Q1 2020 Earnings Call

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Good morning, and welcome to the adri Realty first quarter 2020 conference call today. All participants will be in a listen-only mode. Should you need assistance during the conference, please suck a conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press * then 1 on your touchtone phone. If you would like to withdraw your question, please press * then two, please note that today's event is being recorded at this time. I would like to turn the conference over to Kay Phelan Chief Financial Officer, please go ahead clay.

Thank you. Good morning, everyone and thank you for joining us for a career Realty's first quarter 2020 earnings call Joey. Will of course be joining me this morning to discuss our first quarter results. Please note that during this call. We will make certain statements that may be considered forward-looking under Federal Securities Law. Our actual results May differ significantly from the matters discussed in any forward-looking statements for a number of reasons including uncertainty related to the scope severity and duration of the covid-19 pandemic the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic may contain it measures on us and on our tenants. Please see yesterday's earnings release and our SEC filings, including our latest annual report on form 10-K and subsequent reports for discussion of June and uncertainties underlying are forward-looking statements. In addition. We discuss non-gaap Financial measures including core funds from operations for core ffo adjusted funds from operations or a FFL.

And that's that's a recurring either. Reconciliations of these non-gaap Financial measures to the most directly comparable gaap measures can be found in our earnings release website and SEC filings. I'll now turn the call over to Joe.

Thank you clean. Good morning everybody and thank you for joining us. First off. I would like to wish all of our listeners and their families health and safety during these difficult times. I'll start to our call today broadly speaking about his response to this current pandemic the most significant lessons that I've learned from 2008 and the Great Recession uniquely positioned ATC not only survived but thrived after this current crisis that experience made us battle-tested and has applied. The experience is gained through that recession to all aspects of our company most importantly our balance sheet and our pork Construction.

Are fortified balance sheet it approximately 7 times net debt-to-ebitda pro forma for outstanding forward Equity gives us complete flexibility and the unquestioned ability to pursue opportunities, which we feel will be even greater this year and into the future. This was further validated by the receipt and investment-grade credit rating from S&P in the midst of this pandemic, which I know it was priced advertising our balance sheet with over five hundred million dollars in additional Capital given the market dislocation strong visibility into are extremely high-quality Pipeline and lack of capital competition. We are increasing our acquisition guidance to seven to eight hundred million for the year rest assured that we will maintain our historic discipline and that the quality of our pipeline is of the utmost importance and we will and will further enhance our already stringent acquisition criteria before I provide some data for the month of April. Let me please take a moment to express my sincere gratitude wage.

Finance asset manager

Accounting legal and Lease Administration teams for all their efforts closing the quarter remotely during a pandemic including an ATM filing and to equity offerings truly remarkable effort regarding the month of April are collections for the bonds demonstrate the thoughtful portfolio construction. We have undertaken and the resiliency of our tenant base. I am very pleased to report that took 87% of total outstanding rent has been received and that one hundred percent of our investment-grade tenants paid their April rent.

We have created a cross-functional covid-19 team that consists of asset management legal accounting and tenant relations that will manage any short-term challenges while also seeking to create long-term value AG retailers that are opportunistic and choose not to pay rent will be met with full resistance and full recourse.

Longer-term this crisis is a significant opportunity that our company is poised to take advantage of we have begun to see additional high-quality investment prospects and given the macro environment and our balance sheet of relationships. I anticipate this to further accelerate. We expect a long hard economic recovery for our country with relative winners and absolute losers. And anger Realty is positioned emerge stronger than ever now, excluding our strategic Capital markets execution. I'll I'll get into what it's probably the least important reporting quarter of our careers. I'm pleased to report that the first quarter represented a strong start to the year as we continue to capitalize on of opportunities across all phases of our business.

During the quarter we further strengthen our portfolios through Strategic investment activity and proactive Asset Management while taking significant steps to offensively fortify our industry-leading balance sheet off during the quarter. We invested 231 million dollars in 255 high-quality retail net lease properties across our three external growth platforms fifty one of these properties were originated through our position Platte for representing total acquisition volume of nearly $228 million dollars while we achieved another strong quarter of acquisition volume during these uncertain times. Most forgettable again is our discipline evidenced by a record 89% of annualised based rent acquired being derived from investment-grade retailers.

251 properties acquired during the quarter at least two Seventeen tenants operating in fourteen sectors including off price general merchandise Auto Parts tire service dog stores and Home Improvement. The properties required at a weighted average cap rate of 6.4% and had a weighted average lease term of eleven years. The Acquisitions were marked by a number of unique opportunities. Most notably during the quarter. We acquired six Walmart Supercenters comprising more than one third of total acquisition Capital deployed today. I'm very pleased to report that Walmart our largest tenant at 6.3% of annualised based friends and growing.

we believe that the

The largest retailer is going to continue to thrive post-pandemic while the majority of their competition will either struggle go away or contract significantly we continue to work with all of our Retail Partners to identify additional opportunities to add value identifying unique real estate opportunities with our tenants has been a Hallmark of our approach for years. I am very pleased to report that we acquired the HomeGoods store in East Hampton New York this past quarter this story took several years for the developer to entitle permit and construct. I'm sure many of our listeners are familiar with the store or if the addition represents another trophy like net lease asset to our portfolio. Additionally we executed on a 12 property sale leaseback transaction with National Tire and Battery Life Corporation to a ninth largest pendant at 2.7% of annualized Base rents, as you may recall. We added TV see a leading investment-grade Tire and Auto Service operator to age.

Top ten list in 2019 through a similar transaction given the recessionary environment. I anticipate that tired Auto Service as well as Auto Parts will continue to thrive the average wage of cars on the road is already approaching Twelve Years a record in the Contemporary United States with new with new car sales grinding to a halt. This sector is poised to further strengthen Thursday. We added two more assets to a ground lease portfolio during this past quarter including a Lowe's in Toledo, Ohio and an Aldi in Minnesota this ground lease portfolio stood at 8.5% off annualized basis friends as of 3:31 and continues to derive nearly ninety percent of Base rents from leading investment-grade retailers moving on to our development and partner Capital Solutions for life forms. We had for development and PCs projects either completed or under construction during the quarter that represented total committed capital of more than $15 three of those projects were completed during wage.

Past quarter representing total investment volume of twelve million dollars the completed projects include the company three development and Redevelopment of the former Kmart in Frankfort Kentucky for all the money. They go out in Harbor Freight tools are First Development with Tractor Supply and Hart Michigan and our fifth development project with Sunbelt Rentals in Converse, Texas construction continued during the month on our first development project with T.J.Maxx and Harlingen Texas immediately adjacent to a Target and rent is anticipated to commence there in the third quarter of this year. You have all heard me speak about our full-service our full-service real estate capabilities before yet another tool that we have been working to deploy for several months is the screening of current national vacancies and the ability to quickly review them using our comprehensive software for potential backfield candidates that where there are within our proverbial sandbox. It's very rewarding to see our team's efforts come to fruition on such projects dead.

