activity in terms of activist investors and corporate boards and management teams scrutinizing their real estate holdings and making sure they're properly and efficiently managing their real estate is accelerating. There are more discussions, and fortunately, we're involved in those discussions, and that really could impact source opportunities next year if they elect to monetize some of that real estate.
Okay, great. Thanks a lot for taking my questions.
Okay, Todd. 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.
Just want to thank you and thank everyone for joining us today. We look forward to speaking with you next quarter. We'll see a lot of you next week in Atlanta at NAREIT. We look forward to catching up with you then. Take care, everyone.
This conference will be available for replay beginning today at 6:30 P.M. and will end November 14th at 1:59 A.M. You can access the replay by dialing 888-203-1112 or 719-457-0820 and using the access code 3015859. Again, you can access that replay by dialing 888-203-1112 or 719-457-0820 and using the access code of 3015859. Thank you for your participation. This concludes today's call.