Subsequent to quarter-end we commence construction and our first Redevelopment for O'Reilly Auto Parts in Mayflower, Arkansas and a former box.

Edited by Fred's this project files in the path of our Sunbelt Rentals projects and our Tractor Supply and heart where we we developed a former Vape former lead making now Shopko Thursday, we will continue to work with our Retail Partners to evaluate Market vacancies and redevelop these buildings in a very attractive cost basis for both ATC and these growing retailers in our sandbox. I strongly prefer this approach to ground up development given the current GLA and vacant GLA that we anticipate seeing Nationwide accelerate while we've strengthened our portfolio through record investment activity. We've or Diversified our portfolio through strategic asset management and disposition efforts during the year. The first quarter was very active on the disposition front as we sold six assets for gross proceeds of approximately 25.1 million dollars notable disposition activity during the first quarter included the sales and Academy Sports are only Jo-Ann fabrics for franchise restaurants wage.

Another Walgreens subsequent to quarter-end. We sold three additional assets for approximately seven point seven million dollars including a franchise Buffalo Wild Wings and to franchise off sets Gus, even further reducing our total franchise restaurant exposure to 1.9% I would also note that one of our three Dave and Buster's is currently under contract to South. This purchase agreement was entered into after the rise of covid-19 at a very attractive cap rate. The contract purchaser is now fully non-refundable with a 100% off $100,000 deposit and closing of course is subject to customary conditions given the current year-to-date disposition activities. We are raising the bottom end of our disposition guided to 35 million dollars for the year, which will you evaluate as the year progresses our asset management team is also been diligently focused on addressing our upcoming lease maturities as a result of these effing.

Our 2020 lease maturity stand at only five remaining lease expirations and represented just 2% of annualised based rent a quarter end during the first quarter. We execute a new lease extensions or options and approximately 180000 square feet of gross leasable space in addition to several notable options being exercised. We are very pleased to announce that also will be joining a Hobby Lobby in Mount Pleasant Michigan at the sight of our former Kmart development. This is yet another Testament to our decision to hold this asset for redevelopment and frankly with a pleasant surprise, as of March 31st are growing retail portfolio consists of 868 properties across 46 states are tendons comprised primarily of industry-leading retailers operating in more than 31,000 sectors with almost 60% of annualized Base rents coming from investment-grade tenants, the portfolio remains nearly fully occupied and 99.3% and has a weighted average lease term of 9.5.

The minimal drop in occupancy was related to the now-vacant Art Van flagship store. I'd like to take a moment to thank all of our loyal stakeholders for their support during these unprecedented of times recent events have validated the methodical portfolio construction that we embarked on almost a decade ago, and we remain more focused than ever and continuing to improve what we believe the highest quality retail portfolio in the country. They give you your patience happy to answer any questions after clay provides an update on our balance sheet and discusses our financial results for the first quarter took it over to you clay.

Thank you, Joey. I'll start with a balance sheet update.

Highlights from our recent Capital markets activities. We had a very active quarter in the equity Capital markets raising more than four hundred million dollars in common equity and an additional $370 in common Equity within a day's announcement in addition to Capital raised. We also generated almost 35 million dollars through our disposition activity and free-cash-flow after dividend during the quarter in addition to yesterday's 375 transaction. We commenced an overnight Equity offering on March 30th, totaling $175. Additionally. We were very active on ratm during the first quarter and entered into Ford sale agreement to sell 3.3 million shares of common stock at an average gross price of $69 per share for anticipated net proceeds of more than two hundred twenty-eight million dollars.

At the end of the quarter we settled forward offerings totaling approximately $105 million dollars given the settlement and combined with the company's 2019 Ford Equity activity. We had approximately $267 an unsettled Ford activity available to us at quarter-end and as an outage yesterday, we will be settling these remaining Ford offerings this week. This Capital raising activity provides tremendous optionality and puts us in a very strong liquidity position for the settlement of our overnight Equity offerings and previously raised forward Equity. We have full access to a $500 credit facility over $250 in cash on hand and the $370 in Gross forward Equity proceeds from yesterday's announcement.

Further our balance sheet remains in its most fortified position in the history of our company as of March 31st. Our net debt recurring ebitda was approximately 4.8 times. And as Joey mentioned pro-forma and inclusive of all Equity activities our net debt to return Eva. Was seven times total debt to Enterprise Value at quarter-end was approximately 26.5% while fixed charge coverage which includes principal and rotation said at a company record 4.4 times.

Cortland from operations for the first quarter was 82 cents per share a 10.7% year-over-year increase adjusted funds from operations per share for the quarter with $0.81 an increase of 13% year-over-year General administrative expenses in the quarter told the four point seven million dollars G&A expenses 8.3% of total revenue or 7.8% excluding the non-cash amortization of above and below Market lease intangibles. We continue to anticipate G&A as percentage of total revenue to me an approximate fifty basis point improvement from 2019 or in the lower lower 7% range for 2020, excluding the impact of above and below Market lease intangible amortization in total revenues income tax expense for the quarter totaled $260,000 for 2020. We can we continue to anticipate total income tax expense to be in the range of 1 million to 1.2 million dollars.

The company paid a dividend of 58 and 1/2 cents per share on April 9th to stockholders of record on April 27th, 2020 representing a 5.4% year-over-year increase. This was a Compaq 104th consecutive cash dividend since our IPO in Nineteen Ninety Four our payout ratios for the first quarter where conservative 72% of core ffo e n a f f o r and we continue to believe we have a well covered dividend with that. I'll turn the call back over to Joey.

Thank you at this time operator. We will open it up for questions.

We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the issue. If you would like to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.

Today's first question comes from Simon of stifle. Please proceed with good morning everyone.

Good morning Simon. How are you? Hope all you guys are doing well that your families are safe.

Thank you, very much reservations reservations are strongly for rent Collections and the recent Capital Market activity over the last couple of years back is effort to increase your exposure to investigate tenants approaching sixty percent at the end of the first quarter, obviously with April in collections investigate tenants have essentially paid wage you think about going forward where you want to take that number of the next couple of years.

No, I I I appreciate the question time. I would tell you you'll given the trajectory of our Pipeline and what we close in q1. There's no doubt that number will continue to increase you'd also have to add in the disposition efforts with subsequent to quarter-end with the three franchise restaurants as I mentioned. So our Pipeline and close to date are very similar. I would tell you in terms of 10 in credit quality the 89% in q1 obviously is elevated again, I would remind everybody we're not imputing Shadow investment-grade credit ratings to Tractor Supply your Chick-fil-A or off. The public schools are Hobby Lobby's of the world. And so as I always say and it's probably repetitive investment-grade is is a data point for us. It's an output of our strategy but there are still a number of retailers this country that for whatever reason they may be private or may not have debt at all. Don't carry an investment-grade credit rating. So I wouldn't put a ceiling on that number. I would fully expect it to continue to rise.

And I would anticipate it surpasses 60% in Q2 here at the end of Q2.

Thank you. You touched in your prepared remarks, you know you built this portfolio essentially over the last ten years and you did a great job at that when you think about what's been going through the last couple of months or less couple of months. Is there anything that you would do differently in constructing your portfolio going forward after learning lessons from the pandemic?

That's the look I think it's still early. I would tell you we will know about no doubt do an after-action review. Hopefully sooner rather than later after this pandemic. I would tell you this pandemic from my perspective has accelerated what we already believe to be the trends in retail what we saw from retailers and a brick-and-mortar perspective or an e-commerce perspective going to an omni-channel world. We always avoided experiential and discretionary goods. And so that was always part of our strategy. I think what this has done is exponentially increase what we already saw and that's the stronger survive and the week obviously disappearing. I think that's emblematic of the of the tens of millions of dollars in in the 6th Walmart Supercenters. We acquired during the quarter and Walmart the sentence as their top ten in so I would I would defer until after I would tell you I'm not thrilled to own 5 a.m.

V theaters today obviously, but that's

The minority of our portfolio and at approximately 1.5% We haven't touched the movie theater space in a number of years, but that would tell you that is the only the only sector in my head that I think that could potentially we could have more actively avoided but again, we have an acquired a movie theater and I believe over 3 and 1/2 years. So I asked me hopefully by the third quarter call. This will all be over and we'll have time to do an after-action review, but we will certainly undertake one.

Sure, this last question in terms of the competitive landscape. You know that's been changing over the last six seven weeks. It was your peers really are going to take down acquisition activity to a halt wage. We've lost lots of cost of capital and how is that environment change? You know, how competitive is that today? How strong is the 10:31 market and the card environment and less than what is the spread between the portfolio market and one-off transactions?

Sort of to your to your first question most people, you know, think of our peers as our competition. We very very very rarely ever run into our peers. They most of them have differentiated business models. So, we very rarely run into our peers our our our our our traditional competition it in the net lease space and is highly fragmented net lease space, which I tell you our our average price of just over four million dollars is generally financed purchasers either from the 10:31 Market that was would be a larger 10:30 one transaction or a a private party. And so I would tell you with the lack of in the cmbs market and and frankly the in availability of Bank debt. That is very that's taking a significant amount of competition offline. Now I didn't ask this directly, but I think we will hopefully see cap rates rise accordingly your second question Simon was what?

Nice spread between portfolio sales and one on transaction. I'll be honest. I think we we have not actively reviewed any Diversified portfolio there any portfolios that are embedded in our q1 activity or Q2 pipeline? So I would tell you it's a little earlier. It's a little too early to see if that spread what happens with that historic spread, you know that really really our our guidance. I would mention are increased guidance to seven to eight hundred million includes no portfolio activity. No m&a activity know same back activity just regular way hundred and fifty or a hundred and seventy or so for four million dollar plus transactions. So I think we're going to see a lot of this continued to materialize as objects Dynamic and fluid environment and I want to be very careful on this call not to not to frankly said to the expectations that we don't drink we have visibility or transparency into

Sure. Thanks since stay safe. Thank you. I appreciate it.

It comes from our Jane Milligan of RW Baird.

Please proceed.

Hey, good morning, guys. Joey looking into Obviously good rent elections in April. But looking into may do you expect to get more or less rent collected in the month of May?

Again, a good question. I wish I had transparency and visibility. We thought it was important for Market participants to understand where our April collections were dead. I would tell you again. I mean the governor of the governor of the of the great state of Georgia is opening up everything up looks like this weekend. So I was talking to a friend of mine that I'm not sure if anyone's actually going to go to any of these places besides the required haircut, but it's going to be a function frankly of how quickly one retailers are actually able to reopen a potentially you have a secondary level Drive actual sales, if if people reopen businesses that don't drive sales and not sure if that helps second. It's going to be a function of individual choices and I I mentioned in my prepared remarks of retailers and we see retailers and many of them have gone public saying they are not paying rent that is a unilateral choice to reach a contract with who

Right to an eventual default, but it will be a choice of retailers. I would tell you most of these data points. I think are very misleading. I think April is helpful. So people can see the resilience strength of our portfolio in terms of the investment grade, but I I would hope that no one was overly surprised or taken aback given a 60% or 60% investment-grade portfolio plus the shadow portfolio. If you want to do those run those on your own plus the ground leases. So all of these data points are very fluid. I'll tell you what, I'm very confident. We have not breached quiet enjoyment. This is not a birthday event and these retailers that do not end up insolvent. Any retailer ice, excuse me, that does not end up in a restructuring and reject the lease or a liquidation which we think we have very few of will pay their rent. And so whether they pay April or whether they pay may we will collect those hours and we have reminded some of retailers in a hopefully a friendly way that wage.

Accruing late fees interest and penalties along the way so short term cash preservation. Now short-term cash preservation methods and the retailer side will be longer-term cash collected for us absent a bankruptcy scenario.

Okay, that's helpful until you mentioned the ground lease portfolio, which is a sizable part of a grease portfolio. Were there any ground leases in which you didn't receive rent in April good question. We have two very small ground leases where we did not believe one. We received 50% of the rent. The other one we did not receive rent. We have we have or will be putting them into the default and we look forward to taking those buildings for free. I will tell you they are too casual dining operations, very small in terms of de minimis in terms of total rent that would tell you it's about a hundred and twenty five thousand approximately off the top of my head, but frankly, I was hoping we would even see more of a of those tennis frankly to fault again. We have no basis in a building and we would own that building for free if they failed a cure so I would expect them to cure fairly quickly.

the next question

Okay. Am I?

Ask question is you know, obviously we're dealing with the impacts of covet but you know, what's to follow is probably a deep recession, you know, as you think out into 21 and 22, are there any age categories Industries, um that you're more concerned about versus less concerned about not necessarily to deal with the shutdown, but the the economic impact damage in in longer-term Impact, I would tell you it is it is effectively the same as our historic investment criteria. And so we have avoided quote unquote experiential we've avoided restaurants absent ground leases. We've avoided movie theaters, which I've mentioned. We've avoided Sporting Goods. We've avoided those discretionary Goods that are easily replaceable online and five or more and more goods are becoming easily accessible online to more and more demographics and participants. So our focus and I think to your question our greatest emphasis now is doing job.

Best to project what the world looks like post-pandemic in that recessionary environment. And so I spoke to National Tire and Battery and you know new car sales or Geico from 17 million to somewhere in the single-digit million. So then what are the impacts secondary impacts of new car sales going dropping to such a degree? Well, I spoke to the National Tire and Battery pack and twelve years approaching average duration of car on the road. And so how does that then disseminate into our retail portfolio and our future portfolio construction? Well tired auto service for older cars is going to be required more auto parts for older cars AutoZone or O'Reilly we have over a hundred and they're great relationships and our portfolio are going to be required used car sales will most likely May accelerate on a relative basis to new car sales. We do that the same thing for grocery discount grocery is going to accelerate now that the challenging sector because we'll see what the online dead.

Participation rate does from historic one and half percent but those will accelerate at the end of the day here off-price retail is going to have a field day, right the TJ Maxx Marshalls HomeGoods the Rosses and most likely the Burlington's are going to have a field day because the department stores face is all but effectively dead. And so I look at the appearance package. I say where are people going to a buy a pair? Oh, it's either Walmart Target off price and maybe Nordstrom's makes it or maybe Kohl's makes it and so I I think are what my biggest challenges and what our biggest opportunity is is to be at the Forefront. We were at the Forefront. I believe we're at the Forefront and we still say we were at the Forefront of omni-channel. Now, we have to be at the Forefront of a post-pandemic recessionary environment with consumer behaviors that are structurally going to change for the rest of our lives.

the next

Question comes from a calling wings of Raymond James. Please proceed.

Thank you. Good morning, Joy. Good morning play.

Morning, how are you?

Hang it in there first. I want to go back to your discussion with Simon as it relates to the upward revision to acquisition guidance can maybe just expand on what you close quarter today or quantify a little bit more your pipe life as far as that you expect to close near term in the past. You've touched on having visibility on activity for 60 to 70 days. So particularly in the current environment, it would seem to have pretty good visibility on your offer opportunities to actually go out there and raise guidance you are correct. I won't get into any details too many details on the pipeline. I'll tell you it is uh, not dissimilar from the closed off of q1. I did mention that our Walmart activity will continue we are very focused there. The composition of that pipeline is very similar in terms of credit. We do have some time for some movement both fall out and inclusions into that pipeline, but it does give us full confidence that we will we will hit that 7 a.m.

Eight hundred million absentee a second pandemic wave or something at a typical hitting this country. So again it it's focused on the Retailer's you would expect that we've talked about frankly on this call plus the the other ones, but it is very similar to q1 at his current state.

Got it. Okay, that's helpful. And then as far as the request for rent release, I mean yesterday's release noted about a third of your 10th or asking for a short-term rental for other considerations. Just given the pandemic you're pretty clear you get on this call on your view about the obligations your tenants have but to clarify if anything have you formally granted anything on the release date yet. Um, and then maybe how would you quantify the mix of request that you actually view is valid?

The answer your first question we have we have executed single-digit deferral request predominantly with small operators off the few small operators that we have in our portfolio. Those are deferral. They are not abatements. They are deferrals. Those deferrals will be paid back very quickly and at times we have credit enhancement on top of them in terms of the 33%, I'll be honest with you. I did not want to even include it in this release and in our remarks thought it was required by Council and we have fantastic Council. I think the 33% I would warn all Market participants and everybody on this call that the 33% range is from the the frankly absurd retailers that have no debt that are open and operating and a couple that are even thriving frankly in this environment to wage.

B retailer that is a small out.

Operator that really needs help. And so the Spectrum there ranges from a email request. Can you help us? We are you willing to offer us any help in the general form to can be not pay April rent and defer till later or a baked and so it is such a wide spectrum. I think it is. It's frankly a a data point that everyone should be very welcome to the opportunistic. I can't quantify that for you. I will tell you there. There are a few retailers. We have at harsh discussions with they are not considered long-term partners for us. They were made we were made them quickly aware of our remedies in those leases and I would tell you some paid some didn't they will pay off and they we have made them put them on notice of the late fees the penalties the interests and our ability to either subject to the lease evict them and take possession or not. Even for them.

We've also reminded them that we are not a shopping center read a remote that has co-tenancy implications or traffic flow implications. So net lease is very unique in that context, but we will vigorously pursue immediately default remedies upon any retailer that acts opportunistically that said we are willing to partner with the very minority piece a Planet Fitness franchisee or we've got a small tenant in in a legacy shopping center. It's a Chinese buffet restaurant that my father developed thirty years ago and it's been there literally since Inception we're willing to be partners there for retailers that really need it. But I think it's very important for people to understand in that lease. We have fixed returns. We don't get percentage rent. We don't get upset. We can't ask for form or rent in the future and we are not willing to direct unilateral request to retailers that have the ability to pay.

Just on that last Point Joey recognizing. It's a handful of requests. Can you maybe just expand upon what you're asking for an exchange for providing short-term relief again, you touched on it's generally deferment as as opposed to some sort of forgiveness, but just maybe expand on I think you touched on credit enhancement and it sounds like there may be some other options that maybe long-term could be beneficial to you work with some of these students know and I think that's the most important thing. So I want to be clear we have not abated $1. We don't intend to Abate $1 of obligations here. Those would the ones the single digits our deferrals wage. I think the opportunity and I spoke in the prepared remarks is for us to work with our Retail Partners. And that is a true partnership to help them potentially during this period of closure in exchange for consideration for long-term value in the menu of options. There is significant and we've created and just preliminary really engaged in discussions like that. We have the balance sheet and obviously the liquidity program

Spoke to in the ability to be a long-term partner and take short-term pain for long-term value-creation for our shareholders that menu of options include exercises that many options for us in consideration include exercise options. We could be your preferred developer. We can acquire short-term stores in you know, working in concert we can do a sale-leaseback. If you have real estate on balance sheet we can do all types of different things given the unique full-service nature and the capabilities of this fantastic team and a good reality has a law that said that retailer has to pass a few thresholds. Number one. They have to be a partner number to they have to be solvent or or they have to we have to frankly be very confident in their future in that post-pandemic recessionary world and number three they have to be willing to come to the table to frankly make a new deal because that's what this is. It's not within the four corners.

document we're willing to work with our partners, but they

That is a new deal and it's a new document.

Thanks, Joey.

Thank you.

Okay, next question. The next question comes from Christy McElroy of City. Please proceed. Hi, good morning guys for the parents that have not played in April and and for those that you don't expect to pay in May understanding that they're in default. But how should we think about the other expenses that are typically paid directly by the tenant like utility costs and property taxes that don't generally run through your p&l to what extent can landlords be on the hook for those weather temporarily or permanently. I'll speak to a generally for what team has a gun number one and then and I'll let clay talk into those some of those some of those details where they are obviously in a in our sales number one are covid-19 has confirmed has gone open. I see we've been confirming property taxes were paid and utilities predominantly water bills that it's just standard practice for us has been paid and and so that is a it's an important question. You're writing. It's an obligation that wage.

Obviously in at least some of those some of those pieces run through our expenses and then we get reimbursed or sometimes tenants Pay Direct clay, you want to talk to you want to speak to the the the details of that question. They're over my head frankly some of them. Yeah, of course. So in terms of what what comes through our p&l in terms of real estate taxes and property operating expenses. That's approximately half of those expenses Christy just to provide a little provide some clients try to quantify that a little bit.

Okay, but presumably if they're not paid by the tenant you're obligated to pay those.

Correct. That's correct. If the tenant does not pay that would that would would be an event of default similar to not paying rent and we would have the full remedies in the in the lease. Okay, and I know you don't usually give SFO guidance, but just sort of you know, how should we be approaching too in terms of potential impact in regards to the deferrals. But also, you know as you think about tennis that still having not paid, how would you how are you thinking about potentially assessing the collectability probability?

What are the collectability I think an alternate again the details over to Clay. I'll tell you that going into Q2 right now in a dynamic and fluid situation. We're not even in the may obviously be very difficult for us to provide, you know, any any short-term guidance. I would I would I would encourage again people too, especially in a portfolio with the credit quality such of ours such as ours frankly to ignore some of these short-term take them as data points, but don't let them be drivers. I'll let you take the details to your question sure, of course, so it's important to know to join mention that our discussion of the tenants have been focused on deferrals. So not rent release and specifically deferral. So I'll focus on that and in terms of divorce, it's really an impact in terms of the timing of when we collect cash and so not the total amount of cash received and so since ffo reflects straight line, it will not be impacted by the birth.

However on the other hand.

But that was essentially a cash measure in there for it will reflect when rent is due under the deferral agreements. Um at highlight, you mentioned collectability a little bit Christy. We apply with the new lease accounting that came effective in 2019 under these rules. It's determining when it's probable or the probability of of us collecting rent from a tenant moved and we must write off the receivables to the extent those receivables aren't collectible at a probability of at least 75% chance of probability of collection. So that is something that will be very focused on going forward. It's something are covered. Steam is very focused on and we've obviously had a number of conversations certainly to Across the organization and continuing to monitor that

Our next question comes from Nate Crossett of berenberg. Please proceed.

Hey, good morning guys. Just just on the equity raises, you know, clearly a meaningful amount over the last couple of weeks. How are you guys thinking about longer-term targets going forward. Are you kind of changing the threshold band do you want to be in or is this just kind of a temporary opportunistic type of Leverage level?

I appreciate the question. I think these these Equity raises are clearly offensive for us. The equity we have raised has, you know hesitant to use it but I would say it is effectively built the war chest that enables us to go execute on the on the investment front I think longer term which is an important question during this pandemic and outside of this pandemic. I would suck you well it is. I think it is inappropriate to run a balance sheet at five to six times leopard for a net lease company. I would tell you that we will not most likely surpass five times leopard absent having a forward Equity option outstanding to us. I think during the we can always raise debt raising debt is very easy. We have an unsecured we have we have a cross the unsecured public bond market today. The private placement marked at the term loan Market that that is always easy. And so now what we have the ability to do is z lever which we have executed deal ever this birth.

Offensive manner add in debt when we feel appropriate and an opportunities where it is, obviously a creative to our portfolio run a conservative balance sheet that gives us the offensive capabilities. But to your is I think the most important part of your question is I would tell you are stated free pandemic range of five to six times is now out the window given the current environment.

And that's helpful. And then just quickly on the debt, you know, obviously you don't need to raise any debt by any means right now, but if you were to go out, what is the pricing look like today vs is pre-coated, I guess.

I would speak to that generally. I'll tell you we are not actively in the dead markets. We've obviously seen a number of companies access. So the market is open it opens and shuts and and Windows X expect pricing spreads have have gapped out significantly. I think frankly our credit for our credit quality is only improving in this type of situation. But clay do you want to give any specifics in terms of of anticipated spreads? I know we haven't been active in the market looking know. Look I'd say it's it's tough to say just give them the current market and we're certainly watching closely. They're just you just haven't been a lot of data points. There are a few Investments investment-grade deals prior to earnings blackouts, but that's that's really been it. Um, and those deals obviously pricing spreads were much wider than they were six weeks ago. But um, just not a lot of data points currently and certainly something will continue to monitor very closely. Okay, and then just one more if I could I suspect most of your time.

Are too large for the PPP program, but what about the spend lending program? Do you think some of the more troubled tenants could tap that lending facility Thursday? And could you guys personally tap the PPP program to lower your own GNA costs?

I'll speak to the second question. We we believe we would have been eligible to tap the PPP program. I don't think it is. It was we did not think it was appropriate for us to pick up the PPP program. We've made you know, we are we are obviously quite solvent. Uh, we have a a balance sheet that we spoke in about, uh, pretty extensively here. We aren't going to do opportunistically tap any government programs at a Realty that frankly that would be that would defy our core values. Um second to your first question, you know, the government program the availability to our tenants are really subject. I'll tell you we have not done a lot of research or spent our time in the our tenants ability to to have government programs. It's you know, the only time I really seen that could be applicable with some of the fallen angel stuff in terms of the bonds for former investment-grade companies. I haven't spent any time on it personally. I don't know if you want to speak to it. I know you've been to a little birth.

Busy, but we don't have a bunch of small patterns or small businesses in our portfolio that are reliant upon government loans right now. Yeah, I would just add specific to the whole program our tenants having um, you know above over five hundred employees would would would eliminate them from from being knowledgeable. And so we don't really view that as a as a as a guy options given our tennis. Okay. Thank you.

Our next question comes from Rob Stevenson with Jani, please proceed.

Good morning, guys Joey what percentage of your acquisition pipeline is on tennis that are currently not open for business and how are you thinking about that mix as you sort of back. Line into the third and fourth quarters when you start going we start looking out is that even a consideration considering that the economy is likely to be open at that point in time or is that still factoring into Palm any, you know relevant attractiveness of certain tenants?

Yeah, no.

That's honestly a great question. I would tell you number one most of the tenants that we're looking at just because the nature of their business if you look at our portfolio and the statistics, we we were lease and again, I think our our property manager specifically who spent so much time calling every 10 day and talking to them. I would tell you I don't have an exact number at a but Approximately 80% I would tell you are open at least that wage emblematic of our current portfolio. Now whether or not they are currently paying rent. There's mechanisms to structure around that again. I think it's Colin mentioned earlier, you know, our average duration. Closing is 6270 days. So I mean, we we have some visit we have some time to you know, watch and see how they pay rent if they asked existing sellers for deferrals. I'll tell you again. It's not a big consideration for us given the long-term nature and duration of those leases the price point frankly the price per square foot and the basis we access these properties and acquire them.

And then our relationships with the tenant, I'll tell you there is one acquisition in the first quarter, which we closed that was not open. And in that case we've looked to the office to provide an escrow for any deferral that was uh that was structured pre-closing and in that case. Um, that is a city that could be a mechanism for any considerations in future Acquisitions. If we feel it's warranted. Okay, and then you you talked about some of the your non long-term partners that are healthy and choosing not to pay them, you know, if you had conversations with them about that you would consider disclosing their names. I mean certainly if they're public companies that would be a problem for them and sort of shaming them publicly that for you guys that continues

I hesitate I will tell you that we have made tenants. We have made tenants aware of our rights and our remedies and I think that there are there are considerations for tenants hear about their public the public perspective frankly. I think there are those considerations for them. And I think they should take them into account. I think you know, I I think one of them on that, you know when tendency we're not paying rent what what many people forget and I and I and I think it was kind of blind and actually mentioned it when many people forget is a lot of the red bow ties TI across the space not necessarily in net lease but in shopping centers as well as the mall space. So when was it effectively in that case then lenders to these tenants they had built tenants specifics. They read the proposed TIAA or landlords work better effectively Finance the tenants operation in advance and part of the rental rate that's amortized into his frankly the repayment of those obligations.

And so you know it it it's you know, we don't have the option as as to not pay our our lenders. We don't have the option frankly what we have the option I guess but we're not going to never consider it right now to not pay our dividend. So what what I

If you are considering not paying your rent on a unilateral basis, I will tell you that we will be paying all of our employees. We will be paying all of our lenders. We will be paying our dividend and many of our shareholders are senior citizens or seventy-year-old that rely upon it to pay their rent their mortgage and for frankly income. And so you said your your unilateral decision not to pay your rent, even though you're able to has a cascading effect. That frankly is is not tolerable to us.

Okay, and then one for clay, when you factor in the forward deals and the debt capacity and the cash that you have right now while staying, you know within some sort of reasonable leverage level how much of the dry powder do you have to close the incremental five to six hundred million of Acquisitions without raising any additional capital?

So just make sure I understand the question Rob. I think you're asking what given the cash on hand what capacity what total volume and Acquisitions are we able to close and that's it's a given a slightly lower leverage range in kind of where we're comfortable running the balance sheet. It's it's it's north of a billion dollars. It's it's between a billion and a billion and half dollars in terms of what our Capital available including forwards outstanding would allow us to acquire and still stay at a very low leverage Point. Okay. So let me just jump into kind of cuz I know there's a lot of numbers here and there's the additional disclosure that is posted for the for the walk here that we posted to our website, but I think it's important for everybody to just to high level and I'm going to use round numbers. So so dead details will be forthcoming obviously as we move through the year, you know for us to achieve the upper end of our acquisition guidance this year net of dispositions plus developer.

Anticipated development PCS spend obviously net of free cash will after the dividend. We basically prior to the Conan steers transaction would have ended the years approximately with any without any additional Equity at five times. So again, I'll just repeat that.

Hitting the high end of our acquisition guidance.

We would end the year without the code and stares transaction at approximately five times net debt-to-ebitda without any additional Equity with the code is 2 years transaction allows this company to do is number one month, hopefully and the year progresses will get more visibility number one exceed that guidance given the market dislocation and the opportunities that we see without exceeding that five times and it's on a forward basis at our life as as I think you're all aware. Secondly if we do not exceed that guidance or if we end up at the lower end or middle end of that guidance, which frankly I don't anticipate the lower end of that guidance today. If we don't exceed it basically starts funding our 20 20, 20 21 free every year. It is now our 20 21 pipeline. So again without a dollar of coding stairs Equity off the end of the year top end of our guidance we end up around 5% And so I think that's what the transaction enabled us to do. It allows us to potentially exceed our guidance. They subside birth.

I need to that five to six times is

Is frankly out the window today and or fund our pipeline going into 2021 which frankly aggregation of that pipeline will start typically using that 70 days in mid-october. Okay, perhaps that was yeah that was exactly what I was looking for. Thank you. Okay, nice guy.

Our next question comes from Ki bin Kim with SunTrust. Please proceed.

Thanks. Good morning out there and I usually don't do this too often, but just want to say great job on having the right mentality and philosophies before all this month.

You're welcome. So my question is you research Exposition guidance, but I think we all realized tend to move slowly. So do you have any concerns that may be you know, is there a better price to be had if you just waited a little bit more?

Was there a better price to be had I think today's market trades as much frankly on the macro Dynamics. I mean oil has driven, you know negative oil prices for March and April delivery or April June bill in April May delivery in the market is so Dynamic and so fluid the last thing that we would ever do to exercise our balance sheet and enable our capabilities this weight out for another dollar or two dollars or four dollars. Whatever it is. I mean, if you look at it big-picture, we effectively raised equity in the low five times, right I meant for your acquisition. It's not for your own balance sheet. Oh, sorry for Acquisitions. Well cat. Well, we we we anticipate that hopefully cap rates will move given the lack of bid but I'll tell you nothing that we do on the acquisition side is on the margin if we can buy a smart high-performing Supercenter at a 65 Kapoor. We think or we prospectively think cap rates are going to go up. Let's just use a round number of 30 basis points. We're not going to wait for that 30 basis-point perspective and possibly

Increase and so nothing we do the same thing with the Home Goods in the Hamptons. We aren't going to wait for that Home Goods in the Hamptons for the cap rates to move the opportunities that we hit aren't marginal the opportunities. We hit our dog cat is essential and we will execute to them and the good news is we continue to find more of them and we can do now we have the balance sheet to continue to execute that on them going into twenty twenty-five. So we're not going to wait for cap rates to prospectively rise because even if they do rise, which I think you mentioned there is can be slow and cascading even if they even they do rise we're going to be there at that time. So we have a fixed cost of capital. We know what that is today. We have the liquidity to execute.

Okay on Realty taxes. What do you think? The end result will be I'm assuming not just for yourself, but the industry is going to go back to these municipalities could get through to lower bill pay taxes to reflect the new reality. How do you think I would anticipate from everybody's home to their commercial real estate that uh, the wage everybody who the law firms are going to do great on those we will work with our tenants in conjunction to hopefully lower their all of their obligations outside of their rent on a go-forward basis and wage. They're all in occupancy costs to be as low as possible. And so we will work with them. Obviously. This is a future consideration during the appropriate time. We will partner with our tenants as we always do they typically require both parties to to potentially lower the real estate tax obligations given the revaluation.

Okay, and just last one this is just a suggestion, but I think it would be helpful in the press releases just to provide a little table.

On your Equity offerings what's been done? What's left to do? Just because you have you have many different layers going on at the same time.

No, I think I noted I think the hopefully that the the reconciliation of net the recurring ebitda that was is posted to our our website will be will be helpful. We work to expand disclosures if if everybody would note on page six we have now disclosed all retail sectors. We used to have a significant significant amount. I can't recall the exact amount of 23% In other we have now broken that down all the way to miscellaneous, which is $75,000 a year at the bottom again that's on page six and that cell towers Billboards and donations Thursday at least properties that frankly we own it just came with it. So hopefully that disclosure is helpful the reconciliation again, and that that David is helpful and we will take that into account as well for the future.

All right, great job by I appreciate it. Our next question comes from Todd standard of Wells Fargo. Please proceed with Joey and claim the rest of your team. I hope everybody stays healthy and safe.

You as well. Thank you. Thank you. Most of my questions been answered had to do with the accounting around. I guess the gap between answered off but it probably an underwriting question going forward. When you look at your for wall coverage. I would imagine that's going to deteriorate for all retailers whether they're open or not. Just how you looking at that maybe your acquisition guidance increased but you probably need maybe a little bit more protection and just as a safety net going forward. How do you think is going to change underwriting dead?

Just for wall coverage for us again. Most of our retailers do not report. Even if you ask Walmart with their store sales or even on any service location. I think they would tell you nicely to fly a kite. You know, it's never been a driver of underwriting. We have never thought it was a proxy for credit. You could have a palm. I don't want to pick out in Walmart with pick somebody else. You can have a poor-performing Home Depot location. But Home Depot corporate is on the lease and the credit and the performance of that retailer. Can I change where they positive or the negative and so I would tell you much of our portfolio the vast majority of which do not report ebitda because we're not a lender. I mean, it's really A lender Covenant or a real home owner the vast majority. I would say the majority of our portfolio is countercyclical and so post-pandemic. I would anticipate again O'Reilly Auto Parts and AutoZone and TJ Maxx and the Walmarts of the world dead.

They're frankly their coverage potentially built up. So our portfolio and everyone's heard me say it is been constructed with two thoughts and nine. One of them wasn't a pandemic. I'll readily admit that it was off.

Recession-resistant and e-commerce resistant and so much of that recession resistance. Frankly Dollar General is going to thrive in a recessionary environment so is dead battery and AutoZone and O'Reilly at least I believe they will

Right, that's helpful and just probably just the last question just a balance sheet question. You referenced that five times net net debt-to-ebitda. I think it was at the high end of your guidance. What kind of dead zoomed in there and that was pre-owned and steers offering so that it did assume some of the remaining shares on the forward Equity to be settled what kind of debt expectations with that number type or amount of debt.

You're kidding.

How do you there? Yeah. Sure am can you hear me? Yeah, are you referencing amount of debt or what? What's that what's budgeted? I would imagine you'll tap the unsecured wage at the investment credit rating. But what kind of level is this? Zoomed in that number where you want to take that? Yeah, look we're looking at obviously. We'll come back to be an unsecured borrower Tad. Um, and we we have optionality now, um, certainly in terms of now we have the the second rating. I think, you know your question in regards to to sizing ultimately this is just ultimately depending on timing of uses of capital. We have full optionality given the given our current position our cash position wage, um, and certainly the equity outstanding as well. And so ultimately dependent on uses and the timing of uses and like I said will closely monitor the the unsecured bond market. Um, it's uh,

Obviously the the private placement Market take this lead from that market and so we'll continue to monitor both very closely and again based on uses execute accordingly.

Great. Thank you.

Maybe

The next question comes from a wind aside with Jeffries, please proceed.

Hi, good morning. Just giving the comment on slow and cascading effect of cap rates. That mean does that mean that you're not seeing covid-19 exchange cap rates for the deals currently in your life?

Well, good. Good morning, Linda. I think you you just hit it on the head. It's slow and cascading and it's slow and cascading primarily because it's such a large and fragmented market in terms of ownership. And so I'll tell you we have seen opportunities where Cap rates have gapped out and we are under contract or have clothes or under a line on those opportunities because the seller has potentially a a differentiated setbacks and circumstances. Maybe they need a quiddity event immediately. Then there are sellers that will continue to hold out and try to be opportunistic that are have balance sheets and and and don't need the capital. And so I think it I think it is very likely to be slow and cascading our origination team. Our acquisition teams job is to find the app opportunities where frankly they move cap rates go up faster and I'm not sure what the opposite of cascading is right now, but frankly rides faster and so but I I do I do agree with you. It will be slow in cascading in terms of macro cap rate environment dead.

Thanks me. Just one more. What's the best way to think about run rate of acquisition, you know, two four Q do you think it'll be you think you'll see larger volumes than three q and 14th?

In in in full transparency. I have no idea again. Our our increased guidance is six or seven hundred million anticipates. No large transactions m&a portfolio page or at least box just run-of-the-mill regular way agree Acquisitions aggregating four plus million dollar transactions. I mean just for reference the seven off the side of the Sherwin-Williams transaction at the end of 2018 came together in 30 days from Loi execution or life into clothes. And so really those the bigger deals frankly typically happen faster, so I have no idea but they're not currently in our guidance or frankly in our pipeline.

Thanks. Thank you.

The next question comes from the Chris Lucas with Capital One Securities, please proceed.

Good morning, everyone. It's been a long call. So I just asked one question. Have you guys seen or do you operate many locations where civil Authority may have created moral hazard by prohibiting commercial applications in there for incentivizing tenants to withhold rent.

No, we've seen we have evaluated in reviewing. Our legal team has reviewed that the last time I was updated was off with a couple of counties in California where I don't think we have any assets. Um, so no, we you know that is not a that is not really a current consideration or concern of ours, but we will continue continue to monitor it obviously it's a pretty expansive monitoring process.

Okay. Thanks guys. Appreciate it.

Thank you, Chris.

Our next question comes from the John and moussaka with Lundberg phone and please proceed good morning everyone. So just kind of building on Christian a little bit and obviously hopefully doesn't come to this with most pennants to the extent. You have a tenant that is not paying April or even May rent. Can you walk us through the general process and time line through kind of unilateral or unilaterally rectifying any disagreement and it may be your ability to kind of get value out of that asset.

Yeah, I mean it's all subject to obviously leases and and landlord remedies and cure. That would tell you I wouldn't use the word reflect Rectify it. There's the false we will be we will put win or we will notice we have basically you have to notice a tenant essentially generally have a. Then to respond and pay your rent. If they don't they are then in default off some some leases have your periods to varying degrees the random lease have to you have to send a second notice or a second reminder and then the landlords REM can range from acceleration of all obligations, which some leases have so all rental obligations accelerated to taking possession evicting the 10th. You can keep the tenant in place and make them pay rent. If you do evict a tenant often, there are there are responsibilities for a landlord to use reasonable efforts to re-let that real birth.

To a commercial efforts recently efforts to reflect that premises. If you evict the tenants the tenant is still on the hook for the rental rate for the rental ink

Come to the landlord offset by any rental and any retaining of that of the property and generally the tenant is also responsible if they are then if they are then responsible for the landlord's costs, including 10 and allowance build-outs leasing commissions interests penalties in any other costs associated with resetting so long to put that in perspective generally speaking a national tenant or a regional tenant with a big balance sheet and a down the middle lease needs to pay their rent.

I don't mean just broadly speaking in that kind of situation and I know it's going to vary, you know from locality to locality. But I mean any kind of recovery in a situation where a tenant refuses home or rent. Is that going to be something that happens potentially by the end of this year or is it more of a 2021 type of situation?

All depends on obviously back to Christmas question the courts the tidings everything else. I will tell you that if I'm a national retailer and I know I am obligated and I know I have liquidity just a rent and I am not filing potentially filing bankruptcy and and in cash conservation mode. I'm not sure I want to undertake the frictional costs and the wrist to fight a bunch of landlords across the country. And so again my expectation for tenants, uh is for them to pay their full rent on a timely basis and we will continue to remind them of that.

And then just one last Quick kind of detail question. How does the 87% of cash rent received in April compared to either last year's kind of April cash rent receipts or the last couple months if you want it in details, but generally receive our rent. So I mean, yeah, that's right Joey. We're at the 21st of the month or the 20th of May going to be reported. So everything would be would be fully received. That's it for me. Thank you very much. Thank you.

Our next question comes from the Christian McElroy with City, please proceed.

Great. Thanks. It's like a Bill Amend Joey, you know the direct issuance you did to Institutional Investor announced yesterday, you know, six point two million shares well over 10% of your share base even taking into account the other forwards. How did you think about the execution of doing something direct of sigh of that of that size wage effectively not providing your other institutional shareholders the ability to buy at a discounted price to maintain their ownership perrada ownership levels.

Yeah, Michael, you're breaking up a little bit. I I understood the question over everybody heard it. I'm happy to say it. Again. If you want. I think you're still chopping off just be the line generally, but I think everybody can hear it. See the transcript at the question was was basically the difference between this transaction and the marketed transaction and how we perceive. What was it again? Yep. Well, I mean effectively, you know, you took the opportunity to issue 6.2 million shares direct to 1 and social investor. That's well over 10% of your diluted share base. Even when you take it off the other forward to you about standing you didn't provide that same opportunity to all your other existing shareholders to maintain their effective ownership base guide. So I think most of the times you said she needs do smaller transactions direct either off their ATM or direct transaction. This was quite sizeable. And so how do you sort of balance off?

your relations with other shareholders

One single one. Yeah, I understood. I think I think context is important and then the details I think through the market at offering we did at the end of March also the ATM activity which is the majority comes through reversed in terms of aggregate dollars raised. I think shareholders have had have had hopefully significant opportunities plus buying in the open market to establish positions. That's why I am too. I would point out with with this offering. I really look at at at it as one who was a unique opportunity was really a reopening of the last deal. It was double the amount of the last deal. We were actively looking giving the opportunity set. We thought it was the right thing to do. I will note that it was at a tighter discount frankly then the marketed deal and the net proceeds to the company were approximately 20% $0.20 higher on the phone and serious transaction, then the fully marketed deal. So it was a tighter discount with higher net proceeds to the company. And so we thought that made sense dead.

All constituents which were which were taking into account and then did you think about that that 87% so clearly you would have been at 100% in March at this point. I think that's what you effectively insinuated in the last comment so of that 13% that hasn't paid I guess what's your expectation as we go into May about how much of that thirteen percentage points will be deferred. So, I don't know if it's half that you're working on right now versus I don't know is it half that you expect to take the court and you know use your right under your leases just to give us some sense of where things stand overall.

So I think the best place to look for that the starting point is probably I believe was our March 19th, press release which outlined the for retail sectors that people considered at risk and then you have to really go through that Aggregates to approximately 10% If I'm not wrong clay clay, correct me and then you gotta go through there and and there's a lot of media reports out there physically public statements from some of these retailers. You have to go through and say what is the eventual outcome and that's when we'll have to put the 75% test now to them that clay reference, um, in terms of probability of paying some of those retailers that are in the news i e a large movie theater. I think people are going to have to really look at that test pretty pretty closely. And so the the entertainment retail portion the movie theater portion are the biggest the most significant pieces of those for us. I I think anticipation of May collage

Shouldn't versus April collection or a greater collection in May versus April. I'm not sure if that's the most probable outcome given their cash liquidity positions and what we read in the news, but I've got 13 percentage points of rent. You haven't collected. It sounds like the vast majority maybe up to ten percentage points. It's just not going to get paid because of the issues. We're a hundred basis points. Maybe you're working on deferrals. I'm just trying to get very specific in terms of how much you are actually working on on these different programs so that we can start thinking about the cash in back in the cash rents collected and your ability that under obligations. I know I I I fully understand it. It literally comes down to what do you what what does Dave & Buster's do we have three I mentioned one is under contract with $100,000 non-refundable deposit at our Title Company. I'm not sure if we'll we'll own it or not. That's all we have to walk away from a hundred thousand. What does yep?

Happens with David Busters. What else?

Frankly that's going to be subject to how quickly this virus dissipates. I'm just using them as an example. By the way how quickly this virus dissipates the reopening rate of states the return rate of customers off other Capital their Capital providers outside of landlords willingness cuz to willingness to briefly support them. I mean you could be looking at they did a recent financing. I'm just using a example then you take that through the movie theater space. I would tell you I don't think it's the full 10% Yuri reference in the release because I think a lot of those there is some opportunism in the restaurants about space which is very demanding as specifically the the fast food. I mean, they're drive-throughs and and windows we've had a couple of friends. We have a couple of fast food franchise. He's uh, I'll call it the big Whoppers not Mac Donald's but we have a couple of fast food franchises that did not pay their rent. We know they are open for drive-through and pick up they chose not to pay their rent. That is a choice they made they will be put off.

Call we anticipate that they will either pay their rent whether they pay May or not. We'll see that their choice. So it's it's hard because again, these are unilateral decisions to not pay their rent that are on our birthday parties that we can cajole and tell them what we're going to do and Telegraph the future. But at the end of the day, they gotta cut the checks send these age. It doesn't seem like from you're not working any statements in terms of production to fall deferrals are trying to get the 10 of that pay. It sounds like the deferral amount is pretty marginal in terms of how much you're working, right?

Yeah, we've given we've given 0 0 abatement. We will not give any abatements. They are all be any any deferral that we give will be amortized in to a every referral we have given or will give will be amortized into the rental rate and paid back over a quick. Especially subject to any credit conditions that we have. It will be paid back faster the higher credit quality. We would potentially look out a little bit longer. But again, we're talking months here not years and then and then but I'm I'm interested to see frankly myself with some of these retailers try to pull in May. We've got a lot of opportunities out there. Well, that's the thing. Yeah, right cuz you already you said that 33% of wage or something. Right? And I understand that some of that you feel is opportunistic ridiculous. I'm trying to understand is as we move into May is that 87% going to drop down to 175% off.

Just because of the number of tenants that have you know decided we paid our April but we're not going to pay May. I'm just trying to understand the direction of where you think I have to come out.

I think it's I I I I wish I fully could tell you I knew that answer. I think it will be up to those again up to those retailers decisions and up to Governor's opening states name and the the dissipation hopefully in the elimination of this virus, which I don't anticipate having frankly in mag. So but again, I understand I understand what you're trying to drive to I would like I'd like to drive to and get full visibility myself for us specifically, even our balance sheet and our liquidity profile. I would I would just need to shareholders to look past short-term cash-flow clay, you know claim mentioned the difference between f f o and a f f o and and you obviously understand that short-term cash-flow and tenants unwillingness to pay their contractual obligations versus the longer-term what's really going to happen here and in the longer term this portfolio and this balance sheet and the tenants that we own the realest.

State under are going to survive thrive what we have a little bit of minimal fall off.

Sure, maybe a movie theater operator doesn't make it but on a relative basis we come out big Winners, you know, okay. Thank you.

Thank you.

At this time, we are showing no further questions in the queue and this concludes our question-and-answer session at this time. I would like to turn the conference back over to Joey for any closing remarks.

Well, I think you everybody for joining us. Please stay safe. Good luck through the rest of earnings season. I appreciate your patience. I know that was a long call. Good luck to talk to you. Hopefully see you all soon. Bye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Thursday